Having just come out of a financial institution it has certainly been interesting to see the occasional disconnect that occurs between the general public perspective of financial institutions and what really occurs behind their doors. Perhaps in some ways it is less scary or exciting than most people presume and perhaps in other ways it is even more than most people expect.

Certainly, the past three years have proven to be an important litmus test for these institutions and capital markets in general, especially as to their role and responsibility both in terms of operations and general interactions with the public at large. One point is important to make, financial institutions are not expected, from an operational perspective, to act as risk-takers.

Financial institutions are not expected (…) to act as risk-takers.

Quite to the contrary, finance, as a business practice, is an intermediary-styled action. Technically, an enabler to transactions and the conduit through which economic transactions become fungible.

The problem however is that an idea, product or commodity is usually, in its original form, not fungible. Often a mining company will drive resources out of the ground, a record company will put down some lyrics and music, a designer might draw a picture, but these products and services are in effect localized, limited in reach and usually non-transferable in their native form. As soon as a business, economic entity or individual begins to look outside his own domain of influence and control, an occasionally loosely defined legal concept relating to what the economic agent can control or own, then this agent in effect gets involved in a financial transaction. Finance, therefore, is the interaction, the relation, the merging and acquisition of ideas, resources and potential that economic agents undertake on a daily, global and quasi-instantaneous basis. Ironically enough, therefore, for an industry focused on rational self-interest and profit-maximising maxims, finance is inherently social. Indeed, finance is the social arena applied in a quantified and pragmatic manner.

So why is it then that finance and financial activities are so criticized and bedeviled in times of modern hardship? Well, unfortunately, an economic downturn (our contemporary quantified definition of hardship) is characterized by the slowdown, the reduction or, in extreme circumstances, by the absence of economic interaction, by the lack of finance. It is therefore baffling at times, for someone who works in the industry, to see our public opinion turn against finance, when specifically, the public is merely criticizing that which they most desire.

Is it water that makes us thirsty?

In times of drought, we understand that the lack of water is a problem, however, we do not then go on and criticize the reality of water, the need for water to irrigate our crops, or the fact that water is good for us? And yet, in times of economic hardship, we point an accusatory finger at finance, at the fact that we need financial transactions and trade, and begin to question the very necessity and ontological reality of finance. Worse still, we then accuse financial operations, from hedging to trading, as being the core cause of our hardships. Is it water that makes us thirsty? No, and nor is it finance that makes us poor.

So what is happening in ‘Finance’ that prevents its very nature, meeting supply and demand, from being properly understood and shared? Perhaps it is true, that the industry itself is, primarily due to historical reasons, a heavily shielded and opaque entity. We, as the public at large but also as individuals, want our banks to have a vault of sorts, to guarantee our funds, to protect our assets. However, this desire for security does not come without cost and this cost, as most security costs are, can be quite easily sunk and non-recoverable. The very act of seeking reliability in finance, much like our desire for running water, requires the presence of plumbing and secured locations. Our water must be safe to drink and so, the logic goes, our finances must be safe to use. We guard our water wells, we put our monies in vaults. We entrust specific utility companies to deliver and safeguard our water. Companies that in turn employ specialized skills for maintenance, development, long term planning, engineering and customer relations. And so finance does the same, those entrusted with its operations silo their skills and contain their knowledge, specialize their staff and safeguard their operations. We want our water to stay in the pipes, to stay in our wells, and to stay with our utilities. And in much the same manner, the public actually want our finances to stay in our banks, stay in capital markets and stay with our financial companies.

But to resume this to ‘what happens in finance stays in finance’ would not appear consistent with the previous reality of what finance actually is. If finance ‘is’ us interacting, then, simply by substitution in the previous statement, ‘what happens in finance stays in [us interacting]’. Or, in other words, what happens in finance reaches all of us, every time, and all the time, as soon as we choose to interact, and as soon as we decide to be more than just ‘I’.

So perhaps this post is more a musing upon an open question. Yes, we do have sources of open water but we also know that water can come and go, and the water around us is not always safe, indeed, can be dangerous. So maybe finance should and must stay in finance, maybe our concern for this security is what has driven us, naturally, in our development of ongoing financial inter-mediation and maybe this inter-mediation is in itself good and reinforcing for us all. I look forward to your comments.

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