William Watson: Who elected the bankers?

November 19th 2021
Article by William Watson published by the Financial Post on November 9, 2021    

By whose authority do bankers take it upon themselves to collude — albeit in a nice, open, idealistic way — to achieve the slow strangulation of selected industries and activities?

After 48 hours in Glasgow, many A-listers among the world’s political leaders left town, seemingly content to hand over responsibility for world climate-change policies to a B team of bankers and financiers, who are going to start judging prospective investments according to their carbon impact and, by cutting off the supply of capital to companies and industries with footprints deemed too large, strangle carbon emissions. Good luck to you if you’re running an enterprise the carbon-counters blacklist. Unless you’ve got deep pockets of your own or can find rogue finance, you won’t find funding.

Down through history and even today, in the danker crevices of the internet, conspiracy theories abound about how true power in the world is wielded by cabals of bankers and financiers, who slaver after their own, not their fellow man’s, best interest. In the middle of the last century, such ravings led the world to some of its darkest places ever.

You would think that, conscious of this caricature, as lurid and paranoid as it is, bankers and financiers would want to avoid even the appearance of engaging in co-ordinated actions to send the world off in one direction or another.

Bankers and financiers do have power: they can say yes or no to your request for money or insurance. That can have big effects on your life. But so long as there are many possible lenders, each pursuing their own interest, the whim, miscalculation or misjudgment of any one needn’t prove decisive. If one source doesn’t give you the money, another may well. If none does, that may simply mean your proposed use for it is unconvincing, not that they are conspiring against you.

But now they could be conspiring against you. Thanks in part to the networking of Mark Carney, past governor of two central banks, much of the world’s financial sector is pledging to act in common to try to deny money, insurance and other financial services to businesses that are insufficiently compliant with whatever carbon requirements the group decides to impose. “Cabal” is not the right word for this: it suggests actions taken in secret and there they were all in Glasgow last week, being very public about it all — seeking publicity, in fact.

“Cartel” is more apt: an agreement to restrain trade. Cartels usually form for self-interested reasons, mainly because restricting trade raises profits. There may be some of that here, especially for companies whose business is generating data about carbon production and consumption. The goal being to impose stringent new carbon accounting requirements in addition to regular money accounting, carbon consultancies will clearly clean up.

Mainly, however, I suspect it’s about profit conservation: it would be a brave financial business that declined to join a movement whose declared aim is saving the planet. With woke mobs roving the rich world, being in business these days is like being a French aristocrat in the 1790s.

There are two big problems with climate salvation via finance, however. The first is legitimacy. Many of the national leaders who showed up at Glasgow were put in office by free and fair elections (though many others, and two important ones who stayed away, Russian President Vladimir Putin and Chinese President Xi Jinping , weren’t). But who elected the bankers and financiers? By whose authority do they take it upon themselves to collude — albeit in a nice, open, idealistic way — to achieve the slow strangulation of selected industries and activities?

By and large, the carbon-intensive activities the new financial cartel wants to discourage are all legal. Most countries have the power, if they consider these activities sufficiently harmful, to restrict or even outlaw them. They certainly have the power to regulate them and have not declined to exercise it.

But now, it seems, countries have decided the political costs of outright, forthright action are too great, so they will leave it to finance to do the job for them more quietly and, presumably, with less blowback against lawmakers. It’s hard to think of a less legitimate expedient.

The other big problem with this approach is what it does to world capital markets. Monoculture is seldom good in anything. Diversity, choice and creativity require that there be lots of options for borrowers — someone out there to take a chance when majority opinion is skeptical. Herding the world’s financiers all in one direction will therefore have an economic downside for the planet.

The one saving grace about cartels is that they usually come undone. OPEC has only 15 members, yet has succeeded in moving the price of oil only intermittently. The Carney cartel is made up of 450 financial firms from 45 countries controlling US$130 trillion ($162 trillion) worth of assets.

After decrying conspiracy theories about financiers, I don’t want to engage in stereotyping. But, having taught finance students for four decades, my impression is that many people who work in this industry are finely attuned to money-making possibilities. It will be hard to keep 450 or more members in line — which in this case will be a good thing for the world.

Financial Post

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Photo by Markus Spiske on Unsplash

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