As part of a panel discussion at the trust in the digital world summit in Vienna, Monaco investment banker Markus Schuller of Panthera gave a heated and impassioned talk about the wrongs taking place in the financial sector, how distrust should be our default setting when dealing with financial services, and why the most important thing is to make sure every market actor has "skin in the game".
One of the main tenets of economic theory is that market actors are rational beings, and that therefore the economy makes sense and regulates itself. The problem is, I am not rational. I don't think anyone here is rational, unless androids have been invited to this conference.
Market self-regulation means that there are forces keeping the market in check, but true self-regulation doesn't make sense in the modern world. It's still amazing how some of this ridiculous nonsense still exists.
Talking about anti-trust, if you leave a market alone, you tend to reach an oligarchic structure. You get a few large players dominating everything. It's great for those few players, but it doesn't contribute to the overall market. You need to have regulators in place, strong anti-trust bodies that are willing to really hurt, to really cut into those not helping market efficiency. It's not really working right now.
You end up with these large market players influencing the law-making progress. There are over 2,000 lobbying groups in Washington. There are over 3,000 in Brussels. It's amazing, isn't it?
You need to have these measures in place to protect market participants.
All participants in the market need to have "skin in the game". What hasn't worked in the financial industry over the last 30 years is that market participants didn't have skin in the game.
You might have heard of "too big to fail" – when companies privatise their gains and are publicly funded through their failures. That's a remarkable example of not having skin in the game. All market participants must feel the upside and the downside of their actions, or the market doesn't make sense.
For example, HSBC laundered over 100 million dollar for drug barons and other honoured and respected members of the market. For that, they were fined 2 billion dollars. That's less than 2 per cent of the laundered amount, and significantly smaller than their final cut. Now I live in Monaco – I know what kind of margins there are on black market transactions. They just price in the fine as part of their operational costs and continue like before.
This is a business for them, and they're not going to stop. I think even a 5 per cent fine will not be enough to change market behaviour.
The Trust in the Digital World conference runs from 7-8 April, and ITProPortal will be covering the ins and outs of what's being discussed here in the Austrian Chamber of Commerce.
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