By Noël Amenc, Professor of Finance, EDHEC Business School and Director, EDHEC-Risk Institute
It has become fashionable to blame the financial industry for its alleged role in the current crisis. It is certainly true that high-flying bankers, who often arrogantly flaunt their large bonuses and academic achievements, are the perfect scapegoats. However, with the facts at hand, this search for an ideal culprit is perhaps a bit too simple to be fair. In the present article, we review several issues over the past five years in which political expedience seems to have taken precedence over scientific facts.
Key ideas include:
- Hedge funds and the subprime crisis, or how to intervene when it’s too late
- The commodity derivatives market is beneficial for price stability
- Increasing banks’ capital requirements during the financial crisis is not a smart idea
- The poor idea of the short selling ban
- CDS market driving sovereign debt prices: the tail wagging the dog?
- A financial transaction tax will have no beneficial effect on the volatility of the financial markets and will increase the problems of the euro zone
Our remarks may seem to some to be a reaction to attacks that we consider to be unfounded, but, over and above the reaction, we would like to help both the decision-makers and the public understand that choosing a strategy of scapegoats (who are not necessarily always innocent but not guilty all the time either!) contains a first-order risk, which is that of not asking the right questions about the crisis, and about the sustainability of the social and economic models of mature economies.
France, in its history, has often favoured these scapegoat strategies in order to avoid having to ask the right questions. This strategy of avoidance is probably the true enemy of the country. Rather than believing they are enslaved or threatened by Finance, the French people would be better off fearing false truths, fleeing semantic facility instead of reasoning, and giving up beliefs that hide the facts.
The biggest danger that Finance poses for France is that it constitutes the most effective pretext for not asking the right question, that of a thorough reform of our “real” economy! If France wishes to remain a credible country in Europe and in the world, it has to behave in a credible manner and avoid using the denial of economic and social realities as a differentiation strategy…