Book Of The Week: Revolutionary message - purge the old capitalists
Wednesday 14 July 1999
By Patrick Young and Thomas Theys (FT Prentice Hall, pounds 21.99)
IT PERHAPS should have been called The Rough Guide To Jericho. This is not a subtle piece of writing that gently persuades one of the need to change. Rather, it very effectively screams with all the compelling audacity of an Israelite trumpet, for the destruction of those traditional City walls .
I am sure those involved in the minutiae of capital markets around the globe may regard elements of this book as being too thin, and lacking the focused detail of reasoned argument. But that would be to miss the point of it. I believe the authors have written a stiletto with which to pierce the pomposity of the financial services industry.
This book - subtitled The Future of Markets in an Online World - is aimed primarily at the capitalist markets, but in true Maoist terms, stands accusing the capitalists of revisionism. This book is a call for the purging of the old capitalists and their replacement with free markets and freer capitalism.
Despite coming from the technical world of derivatives and structured corporate finance, this book succinctly in 200 pages outlines the clear reasons why some of the main pillars of our industry are probably doomed. The financial world has always suffered an immense ego that supported its air of self-importance. This is beautifully reflected in the arcane and even childlike language used in broking and trading that sometimes bears more resemblance to an episode with David Attenborough with all the Bulls, Bears, and Vulture Funds.
Recently I set out to prove the idiocy of some of this language, and probably myself. I came up with a new investment animal to see if it really was possible to fool the system. The "Armadillo" was thus to be a term to describe a "heavily scaled-back new issue". Of course, there is no such term but it took only eight weeks for an enthusiastic new issue house to ask whether their particular offering might become such an "Armadillo".
With the recent proposals for linking some European stock exchanges, this book highlights in a timely manner the inefficiencies of such smaller markets, and rightly questions whether they have a future. Some of these markets behave like left-over princelings from the Holy Roman Empire giving themselves the airs and graces of national institutions that need to be there as a right. The future is clear for them - evolve or die.
Closer to home, we know the pretensions certain City elements like to give themselves. The "old" Stock Exchange pre Big Bang, was probably a cartel, but we shall never know because the OFT never had the opportunity to investigate, and the Exchange initiated its own changes. So compare our market with then. Most things were fixed, the numbers of brokers, except those who were hammered (and that was usually only as a result of lunch), as were the jobbers or market makers, and even the number of clients. Of course the commission levels were fixed and in fact the only thing that wasn't was the regulation. This was self-regulation, which some might cruelly suggest could have been a euphemism for making it up as you went along.
In my view it is important to remember that the stock market is the same as any fruit and veg market, except with braces on. So I was delighted to read of Mr Young's views on the impact of the Internet. He effectively highlights the changes this will have on the markets. But I come from a retail market and here I can see the dramatic impact this is going to have on investors and, more importantly, the providers.
I think we have little appreciation of quite what impact the direct control that this provides to many customers and investors.
The investors in the UK are a long way behind the US, but they are having to learn fast on how to look after themselves. As the Nanny State retreats, many are realising it is up to them to look after themselves and their family. This will mean the death of many financial services companies as they are just passed by financially aware private investors and consumers. Those potential customers, armed with a new-found investment knowledge, will simply ignore the old guard and invest themselves, in their own way, and at their own cost.
There is a sequel to this book which perhaps I should be writing. It is the reflection of what has been written here but directed at the retail financial consumer. Messrs Young and Theys have come up with their mantra for the change to the capital markets - "Liquidity! Accessibility! Transparency!"
I would want a similar mantra for the private investor to shout against the Luddite markets, which appear to have been trained in the Canute school of financial services.
We need greater freedom of choice; we should not be expected to buy incomprehensible pensions and ISAs. We need to understand the logic of what is being provided and not just be dazzled by the free plastic Biro and we must be able to understand the real value of our investments and their opportunities.
Bravo to the authors for their shout at the markets, and they should not be despondent if it is not taken up. The changes are already occurring and, for those who are in the position of power, I would suggest they read the book and join the revolution, if they do not wish to be remembered for emulating the planning skills of King Canute.
The author is the corporate development director for Barclays Stockbrokers.
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