Francis Fukuyama on the Financial Crisis – a waster opportunity to reform..

People need to keep following for some superb interviews. It should be in the favorites list or just subscribe to their email list. The best part about these interviews is you get to know about new books (as each person is asked to pick up five books) and then the broad research/thought process of the specialist.

The latest in the interview list is Francis Fukuyama, leading scholar on international polity speaking on the financial crisis. His choice of five books are pretty well-known barring the FCIC report.

The main point by Fukuyama is the crisis was a great reason to fix many issues with the current state of affairs. However, it has been terribly wasted:

Yes – while nobody wants to have a crisis, it does serve as an opportunity for reform. I would say that one of the big tragedies is that in many respects this was a completely wasted crisis. It wasn’t deep enough. No one wants a crisis on the scale of the Great Depression, but because policymakers acted quickly to put a floor under the collapse of the system, a lot of the political actors were able to shake off the implications of the crisis. That really comes through in the dissenting Republican view of the Financial Crisis Inquiry Commission Report – to pretend, in a way, that nothing actually happened that would undermine a belief in the self-regulating nature of markets

There is a lot of criticism on Wall Street  and how it has managed to run and shape the economic policy for a while. To the interviewer fin cos are more secretive than Chinese companies as you cannot figure what is going on:

I’ve never been a fan of Wall Street, which I covered as a financial journalist and found considerably more secretive than the Chinese companies I followed as a reporter in Shanghai. In the case of Goldman Sachs, I remember even having a hard time finding out who their head of international equity was, as if this was some sort of big secret. However, I also know quite a few people who have worked there, and I find the idea of systematic fraud hard to buy.

It depends what you mean by systematic. Lloyd Blankfein doesn’t get up in the morning and say, “OK. How are we going to defraud people today?” but I do think the relationship of these banks to social rules is fairly dodgy. Rules are viewed as potential obstacles that you try to get around if that maximises your profit. This is a deeper social issue that I think has to do with the economisation of a lot of thinking. Economists have this model of rational utility maximisation – that social benefit comes out of everybody pursuing their private rational self-interest. This has shaded over – imperceptibly over the past couple of generations – to a downplaying of social norms as constraints on behaviour. You see this in a number of places. In business schools, for example. Back in the 1960s and 70s, business schools regarded themselves as professional schools along the lines of law schools or architecture schools. They were meant to inculcate a certain sense of professional responsibility, that you have obligations to society at large. But as a result of the economisation of a lot of what was taught in these schools, individual profit maximisation began to displace this normative sense, and this spilled over into the behaviour of the people who went on from these programmes into the financial sector. In their minds, they weren’t deliberately trying to defraud people, but if they saw an opportunity to take advantage of less sophisticated buyers of subprime mortgages, they would go ahead and do it.

It is all about money, honey. Education these days only means the placement process. In US atleast there is still some research, in India it is only placements which counts..

He speaks on China’s fiscal stimulus, need for political reform, why breaking up banks is the only solution etc etc.

Superb stuff. Always interesting to read different perspectives on the crisis. This crisis is a mix of many perspectives that you need more and more of them. Hope to read more on…



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