Emotions in Finance: Distrust and Uncertainty in Global Markets|
by Jocelyn Pixley
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|A Review of: Emotions in Finance:Distrust and Uncertainty in Global Markets
by Christopher Ondaatje
Jocelyn Pixley's slender volume Emotions in Finance states in its
opening paragraph that "money is based on a trust," and
she goes on to say that trust "is inherently problematic."
She then issues a warning that the world's money is less secure
than we like to think.
Pixley, a Senior Lecturer in the School of Sociology and Anthropology
in the University of New South Wales, Australia, argues that money
is not tangible but a promise based on rarely-examined premises:
"Since the idea of money as a promise' is counterintuitive,
going against the every day experience of its tangibility in our
hands and wallets, most critics neglect the implied promise that
money entails and so leave unexamined the trust on which it
rests." And that promise is, primarily, government debt.
In the era of Bretton Woods (1944), gold standards, fixed currency
interconvertibility, and the Glass-Steagall Act (which separated
commercial and investment banking in America) money was sounder
than today, but in 1971 President Nixon floated the dollar, in 1975
competitive regulations replaced control-type restrictive practices
on the New York Stork Exchange, in 1986 London followed with the
Big Bang, and in 1998 Glass-Steagall was rescinded. Since then the
risk inherent to all money trades has increased, and concomitantly
" distrust and sometimes fear inspires all financial action,"
as well as inspiring the title of this book.
With seven trillion dollars in the world today (most of which exist
electronically), and with capital markets so erratic and herd-like,
the basis of the world's money is unclear. Pixley complains,
however, that instead of the caution that is proper to such a
situation, our era is driven by a utopian assumption that we will
all continue to get richer and that we can increasingly de-risk the
future. Although she does not quote him, she suggests that such a
panglossian vision is not too different from Irving Fisher's in
1929 when he said that "stocks seem to have reached a permanently
high plateau." Pixley correctly fears another meltdown as
market players increasingly lose their trust in American monetary
Even worse, Pixley worries that the instruments the market has
generated to increase trust have themselves been counterproductive.
So, for example, share options were introduced to align the interests
of managers with shareholders, but they have simply introduced
recklessness. That is because managers need not take up their
options, but they can be rewarded with big pay-offs if they fail,
so they are encouraged into absurd risk-taking because they personally
gain most if their companies either succeed or fail spectacularly.
It could also be argued that the modern trend to empower non-executive
directors (which is based on the mistrust of the executive directors)
simply empowers non-experts to take decisions in fields of which
they are ignorant.
The word credit derives from the Latin credito, to trust, and in
this book Pixley interviews a host of authoritative bankers and
other financial players in the United States, UK and Australia to
determine how we reached our current but dangerous position. But
there is a gap in this book. Nowhere is it made very clear what
Pixley's prescriptions for a safer future are. So, for example,
she laments the passing of an era when a trader's word was his bond
because he knew everybody with whom he traded, but she does not
argue that the days of impersonal trust should now be reversed.
She laments the loss of regulations, but new regulations such as
Sarbanes-Oxley have now actually been introduced, although in my
opinion they do not go far enough. She does not comment on this,
and indeed Sarbanes-Oxley does not appear in the Index and does not
appear to be mentioned in the text. Further, if the core problem
at the heart of the financial nexus is inappropriate government
debt, then that problem needs quantifying.
But perhaps that criticism is not fully just. Pixley works in a
department of sociology and anthropology, so she can be forgiven
for simply chronicling, through her interviews, the succession of
stratagems markets generate as they search, fruitlessly, to reduce
risk and foster trust in an inherently risky and dubious world. As
a chronicle of shared financial anxieties, written as an observer
from an alien world, this is an excellent book. For a solution,
we will need to look to other writers.