Financial markets and derivatives authority Janet Tavakoli returns to the podcast to discuss a number of the themes contained in her new book Decisions: Life And Death On Wall Street.



janet-tavakoliShe paints a particularly informative timeline of the greed and rot that has come to dominate the modern financial system, and how its tentacles have fully penetrated and subjugated the halls of power in Washington DC.

We’re in precarious times for sure. What we have done is unprecedented in the history of the United States. We got rid of the benchmark, the gold standard. We don’t have any any stable benchmark anymore. Instead, we have currencies that are being benchmarked off of each other.

[drizzle]If you’re measuring your weight you want a scale, right? You want an actual measurement of weight, not a relative one. You don’t want to be comparing yourself a bunch of obese guys in the gym. You need a standard benchmark. So once you get rid of the benchmark, then you can eat whatever you want and exercise as little as you choose that’s okay. Well it is not okay. We all know that. But that’s exactly what we’ve done in finance. We’re printing money like mad. We’ve created a huge distortion where, for years, savers have gotten negative real interest rates. Negative real interest rates in the Untied States for a long, long period of time, and in Europe we now have sovereigns of course who are paying both negative nominal and negative real interest rates.

This is unprecedented in the history of finance. I talked to a retired head of the Chicago Fed (so I’ve probably narrowed the field because I don’t know how many of them are still living) and he said None of us knows what is going on. We’ve never done anything like this before. They don’t know what the end game is. They’re totally at sea and it’s their own fault because they got rid of our scale. They got rid of our own benchmarks, and they’re trying to muddle through without having any way of measuring what we are doing.

But not all of her message is gloom. She explains how the battle between corruption and fairness is cyclical; and that history has plenty of examples where a just band of concerned agents can (over time) “kick the bums out”:

Henry Kluz was somebody who saw communists in his time try the same kind of ideological subversion that we are seeing right now in the United States and they failed because there were a lot of people to push back. But he also saw people try to crash the markets when Grant was running against Horace Greeley. And he formed a group of 70 men that he got together to oppose Tammany Hall. Tammany Hall controlled New York. They – they were very corrupt. They had a lock on it. They paid off hired sons, daughters, relative of other politicians. They were getting the votes. And Henry Kluz was a financier. He was born in Britain. And he observed these people and he said, you know, none of these people really like each other. They’re not bound together by blood. They’re not bound together by friendship or even by a common ideology. All these people care about is making money and paying off their friends in power. That’s all. Other than that, none of these people had each other’s back. And he said We can defeat them. And so his group of 70 overthrew the Tweed Ring. One by one, they knocked the pillars out from under these guys. It took a while, but they did it.

It was just people who were fed up with the corruption. Kluz did it in his time. It can be done. It’s not easy, but people who really have an idea of what the country should look like can defeat people who have inveigled themselves into the system and corrupted it. Now we see the same thing in finance. I have a group of friends who are appalled at what has happened in the financial system. But their voices have been pretty well silenced. They didn’t use garrotes or daggers to the throat or shoot them in the chest (at least not in most cases), but they have silenced them by squelching them from the public view – at least for now.

So I do encourage people to read the histories of finance and to see that nothing has really changed. But things can change and this isn’t the first time we’ve had to fight this battle.

Click the play button below to listen to Chris’ interview with Janet Tavakoli (72m:22s).