What are the new, emerging risks that people are not paying attention to?
1. The changing role of money?
Greenpeace International, an environmental charity, just this month announced that one of its employees lost 3.8 million Euros while carrying out unauthorized foreign exchange trades. Rogue trades, money laundering and embezzlement are pretty standard in the banking sector these days, but environmental charities gambling away hard-earned money donated by idealists to Greenpeaceís polite but very insistent representatives on street corners ó well that may be a bit much.
Actually, 3.8 million Euros isnít such a large sum. I was recently a participant in a panel in Mexico City that included Nick Leeson, the Singapore-based options trader who, through years of unauthorized, secret trading in Japanese derivatives, brought down Barings Bank in 1995 with a cumulative loss of about 800 million Euro, more than their entire trading capital. Leeson was trying to cover up and recoup a small initial loss with increasingly giant bets concealed by fake accounting, and then things accelerated. What, the panel I was on was asked, can we do to avoid such situations in the future? (There have of course been many more such situations since 1995, e.g. Jerome Kerviel who in 2008 lost 4.9 billion Euro at Sociťtť Gťnťrale through apparently similar deceptions.)
Crooks are a fiat dime a dozen. Leesonís strategy, for all the glamor of trillion dollar losses, wasnít very different from the cleaning lady of a man I know. She came weekly and always drank a little of his vodka while he was out. Then she filled the depleted bottle with water to the previous level. He put up with it for the sake of her services, but he wasnít fooled. It was a fair trade.
What is interesting about financial crooks as opposed to vodka embezzlers is that they can abscond with such vast sums and go unnoticed for so long. What is it about money that makes it easier and easier to steal larger and larger sums as time goes by?
Money is insubstantial now. It used to be a solid thing ó coins or paper. To create it you had dig, smelt and cast, or at least print. You had to store it in a vault.
Then one day money became vaporous.
Not only are dollars now digital, but central banks, with suitable lubrication, ease out piles of it in order to bail out banks, corporations and governments. Endless stimulation with diminishing returns. Monitoring a stimulus vitiates the effect of the stimulus itself. Penicillin works even if they tell you they’re going to give it to you. But only porn stars can get excited when everyone around you is watching to see how excited you get.
How can anyone have any respect for the idea of money, as opposed to money itself? And so, to get back to my original point, it is only natural for people to treat it like the insubstantial fictional thing it has become. Embezzlers and central banks show it the same disrespect.
To substantiate my point, look at bank architecture. When I was a kid in the British Commonwealth, banks were imposing temples, ornate teller cages on marble floors sheltered by vast vaulted ceilings. Working in a bank was a staid profession one could aspire to. Being a teller was a good boring lifetime job, straight out of an Orwell novel like Keep the Aspidistra Flying. Armed guards stood guard, ready to try to shoot anyone who dared steal the bankís money. It didnít seem strange to be asked to give your life for a stack of gold bars that had been created at great cost.
Now armed guards are gone. Customer Associates sit in the open at formica counters with trays of dog biscuits and lollipops. There are cash machines in every convenience store, unguarded. Youíd be a fool, an idiot actually, to die to protect money the central bank could replace.
Money isnít serious any more. Expect to see a lot more of it disappear without a fuss.
2. Big Data, The Power of Corporations, and Advertising
Big Data is all the rage, but so far all it does is benefit corporations who want to sell you things.
Corporations have massive power because of advertising dollars. Too many things that should be purchased directly by users are being intermediated by advertising, and that gives corporations immense influence In one sense, the World Cup is bread and circuses subsidized by corporate logos on everything.
Franz Kafka once wrote: ďI do not read advertisements. I would spend all of my time wanting things.Ē Precisely.
Google gives you a phone for free because you are the product ó they make vast amounts of money by selling you to advertisers. A Google phone only has to be good enough for you to use it for free, not good enough that you will pay money for it. You are the product. Similarly with FaceBook. An Apple phone, unti now, is something you have to like enough to pay for yourself.
Most new internet businesses expect to make their money by selling advertisements; itís astonishing. The internet was supposed to remove intermediation and instead there are more and more companies standing between you and news, authors, publishers, etc. Google gets paid more for leading you to the NY Times website than the NY Times does.
This is a kind of systemic risk too. It looks free but itís not.
3. The Changing Role of Universities
I grew up in South Africa under the British-style system of university education. There and then, universities were not trying to get money from industry to run their centers. Where I grew up universities educated you and trained you for life, and the point of academic tenure was to liberate you from the obligation to raise money, to allow you to follow your interests where they led.
Now itís a different story. Tenure is meant to authorize you to raise money. University presidents resemble corporate CEOs, running businesses, out to make money, to monetize inventions. Departments and schools compete try to raise money via executive education to support their research. They think of themselves as entrepreneurs trying to invent new businesses.
I donít know if itís unambiguously bad, and Iím a sometimes reluctant part of it, but I donít think itís a clear good, and I do think itís a slippery slope.