Welcome to London – still a top global financial centre, despite Brexit uncertainties. I look forward to meeting you all soon.

The world of Money & Banking remains as controversial, disruptive and surprising as ever. We are just over ten years on from the Lehman Bros bankruptcy; a defining moment in a defining period of 21st century history – the so-called Great Financial Crisis (GFC for short). As we shall discover, the impact on day-to-day finance is still very much with us and there are plausible concerns that another major shock could be around the corner.

Our course will touch on many contemporary issues; placing them in historical and political context.  I make no apologies in revisiting medieval, even earlier, periods to illustrate core concepts that remain deeply relevant. Politics also figure largely since governments, autocratic and democratic, work hand-in-hand with finance to maintain order and preserve power. As both Lenin and Keynes preached, debauching the currency is the quickest route to social revolution.  While the media gets excited about Russian influence on election results, consider whether it matters compared with the power of the finance lobby.

Romance, popular culture and finance are similarly embraced.  Renaissance Italy’s Monte delle doti, Shakespeare, Hamilton and his hip-hop sidekick, Wizard of Oz ,the return of Mary Poppins,  plus numerous Hollywood renditions of the GFC; all Money & Banking at heart.

Of course, I would be remiss not to balance the Arts with the Sciences. So there will also be some maths, psychology, statistics, and other technical analysis to help unravel underlying themes.

Do not worry if you have limited academic experience of finance and associated disciplines. It is not required as the course begins with basic principles before gearing up. Like a rollercoaster ride, the trip starts slow… teasing you for the fun to follow. So just keep riding, hold on to your seats and, above all, enjoy!

We start our first session with administrative issues which should take about 30-40 minutes:

  • course overview and syllabus
  • textbook and online resources
  • attendance, registers & class etiquette
  • office hours
  • session formats & student presentations
  • assessment and grading

The remainder of Session 1 will focus on the Financial System and its three key components: Institutions, Instruments and Markets.

Finance offers indispensable contributions to society and the economy:

  1. running the payments system
  2. matching lenders and borrowers
  3. lifetime wealth management
  4. dealing with risk

For these reasons, money, other forms of debt, banks and financial markets have been essential building blocks of civilisation for millennia. Finance, including derivatives, go back to pre-Christian times and plays a central role in the wealth of nations and the rise in living standards. Financial revolutions generally preceded Europe’s industrial revolutions over two centuries ago. It was finance that built, and destroyed, great Empires. Just over a decade ago, a bank won the Nobel peace prize just before the global financial system started plunging into meltdown.

Finance is ingrained in human culture – art, drama, literature, old and new. Are we impressed that “A Lannister always pays his debts“? And what are your thoughts about Gordon Gekko, 1980s Hollywood villain, who infamously preached that greed is good?

Modern society needs finance; we cannot exist without it. But we have to take the rough with the smooth. Finance can go horribly wrong; history is littered with systemic crises. The GFC is just the latest, but surely not the last, example of catastrophic global underperformance.

The main conceptual learning objectives for this session are to flag several key themes that will be examined more deeply in future meetings:

  • Finance is a mirror of the human condition; joyful and productive moments tainted by cheats, irrationality, instability and illusions
  • Crises are irregular, tough to predict and, all too often, chaotic – displaying unnerving, amplifying doom loops
  • Risk is omnipresent and is aggravated by globalisation and innovation; it takes on many guises. Risk is generally disliked and, even if recognised, is not always properly managed
  • Wall Street is Main Street and vice versa;  the worlds of finance and the “real” economy are inseparable, especially when it comes to real estate
  • Finance is a force for both good and evil. Society needs finance but, too often, we overindulge and succumb to financialisation
  • Banks (and related financial companies) do not always add value; sometimes they just reshuffle existing assets and, in so doing, can actually destroy value
  • Modern finance reflects the Jeckyll & Hyde impacts of globalisation, regulatory overhauls and technological innovation; in our digital age, value is even harder to establish, exacerbating volatility and risk
  • Banks (and money) can take many different forms; simple or complex, transparent or “shadowy”
  • Finance, old and modern, involves a mutually beneficial public-private partnership that can sometimes backfire

No specific technical skills will be introduced at this stage although students will be expected to have a rough idea of so-called “safe” assets, the role of banks as producers (not simply intermediaries) and the nature of principal-agent problems.

For class prep, in addition to looking at the above video, I recommend this introduction from the Association for Financial Markets in Europe (AFME). Also take a look at this blog article about the connection between banks and nuclear reactors.

29 Aug 2019