Opinion

Edward Hadas

Not all banks are alike

Edward Hadas
Jul 30, 2014 14:38 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Competition is fierce for the Bankers’ Bad Behaviour Award. Rate-rigging, client-fleecing, dishonest documentation, reckless trading and exorbitant pay were all widespread before the 2008 financial crisis, and faulty practices have proven remarkably persistent. It sounds like there is something wrong with all banks. The ethical problem, though, is not universal.

Many of today’s lenders do have deep and disconcerting similarities. Their culture has been shaped by a faulty ideology, the cult of the market. They believe that society gains from fierce competition among firms which aim only at maximising returns for shareholders. Leaders of such enterprises only pretend to care about the future for marketing purposes and think they have no ethical responsibilities beyond obeying the letter of the law.

Business people often profess belief in this creed, but in practice they typically rely far more on cooperation than on competition. They work in organisations which are mostly meritocratic bureaucracies that aim to minimise internal strife. Regulations and common standards limit the scope and intensity of fights for business with other organisations.

Banking used to be much like other industries; competition played a relatively minor role. Most banks’ prime goal was the provision of mutual financial aid for a fairly narrow group of people: local businessmen or farmers, church members, labour unions or residents of a neighbourhood or region.

Growth in a rich and crowded world

Edward Hadas
Jul 23, 2014 14:23 UTC

Perky, productive robots, or nothing more than a few new smartphone apps? Cascading innovation, or just a few tweaks? Economists and technologists are debating what the future holds.

Pessimists like Robert Gordon of Northwestern University see decades of slow growth ahead, with little scope for big leaps forward. The optimists, among them Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, expect new technological glories. Both sides are more wrong than right.

Everyone is wrong when the wrangling is numerical. Arguments based on GDP and productivity growth are too circular to resolve anything. A main cause of any slowdown in reported productivity numbers is a judgment that innovations are becoming less valuable. So a reported slowdown cannot logically be used to support the argument that technology is advancing more sluggishly.

Google, privacy and the common good

Edward Hadas
Jul 9, 2014 14:41 UTC

The public has a right to know. Individuals have a right to privacy. The common good is served by both these contradictory statements, so someone has to decide how to balance them when they come into conflict. When it comes to internet search, the European Union’s Court of Justice has given the job to search engine providers such as Google. In a way, that’s a good call.

The court decided in May that some internet links deserve to be “forgotten” because certain data can over time become “inadequate, irrelevant or no longer relevant”. The search operators were held responsible, in the first instance, for judging whether to grant requests to remove links.

The court’s decision creates a mess, because it provides no practical guidance. Still, it made a clear step forward in the endless debate between “the legitimate interest of internet users” and “the right to protection of personal data” by recognising that search engines have changed the meaning of privacy.

The stupidity of student debt

Edward Hadas
Jul 2, 2014 14:31 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The fast increase in loans to pay for higher education is a trend that is moving in the wrong direction. The idea that borrowing should play an important role in financing higher education, now standard thinking in the United States and the United Kingdom, is financially dangerous and economically wrongheaded.

Overall, American households are deleveraging. Most notably, U.S. mortgage debt outstanding has fallen to 51 percent from 71 percent of GDP since the end of 2008, according to survey data from the New York Federal Reserve. However, over the same period the ratio of student loans to GDP increased to 5.7 percent from 4.3 percent. The $1 trillion now outstanding is economically significant. In England, the ratio of student loans to GDP is only about half as high as in the United States, but the 80 percent increase over the last five years has been even faster.

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