Professor Michael Mainelli  discusses financial scandals, past and future

Gresham College Lectures.

What the Dickens?
The City’s Great Financial Scandals,
Past and Future

Professor Michael Mainelli

Extracts:

• The litany of great financial scandals is long, and sadly unending.  Dickens himself covers scandals we would recognise today in Little Dorrit and Nicholas Nickleby.  Beyond Dickens, the South Sea Bubble (of course), railway shares, bonds in newly independent countries (Kingdom of Poyais), never again… IOS, Saavundra, Rolls Razor, Bank of Gibraltar, BCCI, never again… endowment mortgages, Barlow Clowes, Equitable Life, Maxwell, Lloyd’s names, Lehman Brothers, payment protection insurance, never again… This symposium seeks, through the ghosts of scandals past, present and future, to see what lessons we can learn and to assess which is rosier, the future of finance or of financial scandals.

• And since we put this symposium in the programme, LIBOR and mis-sold interest rate swaps. The global financial crises since 2007 seem to regurgitate numerous scandals. Just our domestic UK financial market manages to thrust a new scandal into the limelight every six months.  …
• Galbraith believed that, “Far more important than the rate of interest and the supply of credit is the mood. Speculation on a large scale requires a pervasive sense of confidence and optimism and conviction that ordinary people were meant to be rich. People must also have faith in the good intentions and even in the benevolence of others, for it is by the agency of others that they will get rich.”
•  You say your shares are an investment; I say I can’t tell the difference from gambling. Perhaps horse race gamblers love the fact that their efforts result in investment in courses and bloodstock. Your intention matters, sure, but only you know them.   
• The Swedish, Dutch and British East India Companies all intertwined with bank scandals, the collapse of Bank of Amsterdam in 1770, the Bank of Ayr in the UK in 1772, etc. Some would argue that all systemic financial scandals are the result of a general loss of confidence in banks and debt. In the end, it’s about confidence in cash. Since the creation of central banks in the 1600’s, governments hold very special monopolies on fiat currency. Certainly over the past 400 years the very biggest scandals have been associated with some form of credit bubble. Or are credit bubbles themselves the scandals. Is there a classification of oligopoly scandals – lots of private sector abuses in rigged energy or commodity or import or investment markets, and a few mega-monopoly scandals where governments abuse the whole monetary system?
• So today, perhaps you can reflect on motive, means and opportunity and whether the two conditions of for great scandals are speculative bubbles and government-created credit bubbles.

Full transcript for “What the Dickens? The City’s Great Financial Scandals, Past and Future”