Financial markets are trading grounds on which not products but ‘packets of confidence‘ are exchanged. Do you dare to face the uncertainty, or do you rather pass the opportunity to some guy more manly than you? Who is the 21th century knight, galloping over the battlefield of fallen companies, always leaving just in time not to get hit by the sweeping sword of bankruptcy, but just long enough to receive the fortune and fame? Who has got the balls to take the risk? That’s the question.
A financial market is a special market. In contrast to ‘normal’ markets – markets at which tangible goods like tables or computers are traded, or services like car-washing and theater – this market is build on top of confidence, or at least the perception of it. Surely, through such things as valuation techniques, financial considerations play a more than average role in deciding whether or not to buy stocks, derivatives, obligations or other financial products. However, just as it is in science, there is always a leap of faith required to take the final step: no matter whether it is in jumping to the conclusion on the basis of data, or making the purchase of a stock based upon a ‘reasonable’ level of confidence. No absolute truths and absolute values exist.
Thus – given that confidence plays such an important role in financial markets – you might expect that regulators overseeing these markets will try to do anything in order to keep this fragile little entity up and running. Just like a friend might gloze over the truth in order to keep you – and therefore himself – happy, so a regulator might tell investors that everything is going according to plan; that there’s nothing to worry about. And although lying might be immoral – according to Kant’s Categorical Imperative at least – that’s exactly what he (the regulator) should do, right? If not, the whole house of cards will collapse; investors become (more) insecure and run away as fast as they can. So you need a Santa Claus kind of figure; someone who, above all, should be trustworthy; someone who, no matter how naughty you have been, will always be there to comfort you. Of course: it wouldn’t mind if he or she would have at least some understanding of financial markets, but that’s just only a bonus (you get it? That was a joke).
So, what would happen if, instead of Santa Claus, you would put a politician in charge of regulating the financial markets? A guy like, let’s say, Jeroen Dijsselbloem? A guy who says that, ‘If the banks can’t do it, then we’ll talk to their shareholders and bondholders, we’ll ask them to contribute in recapitalising the bank, and – if necessary – the uninsured deposit holders.’ Then shit is getting messy, right? The insecure investors, longing for a pat on the back, or at least a little sympathy, start running; like Forrest Gump, the investors get the sign to ‘Run, investors, run!’
Honesty is not appreciated in financial markets, so don’t even try it. Lie as hard as you can. Do everything to keep the rat-race going. Do all that is required to ‘restore the confidence in the financial markets‘; be the 21st century Machiavelli. Don’t listen to the crowd yelling that the banks must bleed for their sins. Just assure that they – the crowd – will get their money back. Illusion leads to confidence, and confidence is king. So lie as hard as you can mister regulators; Go for it!
But what do you think?