Obedience in Finance – an Anachronism?

After a long hiatus, welcome back to the blog! Its the first day of proper sunshine in official summertime (for what that may be here in rainy southern England) so what a perfect opportunity to resume the intermittant flow of commentary, diatribe and general musings from MrFinancePlan.

To begin this entry, i would like to proudly introduce the latest member of the team below… :-)


Cassie the Puppy

My in-laws have recently obtained the above bundle of puppy joy (10 weeks old today), who has provided copious amounts of entertainment as she rapidly grows. As the above video shows, the journey from a bouncy cannon ball to obedience has been extremely rapid. This got me to thinking on something;

We have all seen the affects of the over-exuberance of some in the finance industry. Whether it’s failures of certain structured investment products or failures in the courts of certain exotic tax schemes, the lack of obedience to regulations on the part of the architects when rules are actually broken often leads to painful outcomes for the unwary, usualy unadvised or poorly-advised investor.

However, those instances of direct disobedience to the rules – although painful – are thankfully rare. Although the media would like to paint otherwise, if nothing else the majority of the finance community do play by the rules. The problem is with the rules.

“Poppycock” I hear you say! “What about the chaos we find ourselves in?”

Think of the puppy; without clear, direct instructions it will just play with the toy as it sees fit. The same applies to modern global finance: it is important not to forget that the west has chosen a system of democratic capitalist regulation which in simple terms works thus:

– The people elect their representatives to govern;

– These representatives frame law;

– The judiciary interpret its application;

– The people (including finance professionals) do their best to adhere to the law, which is clarified on the ground and enforced by the police.

Unfortunately, for finance in the main, western powers have decided that an additional element is needed – a “regulator”. Such regulators, for example the FCA in the UK, sit in a democratic “no mans land”.

Technically their accountability is to the representatives but in reality these regulators have been left to function autonomously, acting as both judiciary and police force.

The key point is this; in a democracy, it is the people who elect the representatives who setup such a system, effectively a form of partial dictatorship. In such a system, which the people have permitted, you are relying upon the competence of the “dictators” rather than the collective will of the people.

Think of country systems who have done the above, typically where the military have acted in both roles. What tends to happen? Token adherence to rules which are made successively more and more complicated by each flavour of military leadership in place at the time. Does anyone adhere to the “spirit” of the law, or do they focus on the letter because they feel they have no input into the framework of law?

Of course, such a system has the advantage of being efficient and quick to respond – where no true consultation is required, decisions are much quicker to achieve.

MrFinancePlan is strictly apolitical, so this comparison does not seek to elevate one system over another (indeed, globally all such systems seem to fail citizens to one degree or another) however I do seek to blow a hole through rank hypocrisy.

We cannot seek to simply blame the puppy when we have allowed a system to flourish where rules are varied, complex and dictated by the few. What did the electorate (of which MrFinancePlan is not a part, to maintain his independence) expect to happen? It may be convenient to blame “evil bankers”, but far less palatable to recognise that a voter has supported the construction of such a system.

Advisers who were students of history may not of been able to predict when it would all go wrong, but they were able to know that it certainly would. Its simple, run either system; repatriation of responsibility to representatives and the judiciary, or accept the benefits (speed, economic innovation, wealth) of the alternative dictatorship policy but we have to also accept the risks when it goes wrong.

It seems the majority of developed economies in the west are opting for the latter; replacing one set of three letters in the UK with two sets of three letters doesn’t change the reality of what has been setup; a mandated autocracy: let’s hope its better than the last!

I of course don’t particularly mind which, it just introduces a seperate set of client risks, carefully calculated and made provision for. Its all happened before!

Until next time and further puppy updates.

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