Thursday, 22 December 2011

The Girl with the Dragon Tattoo, and why we can't solve the Euro crisis

I, like a lot of technically minded-people it seems, like a good crime thriller.  Having spent a year mesmerised by Sara Lund's sweaters I picked up The Girl with the Dragon Tattoo.  It's a good story, but a bit contrived with the plot being resolved by unexplained and unbelievable computer hacking.

So why write about it on a blog about science and finance?

The plot is set in the context of our hero, a journalist, Blomkvist and his relationship between two businessmen,  Wennerström and Vanger.  Blomkvist publishes a story claiming Wennerström was involved in a fraud, which he failed to corroborate and the novel begins with his conviction for libel.  This makes him vulnerable to an approach from Vanger to investigate the mysterious disappearance of his niece in the 1960s, which is the central mystery in the novel.

What I find interesting is how the different businessmen are presented.   Wennerström has become a billionaire from nowhere, building his wealth by participating in such unsavoury activities as options trading and currency speculation.  Vanger, on the other hand, is old-money - a traditional industrialist whose family had arrived in Sweden with Napoleon's puppet king, Jean-Baptiste Bernadotte, and was granted land holdings on which they developed paper mills that spawned a firm involved in manufacturing, technology and the media.  Within this setting the message is clear:  Vanger may be an unpalatable capitalist but Wennerström is beyond the pale.

The sub-text is physiocratic, the Vagner's are legitimate capitalists because they hold land.  Wennerström, who has made his own money through speculation, by judgement and foresight, is corrupt.  The irony that the hero Blomkvist becomes rich by speculating,  that Wennerström is a crook, is passed by.  A second irony is that if the events described in the book had actually occurred in England, they might have become of interest to the Leveson Inquiry, looking at actual cases of the relationship between journalists and private detectives involved in phone hacking. 

The theme of the corruption of finance is not new, but the novel ignores St Augustine's observation that if a merchant was a cheat, the fault was with the individual, not the profession. What is disturbing is the deep conservatism of the books' sub-text:  if some thug in history had not given your ancestors land, you do not deserve to be rich.

I finished reading this book the weekend that France and Germany looked to solve the Euro crisis and impose tighter regulations on financial services.  The French President, commenting on the UK's withdrawal from the process, went on to say that "a good part of the world's problems come from the deregulation of financial services". 

Both the UK's FSA's, in their recent report on the collapse of RBS, and the US's Financial Crisis Inquiry Commission (FCIC) observe that the regulations existed, but they were not effectively implemented.  The UK-US crisis was a failure of government agencies, at the behest of politicians, to enforce rules.  The Euro crisis has similar roots in a failure to enforce rules on sovereign debt ratios.   The crises seem to have less to do with bankers and more to do with the profligacy of politicians.

Much of the narrative of the ongoing financial crises has been about the imbalance, particularly in the UK, between manufacturing, represented by Vanger, and financial services, the Wennerströms.  Implicit is that manufacturing, creating physical objects, is something more real than financial services, moving money around, and moreover, more reputable.

This bias seems to be reflected in UK government science policy.  In the recently published Innovation and Research Strategy, the government identifies the following, key, technology based sectors: life sciences, high-value manufacturing, nanotechnology and digital technology.  Financial services, while contributing around 10% of UK's GDP, is not mentioned.  This approach ignores the advice from the Royal Society in their 2009 report Hidden Wealth.

I would argue that the recent financial crises are about a general lack of understanding of modern finance that enabled institutions to behave irresponsibly.  It is hardly surprising that this situation has arisen given the blindness to policy-makers to investing in fundamental research into finance and its underpinning technologies, whether they be the contracts traded, the mathematical models and their computational implementations.  This aversion to understanding finance will persist as long as popular culture is dominated by the Vanger=good, Wennerström=bad model.

1 comment:

  1. Really a delightful, fun read. Very well written and characters well developed. I loved it.
    Fly Fishing Alaska

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