Free Lunch: Women sheriffs of Wall Street

Δημοσιεύθηκε: 11 Μαΐου 2015 - 11:27

Still on the beat

Last week Elizabeth Warren, Mary Schapiro and Sheila Bair sat together on a stage at Harvard for a conversation marking the fifth anniversary of their anointment by Time Magazine as the "New Sheriffs of Wall Street". All three were disrupters, as the current buzzword has it, of a financial sector culture that encompassed those charged with regulating it as well as those working there (the former are often recruited from among the latter and vice versa). Warren, now a senator, was a driving force behind a new financial consumer protection agency and a scourge of government bailouts of financial institutions. Mary Schapiro was the first female chair of the Securities and Exchange Commission, and Sheila Bair chaired the Federal Deposit Insurance Commission, the body ensuring that bankrupt banks are smoothly restructured rather than bailed out at taxpayer expense. (Bair's views were aired in a recent interview on the Money and Banking blog.)

The conversation, which can be viewed in its entirety online, covered their personal experiences, the role of women in high regulatory office, the state of US financial regulation and, perhaps most intriguingly of all, their view of presidential candidate Hillary Clinton's position vis-a-vis Wall Street. They gave Clinton the benefit of the doubt while reserving judgment. Bair in particular feared that Clinton may draw on the same economic team as Barack Obama, who in turn pulled in many old hands from Bill Clinton's administration. They were behind the two most significant deregulatory moves of the late 1990s: the lapse of the Glass-Steagall split between retail and investment banking, and the decision to exempt derivatives from regulation.

Hot on the heels of the Harvard meeting came another finance event headlined by top-level women policy makers and thinkers: a conference at the IMF on "Society and Finance" organised by Stanford professor Anat Admati and the Institute for New Economic Thinking. The conference featured a conversation between Janet Yellen and Christine Lagarde on the state of financial regulation. Admati herself, known for her book The Bankers' New Clothes which argues for sharply higher capital requirements, summarised the regulatory reform effort to date as "an unfocused, complex mess [and] the pretence of action . . . false sense of safety . . . counterproductive distortions".

In increasing order of importance, there are three general observations one can make about these two events and about the largely critical view their participants express about financial sector.

The first is that all-women line-ups is not just a gimmick. It is no accident that it is disproportionately women who are calling out the inadequacies of how the financial sector is run and regulated. As Warren pointed out at the Harvard event: "If you bring in people who aren't part of the club, there's going to be disruption." We may add that those who are in some sense outsiders may have less to lose and more to gain from challenging the way things are done. If those who constitute a disruption just by virtue of their gender are more willing to pay the price for fighting against harmful established practices, that benefits all of us. In an interview with the New Yorker, Admati recounts her thinking behind the conference: the priority was to expose problems in finance and it so happened that they "never ran out of women we wanted to invite" to shed light on these problems. In her FT column, Gillian Tett reflects on the broader social signal sent by such powerful line-ups of highly competent women.

The second point is that many of these women have a talent for populism. That is true above all for Warren. The New Yorker's John Cassidy, reporting from Admati's conference, likens Warren's keynote address to a presidential stump speech. That is no surprise, given that (as Cassidy reports it) it is very similar to the important speech Warren gave last month, lambasting the insufficient reforms carried out by and of the financial sector. Warren, dubbed "the virtual candidate" in a New Yorker profile, channels a popular view of finance in plain terms, speaking of how big banks should be broken up, not allowed to cheat customers, and stopped from putting the economy in danger. She is reportedly so disliked by the industry that Wall Street donors threaten to withhold campaign contributions to Democrats if she doesn't quiet down.

She shouldn't. The third and most important point to make about the women sheriffs of Wall Street is that their policy critique, and any populism it may exhibit, rests on incontrovertibly solid foundations. Free Lunch has covered recent academic research proving that the financial sector's contribution to economic growth is ambiguous at best. It bears repetition: the Bank for International Settlement recently found that beyond a certain size, a bigger financial sector reduces growth by channelling funds into low-growth sectors. In his presidential address to the American Finance Association, Luigi Zingales recently said that "there is no theoretical reason or empirical evidence to support the notion that all the growth of the financial sector in the last 40 years has been beneficial to society". And the IMF is joining the chorus of critics. A new fund research note shows that beyond a certain point, the instability caused by financial growth outweighs any benefits it could bring to economic progress.