Reuters has noticed that I was, a while ago, credited with creating the term feral finance.
So, for the record, here's the article where I brought the term into use. I might as well anticipate the fact they're going to be putting it out on a newswire.
And to also save time, this is how I defined it (all links are in the original article) :
As I'm explaining in my forthcoming book — The Courageous State — there is a two-part economy in this world. There's the real one — the one where you and I live and meet our needs, make and sell things (if only words on screens) and which is the measure of real well-being.
Then there's the other one — the feral one, if you like (feral as in wild and out of control) — existing way beyond the limits of the real economy and only loosely related to it, made up of the enormous financial balances denominated in cash of various sorts, existing only as entries in computer ledgers. Some of these cash balances are backed up by supposed assets, which are at best legal claims on property which may or may not realise real worth, such as shares (whose value usually have almost no direct bearing to the companies that lend them their names), property (which has been priced as a consequence beyond the reach of the real economy) and more obscure derivative products, which few understand and which even fewer trade in ever larger amounts.
This feral economy represents the wealth quite deliberately extracted from the real economy by those who have exploited it over the last thirty years of neoliberal domination by ensuring that the share of real wages in GDP has fallen from about 58% in 1980 to about 53% now (see diagram 1 here for detail) — with the cash they have extracted being stashed as unproductive wealth (often offshore). That unproductive wealth, whether held as cash or placed in assets that have near liquidity such as shares, property, derivatives, hedge fund and other portfolios, has had enormous consequences. There are many; let me just note two.
The first is that the refusal of the owners of this wealth to engage it constructively in the economy has been a contributory factor to underinvestment, stagnant real wages, and the rise in what has effectively been enforced borrowing by far too many households struggling to make ends meet — who have become increasingly indebted to the agents of the feral elite in the process (see diagram 3, here), reinforcing the whole vicious cycle as a consequence and withdrawing yet more and more funds from the real economy and into the free-floating world of feral finance. The relationship of feral finance with the real economy has, therefore, been wholly negative here.
Second, the use of those feral financial balances to undermine currencies in pursuit of short-term gain and maximum income returns has brought the whole edifice to the point of breaking. Breaking the real economy does nothing to the feral economy — downsides can be traded as much as upsides in the feral world of finance: gain is to be had in this world whatever happens in the real one. But the relationship of the feral economy with the real economy is again wholly destructive: those feral deals — done beyond regulation, assisted by the world of secrecy that tax havens provide, are bringing destitution, unemployment, real failure and fear to real lives.
There is only one way out of this — and that is to bring feral finance back under control. Of course, that economy will fight back — Bob Diamond already is as he's admitted that 90% of Barclays' profits come from feral activity — but that's a challenge courageous states have to face. And doing so is possible; the techniques are available. New, green quantitative easing, spent into the economy and not just given to banks, can reclaim this feral world and it's resources for the real economy. Forcing new investment policy onto funds that have been exposed to feral policies, such as pension funds, can reclaim these assets for ordinary people. I explain how here. And if necessary the countries of Europe and beyond will have to demand that banks deposit their cash in Treasury deposit receipts with central banks (as happened in the UK in the second world war) to ensure resources are taken out of the feral economy and made available for the public good at a time of national and international crisis.
Do this and financial crisis can be averted.
Don't do it and the world of feral finance wins.
I stick by that.
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Feral finance, I like it, I like it. But does that make me a feral blogger?
Probably…
Nationalise the banks….or at least have public banks running alongside private sector banks.
Hopefully, well-regulated national banks will help keep private banks honest.
Had some discussions with a very large wind turbine mfu with respect to pension funds. They look for modest (5%) long term returns (20yrs+) which matches quite well what happens with respect to wind farms. Problem is, they are nervous of engaging in early project investment. The result is that this tends to be covered by private equity (& some banks) – project returns (IRR) tend to be north of 12% and once the whole kit and kaboodle is up & running, it gets re-packaged and sold to the pension funds for twice the price (thus giving the pension fund a …. 5 – 6% return).
I would not class the above as strictly feral (or indeed a new prog’ on BBC) but clearly gov’ could play a role here (reducing project costs). Oddly, pesnion funds in Denmark do take part in projects and the costs/subsidies for their off-shore wind projects (for example) are less than half those of the UK – which makes one wonder.
Entirely agree gov’t could and should do this
Remember PQE started as Green QE
“Remember PQE started as Green QE”
and going back further Knapp, Mitchell-Innes, Keynes, then Abba Lerner with Functional Finance, Minsky, Godley, then China’s Market Capitalism With Socialist Characteristics, then MMT QE, then Green QE and now People’s QE.
If you say so! I had not read the rest before I cam up with this
As someone who used to work in the electricity industry that sounds about right.
I would add that when you say funded by private equity and banks in practice that actually means mostly funded by the banks. The PE investors only put in a bit of equity IME. And as they’re highly geared the banks tend to be getting a fairly decent interest rate and/or some form share in the equity on the sale.
Governments do fund the wind farms, but that is typically by subsidising the tariffs*. But what that achieves is it makes the project attractive for the investor (i.e. the ability to get the 12%+ IRR’s) and doesn’t help us the consumers at all of course, at least not financially it just gives access to green energy through the local grid. And the government gets no monetary return on that investment, that all goes to the investors.
* The stated rationale of course is that without the subsidised tariff the wind farm wouldn’t be economical (**) and so wouldn’t be built .
** Hmm but as noted above economical seems to predicated on giving a 12%+ IRR — More money for the boys then.
Oops forgot Hjalmar Schacht in the list.
Schofield – Don’t forget Gunnar Myrdal as well.
I always thought it was an excellent term, Richard, so I’m surprised it’s taken a while for the mainstream to pick it up.
Then again, I note that with a Tory government in place for the next five years Barclays were quick to get rid of their anti feral CE, Antony Jenkins, after a ‘boardroom coup led by Diamond [as in Bob Diamond, former CE] fan Sir Mike Rake – the last Barclays director still standing from the pre-crisis era…’ (Private Eye, 1397: 40).
As PE asks, ‘So how long before it’s Barclays business as usual? Not long, given the new, Treasury-led soft line on bankers…’
Seems like feral may well be back in fashion – if indeed it ever really went away – and, as was the case prior to 2008, with the full backing of the UK government. At which point it’s probably worth reminding ourselves that when in opposition the Tories always urged new Labour to be even more light touch in regulating banking and finance than they were, so we can be sure of where that ‘Treasury-led’ soft line is coming from. Another crash by 2020 perhaps? Whoever would the Tories blame then!
I think such a crash likely, as the FT reported yesterday
In that case I am planning for how to deal with it
That, and a brief mention of the shift from productive investment to rent-seeking, would be as good a summary of economics in an English-speaking country as you’ll ever fit in sixty seconds’ reading.
Thank you
PQE is certainly bothering some of those among the commentariat who would like to think they are influential. For example, Philip Coggan, who has the Buttonwood slot in The Economist, has just had another go and in the process parades his ignorance and prejudice. (For subscribers or those who register with The Economist, it’s titled “Stop cheering, Keynesians”.)
Most commentators of this ilk (publishing by the 1% for the 1% as you put it) know very well that under what you describe as feral finance badly needed investment is not financed unless exorbitant short-term returns and the ability to effect a rapid (and excessively profitable) exit are guaranteed. PQE both exposes this gouging and has the potential to undermine it. All we’re seeing at the moment is their spluttering indignation at such effrontery. It will rapidly turn to brutal and vicious opposition.