Behavioural finance

28 February, 2017 at 17:00 | Posted in Economics | 4 Comments

To-day, in many parts of the world, it is the serious embarrassment of the banks which is the cause of our gravest concern …

[The banks] stand between the real borrower and the real lender. They have given their guarantee to the real lender; and this guarantee is only good if the money value of the asset belonging to the real borrower is worth the money which has been advanced on it.

It is for this reason that a decline in money values so severe as that which we are now experiencing threatens the solidity of the whole financial structure. Banks and bankers are by nature blind. They have not seen what was coming. Some of them … employ so-called “economists” who tell us even to-day that our troubles are due to the fact that the prices of some commodities and some services have not yet fallen enough, regardless of what should be the obvious fact that their cure, if it could be realised, would be a menace to the solvency of their institution. A “sound” banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.

But to-day they are beginning at last to take notice. In many countries bankers are becoming unpleasantly aware of the fact that, when their customers’ margins have run off, they are themselves “on margin” …

The present signs suggest that the bankers of the world are bent on suicide. At every stage they have been unwilling to adopt a sufficiently drastic remedy. And by now matters have been allowed to go so far that it has become extraordinarily difficult to find any way out.

It is necessarily part of the business of a banker to maintain appearances and to profess a conventional respectability which is more than human. Lifelong practices of this kind make them the most romantic and the least realistic of men. It is so much their stock-in-trade that their position should not be questioned, that they do not even question it themselves until it is too late. Like the honest citizens they are, they feel a proper indignation at the perils of the wicked world in which they live,—when the perils mature; but they do not foresee them. A Bankers’ Conspiracy! The idea is absurd! I only wish there were one! So, if they are saved, it will be, I expect, in their own despite.

John Maynard Keynes, Essays in Persuasion, 1931

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4 Comments »

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  1. Behavior is getting irrelevant to banking soon. I can’t remember the last time I had a human interaction with someone working ina bank. What does humans do in banks? Since all things av crucial importance to society are done from my home via a software. The banks have developed a software which is fully capable of replacing all vital funktions a bank fill for society.

    I think we should use that very software to replace them.

    Because it sure looks like humans within the banking system are up to no good. It sure looks like high jinks and corruption is the human function in banks, to the outside observer.

    • But Martin, the software has been designed to bankers’ specifications!

  2. As long as we are led to believe that a bank lends money into existence and not that it has to borrow the money first, then anything they tell us about how banks work is immediately suspect. The reason why I take this attitde is because my understanding is based on principles of logic. But so much of our modern money statements are illogical and unproved by the use use of a logical train of thought that it is in fact these words which are made to appear out of thin air, and not the money itself!

  3. Yes behaviour! UK’s RBS, one time the biggest bank in the world, is 72% owned by the UK goverment after a £45bn bailout 2008/9. It has not only destroyed 10’s of thousands of jobs but has posted multi-billion pound losses every year since (totalling £50bn to date) all of which is attributable to decisions or negligence by the original management lead by Fred Goodwin. Apart from him losing his knighthood no one has suffered any penalty. No wonder some bankers think they can walk on water. These financial institutions should have powerful and intimidating external accountabilities but better still public ownership to create exemplar banks run in the national interest.


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