Mike Vickers' Blog

October 30, 2016

The Big Bang 30 years ago: The unintended consequences of deregulation and its role on broken Capitalism

Filed under: Corporates, economics, Politics — derryvickers @ 10:38 pm

A Seminar  at the David Hume Institute on 27 October 2016
Given by Philip Auger and support from Hamish Buchan and Sir Tim Nobel with Owen Kelly in the Chair.

Some of the points that Philip Auger made that got to me were:

  1. The Labour Government of 1974-5 saw the Stock Exchange as a closed shop but it remained until 1983 – 86 Tory Government to do much about it and on 27th October 1986 they kick off the Big Bang
  2. The trading floor disappeared along with Jobbers and Brokers and their tasks were largely replaced by on-line technology. And with them a network of trust and confidentiality. TN later illustrated this when a large Organisation indicated a desire to sell its shares but before they had a chance to do so the market was forewarned and the share price had already fallen.
  3. During the next ten years UK indigenous firms failed and were quickly swallowed up by big US Firms who moved in and brought in the US ways of doing business.
  4. The City flourished and during the Blair years the City could do no wrong.
    1. The City’s advantages were: The Greenwich Time Zone, the UK Legal System and the UK speaks English.
  5. But what suffered during these years was the fact that the Stock Exchange was no longer small, there had been trust and shares were for life and as stated above dealings were confidential. The Stock Exchange had been a ‘cottage industry – now no more.   Technology allowed share trading to become transactional – the personal touch just disappeared.
  6. A major consequence was that trading became just for profit and the more trading the better the profit. The Stock Exchange became a ‘casino’ with the Devil take the hindmost. Greed set in
  7. And Greed spread to the Companies whose shares were traded: not just the CEOs but Greed permeated downwards.
  8. And as the South East is permeated by the Finance Business so Greed has spread to all. PA considered the same is true in Edinburgh. A couple of speakers mentioned John Kay’s book ‘Other People’s Money’.
  9. The Finance industry has grown to such an extent that there is now more Sales Men than Clients!
  10. To Questions the Panel answered
    1. PA believes the City will get a special deal on passporting following UK leaving the EU
    2. But Finance will inevitably move towards Europe – it has already started to happen.
    3. Edinburgh is already getting smaller with the loss of two major banks
    4. Nevertheless PA considered that the City will carve out a new role for itself; but it is essential that there is no race to the bottom
    5. PA had worked with David Davis and he believed the Davis would be a shrewd negotiator for the UK; he was also sympathetic towards Theresa May.
    6. Have the Banks learned anything from the Crash? Well not much. Some form of bonus mechanism is essential in a Capitalist World but this should be based on Customer Satisfaction rather than forced selling at the counter. The key will be ‘The Reputation of the House’.
    7. PA considered that Banks must get back to service and living with modest profits between 5 – 8%.
    8. HB related to the Stewart Ivory scheme for providing education on Finance to sixth forms but this can only go so far as it is not yet an examinable subject and the scheme can only provide 100 mins per school.
    9. As to the Stock Exchange – its role as an all embracing centre for trading is declining; large business can trade amongst themselves; but TM considered that medium sized start-ups do need a source of capital and the Exchange can provide the mechanism. The Stock Exchange also provides an index of market value.
    10. PA wondered whether the merge between the London Stock Exchange and Deutsch Bank will still go ahead?
    11. More generally Companies should consider broadening their raison d’etre and be willing to expand their boards to include staff and customers and I would add union reps as Germany. The 2006 Companies Act goes some way but he expects a Green Paper soon. But he noted that the CBI is not in favour of expanding Board membership in this way.
  11. PA summed up as ‘the Big Bang led to ‘greed, growth and gambling’

It was a good evening but I came away without a clear understanding as to ‘Broken Capitalism’ and what is the future. Capitalism can’t just be broken because of ‘Greed’ and, as is oft repeated, Capitalism is much better than Communism.

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