Finance: Past, Present and Future

Following on from an earlier post on investment banking, below is a lecture by Nobel laureate Robert Shiller on Investment Banking.

The Bank of England in their recent Quarterly Bulletin have a great primer on investment banking which should be read by anyone who wants to understand modern finance - click here . The article explains the role played by investment banks, the systemic financial stability issues posed by them, and the role of the regulatory authorities in addressing these systemic stability issues. A video interview with the article's author is below.

TopGear is one of the BBC's top export franchises. Its successful format involves three grown men talking about cars and engaging in college-like antics with cars. Jeremy Clarkson , the lead presenter, is brilliant at his job, but he is often a controversial character. Recently he was suspended by the BBC for punching a producer - story here .  The Mumbling and Stumbling Blog has a fantastic post which compares central banking and Jeremy Clarkson - click here . The key issue for central banks is whether they should obey rules or be given discretion. This is also the key issue for Jeremy Clarkson - should he be given discretion to punch people or a rule 'don't punch people'? If it is the latter, Stumbling and Mumbling point out that he would have never have hit Piers Morgan, which would be a sub-optimal outcome! Rules for central banks can also produce sub-optimal outcomes.

Source: MBACentral.org  - thanks to Chrissy Gomez for passing this on.

Along with three of my colleagues, I have paper on ownership and control in the Victorian era forthcoming in the Economic History Review . The   QUCEH working paper version of the paper is available here . In this paper, we find that corporate ownership was much more diffuse in the Victorian era than previously believed. The paper's abstract is below: Using ownership and control data for 890 firm-years, this paper examines the concentration of capital and voting rights in British companies in the second half of the nineteenth century.  We find that both capital and voting rights were diffuse by modern-day standards. However, this does not necessarily mean that there was a modern-style separation of ownership from control in Victorian Britain.  One major implication of our findings is  that diffuse ownership was present in the UK much earlier than previously thought, and given that it occurred in an era with weak shareholder protection law, it somewhat undermine...

In my previous post, we briefly discussed the separation of ownership from control in the sense that the controllers (managers) of a company are not its owners. However, what if a nation sells off it public and private assets to overseas companies? This has been happening at an alarming rate in the UK according to Will Hutton in this Guardian op-ed . One of the problems for Hutton is that British companies cannot compete with their global rivals because "the enemy of enterprise is the unowned, purposeless British company in thrall to myriad uncommitted, myopic shareholders". According to Hutton, Tata and BMW are successful "because they are family-controlled with long-term, committed owners who have a clear vision and purpose".

Questions about ownership and control occupy a lot of my cognitive energy. They are also important questions within finance, law, management, and economics. Is separating ownership and control a good idea? Most of modern finance is premised on the idea that it is a bad idea and that the resultant agency problem needs addressed using all sorts of incentives. However, Colin Mayer in Firm Commitment suggests that separating ownership from control may have been a helpful innovation in the evolution of the corporation in that third parties are more likely to enter commitments and contracts with firms which don't have a dominant owner. Along with two co-authors I argue in this article that the ability to separate ownership from control is one of the rationales for the corporation.

Why has China become so successful? Will it continue to thrive or will it wain? Why do empires rise and fall? Below is a fascinating debate on the rise and decline of nations and civilisations between three top scholars  - Jared Diamond , Niall Ferguson and James Robinson .

Francesco D'Acunto, Marcel Propopczuk and Michael Weber have a paper which looks at how persecution of Jews in the past affects stock-market participation in the present. Their paper is here and the VOX column on their article is here . The abstract of their paper is as follows: We look at the geography of historical Jewish persecution to proxy for localized distrust in finance. Households in German counties where Jewish persecution was one standard deviation higher are 7.5% to 12% less likely to invest in stocks. The results hold when comparing only geographically close counties, and counties that hosted documented Jewish communities in the distant past. Current antisemitism, discriminatory beliefs, generalized trust, or supply-side forces do not explain the effect, which instead is consistent with a norm of distrust in finance, transmitted across generations. The forced migrations of Jewish communities across the German lands in the Middle Ages help assess if the effect...

Below is a fascinating conversation on central banking between the stellar line-up of  Charles Goodhart , Alan Budd and Mervyn King .