Paul Woolley has had a varied life in the financial and economic worlds. He started as a stockbroker, became an academic (economist), rose up the ranks at the IMF, went into banking (as a board member), and then became a key player in GMO, the well respected fund manager. And now he's back in academia as the funder, founder and director of the Centre for Market Dysfunctionality at LSE.
The Centre's name is a good clue as to what he thinks! His hard-hitting talk yesterday was certainly contrarian and whilst many traditionalists wouldn’t agree with everything he said, few would say he was ill-informed and didn’t understand things from the inside. Here's one quote to illustrate:
‘Economic theory and received wisdom have brainwashed everyone into believing that capital markets are efficient, that prices are always right, capital markets are self-stabilizing and competition keeps banks and financial firms from earning abnormal profits The reality is very different. The finance industry is performing its utilitarian task of channelling savings into real investment badly and at punitive cost. And as soon as profits disappear, bail-outs are needed.’
Like other influential commentators, he is calling on the large asset owners to take dramatic action and he is also pushing for some "nudge" regulatory actions to make sure this shift happens quickly. And he isn't shy about explaining the consequences of failure: ‘Unless action is taken quickly along these lines, the next crisis will spell the end of capitalism as we know it’.
You can listen to the speech as a pod cast http://www.lse.ac.uk/resources/podcasts/publicLecturesAndEvents.htm#generated-subheading1
If you find this analysis convincing, please pass it on to any individuals you know at such asset owners and if they are willing, get their feedback.
NSFMers could perhaps play an interesting role in tracking, as a public good, whether and how asset owner demand actually changes. And if you have ideas about how to make such a collaborative and open-source project work in practice, let us know at email@example.com