KPMG's Regulatory Arbitrage Culture

Kpmgs Regulatory Arbitrage Culture

The Chemistry of Audit Failure: KPMG

The Chemistry of Audit Failure: KPMG

Q: What did universities learn from the financial crash? A: Nothing

Most finance education is morally bankrupt. We must stop peddling dangerous lies to our students
 http://www.theguardian.com/higher-education-network/2016/feb/02/q-what-did-universities-learn-from-the-financial-crash-a-nothing?CMP=share_btn_tw

 

‘Finance academics are still spinning the theories of the importance of greed, profit and wealth maximisation,’ says Atul Shah. Photograph: Alamy

Atul K Shah

Senior lecturer at Suffolk Business School, University Campus Suffolk

Tuesday 2 February 2016 00.00 GMT Last modified on Tuesday 2 February 2016 11.11 GMT

The global financial crash of 2008 led to bailouts that are still being borne by ordinary people all over the world through higher taxes, higher property prices and lower savings rates.

Adam McKay’s new film The Big Short reveals how a few people made huge amounts of money from the disaster, as millions of others went bankrupt through no fault of their own. But amid the uproar, few have asked what role finance education and research played in the crash, and what influence they could have in the future. These questions are particularly pertinent now, as the possibility of another global financial crisis looms.

The answers are damning. Most finance academics have continued as before, spinning theories (which really are ideologies) of the importance of greed, profit, wealth maximisation and free markets for efficiency and risk-hedging. There is virtually no teaching about history, culture or ethics. Accounting and finance are researched and taught as if they are acultural, apolitical and ahistorical technical disciplines.

The reasons for this go back to the neo-liberal origins of the discipline, and the ways its research is controlled by a conservative elite suite of journals, whose ideology is based on extreme capitalism and wealth creation.
The research excellence framework (REF) has put even more pressure on finance academics to be conservative and toe the line of these journals, thus making students’ experiences even more alienating. We have already seen rebellions in economics teaching, and we may soon see similar moves in accounting and finance, as young people learn about corporate tax avoidance, financial exploitation and the corruption of politics and banking culture. At present, most of this learning is taking place on social media and through groups like Occupy, rather than in university classrooms or lecture theatres.

The complexity of the subject has been used to disguise the underlying ethics and values of experts and the academy, and to influence the practice and industry of finance. In his book Debt: The First 5,000 Years, Professor David Graeber of the London School of Economics explores the human history of finance and finds that it is a cultural construct, grounded in social relationships and exchange.
It is only in the past 35 years that finance lost this grounding and become a tsunami which, although shaped by humans through the creation of markets and institutions, is now out of control, and is controlling ordinary people instead. Graeber argues that states have lost the power or the will to shelter their people from high finance and its slavery. They have lost the language and means to resist, as the technical complexity is too much for them.

My research has covered similar areas, such as the reasons for the risk management and audit failure of HBOS, and the role of politics and conflicts of interest. I have worked with whistleblower Paul Moore to expose the truth about what went wrong at HBOS. I have forensically examined the ethics and culture of the “big four” accounting firms.

As a Jain, a chartered accountant and an academic, I cannot ignore such truths. I have been hugely influenced by the work of Professor Prem Sikka of the University of Essex, who has never been afraid of speaking truth to power. In the past three years, I have transformed my teaching by infusing every class with ethics, and encouraging students to talk about their personal experiences with finance and how it affects their families on a daily basis. I have made my teaching personal and holistic.

My students have responded enthusiastically. Many are undertaking dissertations on ethical finance, or investigating financial exploitation and banking culture. When I showed the Academy Award-winning film Inside Job in class, one MBA student was so impressed that he set up a series of visits to local church and community groups to give them the facts behind the financial crash, and show them how the public were duped, exploited and forced to bail out the industry without their consent.
I am teaching three courses in finance this semester, and I have once again updated my teaching to include recent events. Instead of feeling disempowered by finance, my students will learn to question its values, culture and theoretical frauds. They will not fear the technical sophistication which disguises the corruption of modern accounting and finance.

Dr Shar tweets at @atulkshah.

Against coins and notes: Bloomberg calls cashless future

Against coins and notes: Bloomberg calls cashless future
German Economic News | Published: 02:02:16 00:03
http://deutsche-wirtschafts-nachrichten.de/2016/02/04/anti-terror-einsatz-verdaechtige-wohnten-mit-falschen-papieren-in-fluechtlingsheimen/

The financial platform Bloomberg Endorses the campaign against the cash. As it was said in a commentary on Sunday are bills and coins "dirty and dangerous, bulky and expensive, antiquated and so analog." A purely digital payments, Bloomberg admits, however, only works if citizens public authorities could rely.

In an article published on Sunday article Bloomberg calls for the abolition of cash and the introduction of a purely digital payments. the claim on the reader above all with security aspects is justified: auditable transactions could prevent terrorist financing, money laundering, fraud, tax evasion and corruption. Thus, the news portal to voices that called for the abolition or limitation of coins and notes in recent weeks joined. These include Norway's largest bank DNB, the chief economist of the Bank of England, the German economist Peter Bofinger, the SPD and the CEO of Deutsche Bank, John Cryan.

Bloomberg points out the far-reaching possibilities for controlling the monetary policy of the digital payments would provide the central banks. This could present to introduce to stimulate lending no high negative interest rates because customers the anticipated losses in the bank account missed by hoarding cash. "A legal digital currency could solve this problem. The central bank could show banks that want to deposit with cash, with a penalty. (...) This would the incentive to hold cash rather than digital currency eliminate, and allow the central bank to push its key rate below zero and thus push consumption and investment, "writes Bloomberg.

From this it is evident that the main objective of a cash abolition actually may lie in the introduction of repressive measures against the savers. As central banks around the world do not succeed even after years of use ultra-loose monetary policy to stimulate the economy, forms seem to have become necessary financial repression from the perspective of some commentators. Abolition of cash would be tantamount to a loss of control of the property owners on their savings. You could redeploy these only, but not pull out from the financial cycle. Savers will be forced to accept special levies and transaction taxes on their digital assets, or to invest the money at all costs.

EC: Money creation may involve State Aid to banks

EC in answer to:
Open letter to European Commissioner Margrethe Vestager (DG Competition)
(by Marco Saba, president at IASSEM)

Reply to my email by EC Vestager

Polish MEP asks Mario Draghi about Helicopter Money

European Parliament: Once again Mario Draghi is asked about ‘Helicopter Money’

Posted by Stan Jourdan on February 03, 2016
http://www.qe4people.eu/european_parliament_dariusz_rosati_helicopter_money

The President of the European Central Bank was in Strasbourg last Monday to address the European Parliament’ plenary assembly. Once again Mario Draghi was asked to give his views on the possibility for helicopter money.

Last Monday February 1st, the European Parliament’s plenary Assembly was set to debate its Annual Report on the activities of the ECB for 2014 (see the draft report here).
The session sparked a variety of views on the ECB’s QE programme. A conservative MEP from Poland asked Mario Draghi to share his views on ‘helicopter money’ (see the video below):

Mr Draghi, I have one question. At one of our earlier meetings during the monetary dialogue meetings at the ECON Committee, you said that you would consider ‘helicopter money’: that is, the direct emission of cash money to market participants. I would like to ask you: what is your current thinking on this, on the legal grounds, and on the consequences – both bad and good – of this measure in the event that we introduce it?

'Helicopter money' describes central banks distributing newly created money via a citizens' dividend. It is a proposal that falls under the broader term 'QE for People'.

MEP Rosati was directly referring to a question addressed by MEP Paul Tang (S&D) who asked a similar question to Mario Draghi in September 2015. At the time Draghi said "we will certainly consider these ideas that are being discussed".
Rosati, who is Professor of Economics and former member of the Central Bank of Poland’s monetary policy committee (1998-2004) declared on facebook: “I see strong arguments in favor [of helicopter money], but before final decision is taken I would like to see a serious analysis of this potential measure.”
Since the plenary session does not include a Q&A with the President of the ECB, Mario Draghi could afford not to answer the question. He also alluded to the fact that some questions raised by MEPs – and possibly the one about helicopter money – were beyond the ECB’s own area of decision-making competence: “some of the statements or questions were inherently political, and so the best equipped to answer are the national governments and the national parliaments, and perhaps your own Parliament.” he said.
The Annual Report of the European Parliament on the ECB will be voted in plenary on February 24th. The current draft version of the document raises some concerns over the ECB’s QE programme. The report “notes the positive yet modest impact of the QE programme on money and credit dynamics, with loans to enterprises still weak but benefiting from a gradual easing of credit standards”, while concluding that programme “could be more effective”, especially for SMEs.
You can watch Dariusz Rosati’s intervention here:

Financial Times, February 1, 2016 11:31 am

Free Lunch: Time for a digital government mint

Martin Sandbu

Phase out cash, phase in official digital money 

http://www.ft.com/intl/cms/s/3/eab39a48-c860-11e5-be0b-b7ece4e953a0.html

E-cash for the people

  Two profound changes are under way in our attitudes towards money, both of which could in short order transform how most of us deal with the banking system, and indeed how the system itself works. The first trend is a growing preference for electronic means of payment over cash. The other is the growing push for central banks themselves to issue electronic money for use by individuals.

It’s easy to conflate these two trends. Bloomberg View, in an otherwise nail-on-the-head editorial calling for the abolition of cash, seems to take the phasing out of cash as synonymous with the phasing in of state-backed digital money. But, by itself, the phasing out of cash would just leave the field open to the private digital payment systems, largely based on current account deposits in private banks, that already exist or are rapidly being developed.

The shift away from cash is something we have commented on before, and is the subject of a new report from Imperial College with Citi. It argues that hundreds of billions of dollars could be saved globally by digitising even just a fraction of current cash transactions. Even so, the take-up varies a lot around the world, and only a few Nordic countries have passed “peak cash”.

Currently, coins and paper notes are the only state-issued money available for use by you and me; the vast bulk of what we normally call “money” is a deposit with a bank. Up to a limit (currently €100,000 in Europe), this is state-backed in the sense that the government guarantees that it will be available for spending no matter what happens with the bank. Even this is surprisingly recent. On the eve of the financial crisis, the pan-European limit was much lower and EU law explicitly prohibited deposit insurance schemes from being backed by the state (they had to be industry-funded schemes).

So a shift away from cash towards electronic money as it currently exists is a migration of “money” away from state-issued currency. The second idea — creating a digital version of cash, with its full state-backed characteristics — is a push for just the opposite. Wrapping one’s head around the difference between official versus private money is a lot harder than understanding the distinction between physical and electronic money — but it is also essential for making informed judgments about financial and monetary policy (we have previously explained why). Well done, therefore, to Positive Money, which has just published a report arguing how and why official digital currency should be introduced in the UK. The thoughtful and thorough report qualifies as essential reading.

The general idea is for the Bank of England (or other central banks; the ideas are general) to offer deposit accounts directly to the public, or alternatively, for private banks to offer accounts fully backed by central bank reserves. The authors go through the mechanics of how this would work, and address the main objections. We only discuss the most important of these here (but do read the whole report), which is that the system may work too well.

Too well, that is, in that people would convert a very large share of their current bank deposits into official digital money, in effect taking them out of the private banking system. Why might this be a problem? If it’s an acute rush for safety in a crisis, the risk is that private banks may not have enough reserves to honour all the withdrawals. But that is exactly the same risk as with physical cash: it’s often forgotten that it’s central bank reserves, not the much larger quantity of deposits, that banks can convert into cash with the central bank. Both with cash and official e-cash, the way to meet a more severe bank run is for the bank to borrow more reserves from the central bank, posting its various assets as security. In effect, this would mean the central bank taking over the funding of the broader economy in a panic — but that’s just what central banks should do.

A more chronic challenge is that people may prefer the safety of central bank accounts even in normal times. That would destroy private banks’ current deposit-funded model. Is that a bad thing? They would still have a role as direct intermediators between savers and borrowers, by offering investment products sufficiently attractive for people to get out of the safety of e-cash. Meanwhile, the broad money supply would be more directly under the control of the central bank, whereas now it’s a product of the vagaries of private lending decisions. The more of the broad money supply that was in the form of official digital cash, the easier it would be, for example, for the central bank to use tools such as negative interest rates or helicopter drops. Both could be indispensable in the years ahead.

Other readables

• The OECD surveys Israel, one of the rich-country club’s newest members. It’s a study in contrasts. The country has grown much faster than the OECD average every year for more than a decade, but is riddled with spiking inequality, deepening poverty and a system of market power and protection that makes these problems worse.
  
  
• Tim Harford revisits his previous optimism that economic growth was reducing pollution in China — based on the concept of the “environmental Kuznets curve” — and then revisits his contemplated correction.

Numbers news

• On Iowa caucus day, the numbers journalists at fivethirtyeight.com cover the state’s best pollster and explain how good Ann Selzer’s performance has been over the years.

To receive Martin Sandbu's Free Lunch by email every workday, sign up here.