Going, Going, Gone*

About 17 or 18 years ago found myself bidding against an antiques dealer at a local auction for a near perfect set of 10 Minton's Aesops fables tiles (c 1875). We were, apparently, the only two people in the room who recognised their value, loose in a box of bric-a-brac amid all the rest of the house clearance junk. I was there to fill my new, larger house on an almost non-existent budget and the dealer was there, presumably, either by chance or having received word of the tiles. I can't even remember why or how I recognised the small glazed squares as exceptional but rooting through reclamation yards was once a hobby of mine and I'd picked up an idea here and there.

I bid the tiles up to £70 which was my estimate of what I could spend on a set of old tiles without driving my husband to leave home and then regretfully watched them slip into the monied clutches of the dealer. I was bidding about a tenth of their value, he got them by spending only slightly more (and might have got them for a great deal less if I hadn't chanced to be there).

If I have a passionate story about "The One That Got Away", this is it. Lost human loves there have also been (of course), but it has never occurred to me that I might have kept a good man with just another £50 well-spent. Love's endings have always felt pretty definitive. Tiles, on the other hand....oh, what only might have been!

Perhaps that is why the.story resonates so deeply with me--the universal human experience of something lost forever that might have been saved with a little more effort--but I like to think that it has enduring heuristic power, too. After all, what better allegory could there be for all that stuff that we're taught about the money markets: people keeping cash in current accounts, "just in case", when it could be earning interest elsewhere. The tangible sense of illiquidity-risk-writ-large has stayed with me ever since.

Of course, what I really needed was bridging finance and an efficient market in antique tiles. If I'd borrowed money to buy the tiles before selling them on to repay the loan, I would still have lost the tiles but I'd have been better off overall. As it was, I had neither and so I lost the opportunity to improve my lot. Perhaps that's illustrative of how ordinary people like me feel more broadly about money, markets and innovation. Traditional finance, weighed down, as it is, by credit checks and AML now feels condescending, exclusionary and unhelpful. There's an Old Guard running things who tell us that we can't have money--or we have to pay exorbitant fees and transaction costs to get it--but they're part of the same group that's driving up asset values and probably grocery prices, too. Innovations like e-money, POS BNPL, crowdfunding and tokenisation seem like they might help but the people in charge keep warning us about the dangers, while doing very little to regulate the industry and mitigate the risk. You know you're in the midst of some serious upper class group-think when the one thing that might help is "too risky" for the Average Joe, regulation is off the table because it would "retard innovation", technological innovation is part of a "diversified asset portfolio" and asset portfolios are being pumped "for the common good". Meanwhile, people who do know how to feed a family on less than £100pw are being told by a governing class who have absolutely no idea, that they're too "irresponsible" to have access to cheap, safe credit, let alone a profitable opportunity to arbitrage the local auction house and move on up. Frankly, to those who aren't spending their days wondering how to minimise capital gains tax, the game seems badly rigged. No one should be surprised when stimulus cheques end up invested in marginal cryptocurrencies and NFTs. This is how the seeds of a financial crisis are sown.

Ehem, *composes self*. So, yes, there's that. But, wait, there's more...

Remember the Dealer? He seemed so incongruous in that place: purposeful, self-contained, set apart. Was he there by contrivance? It's not too hard to imagine that he had an informant on the inside--an auction house handler, perhaps, who spotted a little Victorian gem hidden away under those old K-Tel cassette tapes and decided to phone a friend in return for a share of the profits, rather than raise it with his employer. What would we call that? Tipping off? Backhanders? Bribery?

I've spent the best part of seven or eight years thinking earnestly about financial responsibility and conflicts of interest. When I started, I was particularly interested in conflicts of duties, which I assumed to be the most pressing problem. My eventual conclusion, however, was that when we talk about conflicts of interest it's often just a euphemism for something shadier.

*Ehem* I'm here to declare a potential conflict of interests. I'm interested in doing my job here as a regulator to the best of my ability but I'm also interested in accepting a large sum of money in an offshore account to sideline the Ponzi scheme investigation. I'd be grateful if you'd consider my request to waive this potential conflict so that I can do both. *bright smile*

I guess that's part of a civil public discourse. We tend to avoid accusations of bribery and/or market manipulation in the way that we tend to avoid screaming "Liar!" when someone claims that they are "paying $200 more a week in mayonnaise”. We use a euphemism like "inaccurate" instead. Or, we express skepticism in a polite question: "Really?" Quite often when we say "is there a conflict of interests?" we know or suspect that someone is deliberately taking advantage of illicit incentives but we hesitate to say it--especially in the rarified atmosphere of high finance. An auction house handler tipping off a dealer may be "on the take", but an asset manager channelling investors' money into his new chums' precarious projects after lavish dinners, private plane trips and introductions to high society is "talented" at best and "conflicted" at worst. Maybe all this mealy mouthed talk starts with the noble motive of giving someone the benefit of the doubt and wanting to avoid unnecessary character assassination but where it ends up, if we're not careful, is more defended group think, an uneven playing field and exercises in self-justification that fail to convince anyone outside an insular financial elite.

And, speaking of group think... sometimes that really is the issue. I think it unlikely, for example, that a central bank general counsel would be the right person to hold a central bank governor to account under an internal code of conduct for this very reason. GCs are both too immersed in the central bank's culture of 🎵You can't touch this🎵** around reputational risk--it's a "financial stability" issue, y'know--and too little immersed in the study of monetary policy and market dynamics to be the right person for the job.

Sometimes, however, phrases like"group think" are just euphemisms for collusion and/or collective recklessness. Ditto, I suppose, the "religious faith" at AIG Financial Products in Spring 2008:

They just took it on religious faith that they faced no market risk

Yeah, right. AIGFP derivatives traders had never heard of market risk and the idea that Goldman Sachs might have been keen to...y'know, do something about counterparty credit risk, simply never occurred to them.

Where did all those guys end up, by the way?

And, while we're on the topic of credit default swaps (CDS), the real merit in my sad tale of lost tiles is that it reminds us of how auctions that seem transparent and competitive can be anything but. Market participants look for "creative" ways to influence the auction that takes place after a credit event and sometimes, undoubtedly, they succeed. But at least an auction has the form and structure of a competitive process.

D'ya know, I once spent a couple of months in 2015 trying to explain to one of those AIGFP guys that the system for dealing with massive market failures wouldn't actually work any better if swaps dealers just sat around and agreed the new prices among themselves collaboratively? He never got it.

True story.

* Songwriters: Bob Dylan. Going, Going, Gone lyrics © Universal Tunes

** Songwriters: Rick James / Alonzo H Miller / M C Hammer. U Can’t Touch This lyrics © Jobete Music Co. Inc., Bust It Publishing, Stone Diamond Music Corp.