To get out of the crisis, it is not enough to punish the intermediaries who have made a mistake. It is necessary to reflect on the quality of the markets in which operators operate. This is the invitation of the economist Giacomo Vaciago, who spoke today at the conference “Finance: the servant mistress? Responsible finance for a healthy economy”, promoted by AIAF, the Italian association of financial analysts.
“The literature of the crisis places the emphasis on the intermediaries who made a mistake – notes Vaciago -, but a systematic reflection is needed on the quality of the markets in which they were dealing. The great growth of finance took place outside the good markets”. Yes, because if you look at the products that led to the crisis, subprime mortgages and CDOs in primis, you soon see their limits in terms of efficiency and symmetry of market information. And “market failure,” as economists call it, occurs precisely when markets fail to price well and lack information symmetry. “The ideology that markets are always right even when they don't exist (as in the case of OTCs) has had dire consequences. We need a government to correct the market failure when the market doesn't work well, compensating for the limits even when the market is good”, Vaciago observes.
And yet, Vaciago points out, in the last 30 years this debate has been lost for some strange reason: from the Modigliani-Miller theorem on the capital structure (the value of a company is not affected by the ways in which it is financed) if understood as the recipe to make capital irrelevant, to Barro-Ricardo's theory of public debt neutrality (the method of financing public spending by increasing current taxes or by issuing public debt securities is irrelevant as regards the consumption choices of individuals ). Not even in the 2008 ECB report which celebrates 10 years of the euro is there a real discussion on the quality of the European market. Thus, in his 2010 report to José Manuel Barroso, Mario Monti himself, then an economist and president of Bocconi but former European commissioner for the internal market and competition, highlighted all the shortcomings of the single market. In a nutshell, the euro was created but we forgot to complete the market that the euro needs. “This too is a great paradox – observes Vaciago – those who bet against the euro claim that it has only served to finance a sea of sovereign debt of countries that are no longer sovereign in terms of monetary policy”. Monti has recently re-launched the issue once again, bringing up the issue in his talks with Nicolas Sarkozy and Angela Merkel with the aim of completing the reforms with which the euro proves useful. “To make people understand what the euro is for – says Vaciago – which is the currency of sharing at least virtues, if not vices”. But for now there is no real reasoning on the markets and the crisis while we continue to focus on intermediaries.
“The quality of the world – concludes Vaciago – is a product of the rules, it does not come from individuals, whose quality has always been the same. The rules cannot therefore only concern the behavior of intermediaries, there has been a lack of reflection on the market. I doubt that the crisis will come out only if we put the bankers in jail”.
