 So many of you here, thank you for coming. The financial crisis left such a deep impression on me, my professional life, that for the first three years I was referred to September 15th as the day Lehmans crashed, forgetting along the way it was actually the date of my second son's birthday. He in turn grew up associating the financial crash with the day that the football sponsors left the back of the shirt, Er fydd yn ymwybod yn ymgyrch yn ymgyrch â'u cyfrifau, ond y bydd y fath o'r 2007 yn ymgyrch yn ymgyrch yn Brithwyr i'r 150 oed. Mae cyfnodd yn gweithio'r gwaith o'r ffwrdd, mae'r ymgyrch yn ymgyrch yn ymgyrch yn ymgyrch. Daeth y month, Cable Vince, y Llywodraeth Llywodraeth, ymgyrch yn ymgyrch â'r gwaith ymgyrch, ymgyrch yn ymgyrch yn ymgyrch yn ymgyrch i'r llwyddiadau credid. Because he said banks have forgotten the lessons of the past. He talked of complacency setting in, of banks allowing unsustainable levels of consumer credit to build. So tonight as we look back at the events of 10 years ago, we're asking whether we essentially feel a more resilient place. Have we reformed the financial system enough? Does it look and feel different in 2017 to 2007? Do you agree that we are now at risk of getting complacent? And perhaps crucially, we'll be looking at what it changed, what has changed along the way, the political, the social, the, if you like, philosophical landscape. So altered by the crash that it's become embedded in all our understanding of it. Alastair Darling, former Chancellor and self-described bank manager at one time, told Newsnight, my programme last week that without the crash, Brexit would never have happened. Has the crash been responsible for Brexit, for Trump, for the rise in populism or would that just have happened anyway? And how do we view our response to the crash 10 years on new labour? Labour saved the banking system, but did they do enough to reassure the public that the system had been, as it were, reset, that the wrongdoers had been punished, not rewarded, that the government was on the public side? What about that conservative majority government that took over two years later, was austerity the right approach to a country reeling from the crash? Was it, as some would argue, the only choice they had? And do we believe, does the public more widely believe that the financial system has now been properly reformed, recalibrated? Well, tonight we're going to hear from a fantastic panel of guests, Martin Wolff first, the Associate Editor in Chief Economics Commentator of the Financial Times. Then he'll be passing the baton to Ed Balls, who served in the government at the time of the crash later as Shadow Chancellor in 2011. Fran Boeit is the Director of Positive Money, a research and campaigning organisation championing reform of the money and banking system they have brought us all here tonight. And we will also be asking you to participate, turn to your neighbour, it's not a fellowship meeting but it will have a moment when it feels like one, and ask them what they think, what's going through your mind. Do you think we have actually started to reform it, is that at the root of the big problems we're facing or not? And then there are drinks after for those who can stay too. That is my work for now done. There will be 40 minutes or so to talk to the panel but without more ado, Martin Wolff. So, I hope there's a presentation there for at least a few slides. This has got nothing to do with it whatsoever. So this is the thing. Ah, good, that's promising. Good. Not lots of bullet points but a few pictures that I will be using. I regret to say, I thought the questions that you asked are absolutely wonderful questions, but I'm not going to answer them. But we can have them in the discussion. If you want my views on the questions you have asked, they are laid out at great length. Some would say excessive length, my wife certainly would, in my most recent book called The Shifts and The Shocks, which was I think tried as best I could to deal with pretty well all the questions you've asked. I am going to focus on a narrower set of questions which are essentially to do with what's happened to the monetary system and possible options for reform. But it is my view and it is at length in my book that indeed the financial crisis has an enormous amount obviously to do with the political situation we're in, not only in this country but in the entire Western world. So it was a profound political and social event and not just a financial and economic one. What I'm going to do is try to cover the five questions, well the four questions, the four points and then a conclusion on monetary and financial systems. And it's quite general though I think all the charts that I will provide relate to the UK and the reason for that is fairly simple. I am using information we put together when five of us were involved in the government's independent commission on banking back in 2010 and 2011. And those charts I find incredibly useful in elucidating where we were when the financial crisis hit. So that part is UK oriented. So I'm going to start with why our monetary system failed, monetary and financial system. Secondly I'll talk about reforms that we have seen since then. I am the third I'm going to talk about why I think these reforms will fail, whether they have already failed is an interesting question. I don't quite agree with the characterisation you've given Vince's view because I don't think the first financial crisis in our case was essentially connected to things that happened inside the UK. Indeed the most important point about the financial sector as it was back in 2007 and 2008 is that it went down together and one of the great ironies is British banks succeeded in losing more money on American mortgages than they did on British ones. And that's really an important point and you might wonder how that happened but that was indeed the case. Then I'll finally talk about where we might go from here. Some of the very radical ideas that are out there, some of which, one of which in particular I'm sure Fran will talk about. So let me start why our monetary system failed. Well, the history of capitalism certainly of financial capitalism is one of crises. There was an IMF study which you can easily get published in 2012, which identified 147 independent national or global or multinational global crises between 1970 and 2012. And some of them were, for the countries affected, much bigger than the crisis that we experienced in 2007, 2008 and 2009, 147 banking crises. There was a significant pause in the frequency of banking crises between the late 1930s and the 70s, is sometimes called the pause. But since then the frequency and severity of crisis across the world has exploded and there have been significant financial crises in pretty well every advanced economy over that period and many, many developing and emerging countries. And the explanation for these repeated crises is in my view fundamentally quite simple. It's a conflict between what the public wants from money and what the private financial institutions that created are able to provide. And this is a point which is made best by, I think, an excellent American economist called Gary Gordon, which essentially says money at bottom as an asset is the ultimate store of purchasing power in difficult times. It's what you hold to feel secure in difficult times. In easy times you might hold some other assets which you convert into money, but basically you have money in order to make sure that you can purchase things you need in difficult times. And in difficult times is precisely when the guarantee of the availability of the money that you think you own disappears. And it disappears because money is the liability of financial institutions. That's what it is in our system. 95% of the money in our economy is the liability of financial institutions. And in difficult times that is precisely when the soundness of these institutions comes into question. So money sees to be money like precisely when you most need it to be money and that's why when things look really worrisome you get panics and crises. And so the solution we found to that problem is to provide an enormous amount of governmental support. And many, many different kinds to the financial institutions who ensure that their liabilities remain money in all circumstances. And since the financial institutions for their financial institutions that means their liabilities are essentially guaranteed to a greater or less extent by the state they are in a perfect money making machine. And this didn't happen by accident. It evolved and it held in as a wonderful material of this. Oh what he calls a red queen's race between the regulators and the governments on the one hand guaranteeing the system and the financial system over 100 years which ended up with the mess we had in 2007, 8, 9. Which in my view was the biggest financial crisis there's ever been, the most complete meltdown of the system. Of course it was sold by the simple means of giving an open ended government guarantee of the entire balance sheets of the western financial system. That's what happened. Okay the dangers were completely clear in the run up of this system in the run up to the post 2007 financial crisis. So to give you an example in the case of the UK total private non-financial sector credit jumped from 110% of GDP in the late 1990s to 180% in 2010 before collapsing back to 140% in the most recent figures I have. And before the crisis more important perhaps the aggregate balance sheets of the UK banks much of them foreign related to foreign activities reached five times gross domestic product which is a roughly 10 times their pre 1970s or 1970s north. So the balance sheet of the British banking system exploded in the period of liberalisation roughly 10 times relative to UK GDP. More than half of that balance sheet by the way was not UK related it was related to foreign assets and foreign activities both direct and derivative transactions. I've already told you British banks lost more money on American mortgages than they lost on British ones mostly if I remember correctly by RBS which was a very interesting case. And you can see that by 2009 the UK banks had exploded to this incredible size we weren't unique in this and you'll see there were two other countries very close to us which you would normally think of as very prudent and sensible countries. Switzerland and Netherlands and both of them in both cases all their major banks collapsed so they weren't at all different from us. Denmark had similar problems I won't even go into what happened to the Irish banking system all the countries on the far right basically imploded the first one that didn't really completely implode was France so that was a pretty fair mess. Now the second chart indicates the other dimension of what happened in that run up and the run up consisted in the period from 2000 2007 enormous expansion of assets and liabilities of the banking system. With essentially no expansion of their shareholders equity which is the loss making capacity the loss bearing capacity of a bank. And as you can see roughly speaking the leverage of the banking sector in the UK increased from 20 times to 50 times in the period from 2000 to 2007. It is worth noting that even at 20 to one banks have very little loss making capacity that's the moral hazard point I made earlier but at 50 to one essentially they have no loss bearing capacity at all. If the banks hadn't been rescued they would have had enormous loss imposed enormous losses on their creditors which includes you. So the outcome of the crisis has been devastating as we know the fiscal costs of the last one for the UK that of course is not just the banking crisis but the economic consequences of the banking crisis which were a lot very deep recession and huge increases in fiscal deficits. I mean one of my favourite statistics is that in terms of the expansion of public sector debt to deal with both the bailout of the banks but even more the cost of the recession. The financial crisis is the fourth most costly fiscal event in British history after the Napoleonic War the First World War and the Second World War. So as I like to say banks are very expensive. The economic costs have been huge and permanent I will show that now. So this is a chart which I just put together last week. I apologise I'm going too long but I think I've got still 10 minutes. So what I've done here is take IMF data for the UK in the advanced countries. I run a trend growth of these economies from 1980 to 2007 and then extrapolated that trend growth you can't see that here. And then I took the deviation from the trend growth from 1980 to 2007 a very long period since then as a proportion of the trend. So you will see that the UK economy and the advanced economies generally at 2017 are roughly 17% smaller than they would have been if the trend had continued. I can't find any comparably expensive event in British economic history. Even the Great Depression is not comparably destructive in terms of economic output. I leave aside of course other deep social consequences even more so the wars but today the British economy is roughly a sixth smaller than it would have been if the pre-crisis trend had continued. I'm not saying the pre-crisis trend was stable that's another whole set of questions but it is clear this is a monstrously costly crisis and we are completely representative of the developed world. There's nothing exceptional about that. That's true of the developed world as a whole. And because real incomes are so much smaller than everybody expected lots of people have much smaller real incomes individually than they expected and we have been sharing out losses. And most of the losses have actually been imposed on perfectly ordinary people. You all know that and that's why our politics are so miserable. So the cost of the credibility and legitimacy of our elites have been devastating and this is clearly the main reason for what's been happening to our politics. Some argue that this disaster has been mainly to do with shadow banking. It's untrue. The crisis would have not have been nearly as severe if the big banks had not been so heavily involved in trading. They had not been allowed to put gigantic risks of balance sheet, without any capital against them. They did not have the backing of explicitly and implicitly insured deposits. They did not have implicit guarantees of solvency from the state and the big universal banks had not themselves failed. So this is not a shadow banking crisis. It's a banking crisis. The second question then is what reforms have been imposed. The essence of the official response has been to maintain today's system. I was involved in that in the independent commission on banking while tightening regulation and imposing tougher penalties on misbehaviour. Regulation now covers in Teralia capital and liquidity requirements, resolution procedures and the associated structure of debt, industry structure notably via ring fencing which we have proposed, industry incentives via controls on bonuses pay, managerial responsibility and fines paid by shareholders, massive fines and industry behaviour notably via macro prudential regulation. It isn't right to say nothing has been done. That's just not true. It's an immense amount of very complicated bells and whistles aimed at preserving the system we had before and in which an incredibly large number of risk bearing decisions, decisions relating to risk are now essentially taken by regulators rather than by the financial sector itself. This reinforces the basic point that if you provide all this insurance, which we do, then we can't allow these banks to make decisions themselves because they become quasi-public. We have this ridiculous situation where they're notionally private but in fact quasi-public and the public authorities are essentially trying to make risk management decisions for them. I think this is fairly absurd. Why the reforms will fail? Well, my view is very, very briefly. Capital standards are an improvement but these capital standards we have now still rely on the idea of risk weighting of assets. It doesn't work. I'll come to that in a moment. The overall leverage of UK banks, remarkably less than they were at the peak, is still about 20 or 25 to 1. So basically banks only need to lose 4 or 5% of their asset value and their bust. That's still true. But better than it was before but they are still incredibly highly leveraged financial systems. They are vastly more leveraged than any hedge fund you could imagine. A bank is about a sound sound of financial structures you can imagine. I think they will be impossible without the government guarantees. 150 years ago somebody mentioned what happened. Banks normally had leverage ratios of 4 or 5 to 1, not 20 to 1. I think ring ffencing should help but retail banks can easily fail during a crisis. So I'm not going to argue that just because we've broken out retail banks that necessarily we've made it safer, that's a whole complicated set of issues. I did want to show something about risk weighting and this is it. It's a little bit complicated but it is relevant. Basically the idea is we decide how much equity we need in a bank by deciding how risky its assets are and this is what happened before the crisis. Of course the banks will tell you that this will never happen again but this is what happened before the crisis. So the red line shows the estimates of the riskiness of the assets and the banks were telling themselves and telling the regulators for the 4 years before the crisis that never before had they had assets as riskless as the ones they were then having. Because the assets were so riskless they could become much more leveraged and they were reporting in 2007 that they were fantastically well capitalised because their assets were riskless. Their assets were exceptionally riskless at exactly the point about which they were going to go into the biggest financial crisis ever. I think we conclude that risk weighting doesn't work. And there are profound reasons for that, methodological ones which I could go to. I don't think coming back to the reforms resolution will not eliminate the possibility of crisis and might increase it. And the basic reason is once people know that there could be resolution which means that creditors will lose the creditors are going to panic. It's a system for triggering panic in my view. The controls on pay and other internal incentives they're always going to get their way round. I don't think macro prudential policy which I've mentioned will work and the most difficult problem with it is that essentially the central bank, the Bank of England is making the risk bearing decisions in macroeconomic policies. And the biggest problem of all of course is that we're already seeing this in the US is that the banks have an immensely powerful incentive to support the regulation. They know they and they have the power and means to do so and that's what they're doing now. So five years from now it is a solid bet that the regulations in the US will largely have gone. A lot of it will gone and once it happens in the US the whole thing falls to pieces. So the regulatory structures will not hold. So finally very briefly where might we go from here? I think there are three or four proposals that might be worth thinking about in terms of making the system better. The first proposal which is a rather nice one is Mervyn King's Pawn Broker for all seasons. And the idea of this one is simply that the value against which the central bank will lend to the banks in a crisis is pre-specified because the collateral has been pre-positioned. And they cannot have liquid liabilities, money to your me, which exceed the value of the pre-positioned collateral at the haircut that the central bank has imposed. And I think it's a brilliant, simple, small but brilliant reform and it will never happen because it will really kill the business. The second set of proposals which I think again won't happen but are very important, particularly based American support is massive reductions in leverage in our economies and in our banking system. So reducing leverage back to the sort of levels we had 100 years ago in the banking sector but also shifting away from mortgages and mortgage type transactions to equity and equity like instruments in supporting house purchase or the rest of it. Radical set of reforms would substantially reduce the fragility of our economies, probably won't happen. The final set of proposals which Fran is going to spell out in detail are variations on sovereign money. Essentially reducing the capacity of the private financial sector to create money through advances, reducing or even eliminating it. There are many ways of doing this, 100% reserve requirements or things of this kind and that would essentially shift you from a private based monetary system to a government based monetary system. There are quite a number of different ways we could go about doing this. I've mentioned 100% reserve banking. We could have direct government created money in which banks will be the agents for accounts containing government money which is what positive money has suggested. We could move to a situation in which all of you will be entitled to open an account at the central bank instead of just banks being able to own an account at the central bank. It's not at all obvious why only banks should be able to open an account at the central bank. The central bank is ours. If you had an your account at the central bank, it would be completely safe until the government defaults which is a different set of problems. Of course you could create central bank digital money instead of cash outside the banking system which again would be completely safe. There are quite a number of options we could now pursue which would reduce or eliminate in substantial measure the fundamental problem created by the FANG. That money consists of the liabilities of unsound financial institutions. So conclusion, in conclusion, the one, the emergence of an immensely highly regulated, which is where we are now, yet costeted, notionally private but publicly backed financial system is a perversion of a market economy. If you're on the left or the right, you should both agree this makes absolutely no sense whatsoever. It's neither a market economy nor a proper socialist one. I tend to think you have to have one or the other. The banking system is, and this has been true ever since central banks were created, is the private beneficiary of a public function guaranteed by a public institution, the central bank, and quite often by the FISC, which is the creation and management of money, it is able to use the vast resources given to it as a result of that link with the state to lobby against regulations it doesn't like. It will in time succeed and we will then have another monstrous financial crisis. The question is not if but when. I'm not convinced it's next week. I think Vincent might be wrong, but it will happen. So I would say, in my view, very radical reform is something we should be thinking about. It's not going to happen. In fact, we're going to go the opposite direction. We're going to deregulate and that's why we'll have another financial crisis and our children and grandchildren will probably be having the same discussion 30 or 40 years from now. Thank you for listening. I'm about to attempt the impossible, which is I'm going to try to respond to Martin's diagnosis and his proposal that we should move to a 100% reserve banking system, the positive money proposal, and try and answer some of the questions that Emily posed in half the time with Martin. So goodness knows whether that's possible, but I'm going to try. Just to say, I have known Martin for 27 years. He hired me for my first ever job as an economics leader writer at the Financial Times in 1990. Martin was the chief economics leader writer and I was the other one and we worked together for four years. He taught me a lot actually. He taught me to understand the importance of movements in credit as well as incomes and the inherent risks in a banking system. He taught me the importance of understanding market failure and the case for government. He taught me actually that inequality and poverty wasn't only a moral issue but actually an economic issue and an issue of political economy and societies which didn't address inequality and poverty tended to be weaker economically and more unstable as well as being more unfair. He taught me that most solutions these days require international action to solve an international problem. He also taught me that in general markets are a more powerful source of innovation and change than government planning and that governments are attempting to sexually plan the economy doesn't tend to work. He taught me that markets can fail but actually governments can fail as well and you have to understand the risk of being an active government and the extreme, the all powerful controlling government tends to deliver bad economic outcomes and very bad societies as Martin knew from the history of his family very well. He taught me a great deal. 16 years later, 17 years later in July 2017, 15 years later in July 2007, I moved from being the financial services minister in July 2007 to being the new children's secretary. I can glibly say that when I stopped being financial secretary it was all going fine but of course it wasn't and a quick anecdote. I, the previous December in 2006 as the Treasury Minister who had been involved in Bank of England independence 10 years before, I said to Mervyn King and the Treasury in the Bank of England we needed to know that we were equipped to deal with a crisis if one came along. Would we know how to manage ourselves and I pushed for and we agreed to have a two week war game which happened in January 2007. The Bank of England came up with a made up scenario and we acted it out in real time over a fortnight and the real time scenario was that suddenly the collateral of a northern building society became worthless. Actually in this case because of a change in a European court ruling. We decided that we weren't going to intervene because it was a building society which was not hugely systemic but it turned out one of our big clearers was very exposed to this and we ended up with a three hour meeting between myself, Mervyn King, Callum McCarthy who was head of the financial services authority and a very difficult meeting because I was in the chair, I was the minister, the chancellor de facto on behalf of Gordon Brown and Callum and I were clear that we couldn't allow the clearing bank to go bust. Mervyn was basically said this is an issue of moral hazard and it should be seen to fail but that would have meant that the cash machines wouldn't have operated overnight and the impact upon the wider economy was catastrophic and we were clear that management change had to happen but we couldn't let that happen and it was decided that we needed to have an intervention to keep this big clearing bank alive and the proposal for the FSA supported by the Bank of England was we asked ABN Amrow and apparently solid bank on the other side of the channel to come in and take over our ailing clearing bank and we concluded that there were big problems allowing that to happen around state aids which Mervyn thought should prevent us doing it and we thought we should do it anyway and sort out the state aids issue afterwards we realised our deposit insurance system wasn't up to it and we then concluded we needed to start some work streams to make sure that we were equipped for whenever the crisis occurred and then the northern crisis happened six months later without any indication really at the time from either the Bank of England or the Treasury this was about to occur so it wasn't that we weren't looking for it and it wasn't that we hadn't sorted out what we would do if it happened but the Treasury and the Financial Services Regulator and the Bank of England didn't see the underlying things which were going on and the same with true in Treasuries and Central Banks all around the world in economies which had the tripartite system, the economies which had twin peaks where the central bank also controlled the financial regulation and of course what actually happened in the crisis over the next year and a half was more complicated than our example because you did have the Northern Rock example where there was an issue about consumers worrying about whether their deposits would be safe but actually as the crisis unfolded it became much more international in its dimension. We ended up as Martin saw on the charts, our clearing banks hugely exposed but actually the exposures were international rather than domestic it was a crisis which actually started in subprime in the housing market in America rather than Britain. I remember a speech Mervyn did in 2006 and he was reassured that what was happening to monetary aggregates was a sign of the confidence of savers to invest for the long term that low inflation was secure but at the time all the indicators which we were looking for seemed to be benign and that was in retrospect a huge amount of learning and the learning has led to of course in the end on this global scale it was a very classic banking crisis as Martin said just a classic banking crisis in a more sophisticated off-budget shadow banking kind of way and nobody saw the signs and the road we've gone down is to try and sort out the road the governments have gone down and sought out the financial system for the future and as Martin said it's a big question as to whether the financial reforms are enough but they're certainly real and radical and the screams of investment banks in New York towards and Donald Trump and the new Treasury secretary shows you they don't like them but of course they would scream and of course they would complain. At this point that is not the whole story of this financial crisis and it's not the whole story of the political response there's no doubt that the populism of the following 10 years is in part the consequence of the failure of governments of elites a word used often by left and right to deal with that crisis. Of course that's true and Martin said that in his presentation. It's also though that it reflects an underlying squeeze on wages in America and Britain and all across the developed world which precedes the financial crisis it reflects a growth of inequality especially at the top which precedes the financial crisis and is driven by much more complicated things than simply what happened in the financial sector. It also politically reflects the challenge of globalization being not only about goods and money moving but people moving and the fact that migration has been such a big part of the popular debate in Britain and America. That is a deeper issue which precedes the financial crisis. That isn't to say the financial crisis is not hugely important and in Martin's chart where you see that underlying fall in relative trend growth that could be an overhang to the financial crisis but it also could be driven by a number of these other deeper secular trends in our economies which would have happened even if we hadn't had a financial crisis. So there is a debate about how much of that chart is financial crisis driven or not. Anyway, the question Martin poses is is the regulatory response to the crisis enough or should you go for this very different proposal which is to move away from our traditional banking system where you put money in banks and banks lend multiples of that to companies and to individuals and to homeowners or should you go to this system as he's advocating and positive money advocates, advocates where everything has to be matched, whatever you lend has to be matched by a saving. And in the spirit of everything he taught me, one if Martin thinks something is a good idea you should take it really seriously and also you should always be open to radical ideas and so therefore I genuinely have an open mind about whether in fact this is the right solution. I'm not sure but I have an open mind. The interesting thing about the politics of this or the economics and the politics of this is the original proposal for 100% reserved banking system actually goes back to the Chicago School of Economics to actually the free market right to the kind of people who preceded and then Milton Friedman. And the monetarism of the early 1980s was a clear example of that philosophy in action and it was really based upon two views. One view was that the relationship between money and the economy is actually quite predictable and therefore it's easy to plan. And secondly that economies tend to be, free market economies tend to be self-equilibrating. Things get back to normal and if governments try and do anything they make things worse so actually you should sort of keep out of the way and let government sort of things out. And the failure of monetarism in the early 1980s I think is pretty much disproved for everybody. The former proposition clearly the relationship between money and the economy is very complicated and actually what economists would say endogenous. It's actually changes but it's actually changes by internal, the changes can often be driven internally by what's going on elsewhere in the economy. But there are some people who still think that the free market view is right and that's why you still have people on the right advocating this proposal but also some people on the left who take a very different view which is that actually this is a way to stop banks undermining the economy and a way from a left of centre point of view that you can take back control. If you are a hardline Keynesian you probably don't actually care because you think governments are so good at stopping the sessions by spending and stimulus that whatever happens you can sort it out. But actually most sensible Keynesians don't think like that. So probably Martin and I are neither in the extreme Keynesian or free market right. We know monetaryism failed. We know those inherent uncertainty but the question is can you still make what Martin is proposing work. And I think there's basically three big questions. Big question one is if you set up the economy in this way where you can try and control money and manage banks. So banks only do things within this quite restrictive set of rules of the game. Can you be sure that you've actually pinned down what in fact operates as money. And can you be sure that you've got all the institutions within your remit which are actually doing what banks traditionally do. And both of those things are really hard because if you go back to the financial crisis of 2007 it wasn't a bank run. It was a repo run which was actually happening outside to some extent the formal banking system. So you need to cast your net quite wide. This is quite hard thing to do because also as I said our banks got into trouble because they were lending internationally. So therefore it's quite hard to do this in one country. You see you'll sort of need to have a one world approach to managing money and to matching that to liabilities. If you can do it globally and be sure every institution is in that you've got a chance the more you retreat to one country and try and draw an artificial dividing line you could call it a ring fence. It gets harder. It's not impossible. It's harder. And the danger is that if actually you have lots of people who are investing outside your controlled system because they're trying to get some risk and some reward and start to get worried that maybe things are getting a bit unsafe and therefore move their money back into your controlled regulated system. The danger is it becomes pro cyclical and more destabilising. So you've got to manage that. Anyway, point one is really hard. Point two, the people have to manage it. They've got to be really good. I mean they can't be like Mervyn King, Callum McCarthy and me because we were doing our best but we couldn't see this problem occurring. What you're asking the independent committee to do is incredibly hard. It's incredibly sophisticated. It's very difficult. The flaw in Mervyn's proposal of his pawnbroker is that this pawnbroker has got to have incredible foresight to really know how to make sure it prices risk. And the reason why we failed in the financial crisis was partly because people who were paid huge amounts of money to price risk did it really badly. So it's very difficult. Now what tends to happen is that if you say well how hard can it be, it tends to be that either you end up with a benign view or the controlling government will be able to sort this out. Which you sometimes hear on the left, although Martin told me to be quite sceptical about controlling governments. And also you have to be kind of just cast really wide. So actually all the allocation of public spending and investment and the decision between good and bad capital, these things are all done by this all powerful committee. Now I'm just not totally sure whether this can be done but you tell me otherwise. Now my final point is this, that actually if you think about trade, what we've been going backwards in terms of trade, cooperation on international tax reform will actually slow down the last six or seven years. Finding ways to manage migration in a way which is good for developing countries and works politically, we've sort of not been succeeding at. Finding a way in which we can make technology work so that it helps the incomes of people in the middle of the bottom. Finding ways in which we can manage our tax systems so we tackle inequality, those things we've been kind of poor at. We've actually been quite bad at building houses. The only thing actually so far that international cooperation has been quite good at in the last six or seven years is international financial regulatory reform. And so the question is if you're going to really focus on the right lessons for the global financial crisis and do what needs to be done to turn things around politically, is this the most important issue? Is it the second most important issue or would you put all those other things for it in your pecking order? And I'm not sure it's the most important issue, but I think it's A important issue. So those are my questions and that sort of reflection of, you know, I feel like I'm 23 and sitting at the feet of Martin Wolf and saying those are things I'm not sure I fully understand, but you may be right. Thank you, Martin and Ed. And I'm sorry to disappoint you, but I'm not actually going to talk that much about Positive Money's flagship proposal, which is to strip private banks of their power to create money. I very much agree with what Martin said and a lot of what Ed said, although I'd pick up on a few things and disagree with a few points and maybe we can get into it in the Q&A. But I think what I do agree with is changes so urgent that we need to be talking about what is happening right now and criticising it. So that's where I'm at and I'm not an economist like these two. I'm more of a system change thinker and so I want to bring in the broader context. So in 2017 and in the UK wages have seen the worst pay decline since the Victorian era and they've stagnated for the longest time in 200 years or since the Napoleonic Wars. We've got record high current account deficit, record high asset prices, record high debt to GDP, lack of demand, secular stagnation and record low interest rates. Stock markets are hitting all time highs and in the UK in the last five years we've seen a growth in millionaires by 41% and at the same time we've got one in eight workers who can't afford three meals a day. Low paid jobs are proliferating and food banks use is soaring and of course this is in a bleak global picture where 1% of the population owns 45% of the world's wealth and scientists tell us that we've got three years left until catastrophic climate change is unleashed. Obviously there are countless more really terrifying and upsetting statistics and they're all connected and they are part of their symptomatic of deep structural issues and together they paint quite a clear picture that the political economic system of the last few decades commonly known as neoliberalism is breaking down. And one way to understand what is happening is that we're in the midst of a crisis of economic thinking or political economy. Ten years ago we had the crash and the dominant school of economic thought near classical economics failed spectacularly to predict it and then they failed to say actually how it happened and what we should do next. Ten years on civil society has responded to an extent positive money exists, great organisation like the Finance Innovation Lab and New Economics Foundation have critiqued the financial sector and great thinkers have written books critiquing the economic establishment including Martin's excellent book The Shifts and the Shocks. But in the halls of power in the Bank of England in Whitehall new classical economic thinking still persists. The thinking that got us into this mess hasn't gone away. I was on a panel last week another ten years event with a former FSA regulator who was there pre-crash and he said everyone there believed markets were perfect. So much so that the industry is shrinking so he actually left because he wanted to find a promotion somewhere. But so much so that this idea that markets were perfect meant that you couldn't challenge it and if you did you were laughed at. And the idea is hopefully absurd to everyone in this room like markets are people and people are certainly not perfect. But these macroeconomic and finance ideas that were part of the pre-crisis orthodoxy whether it's the efficient market hypothesis or the rational expectations hypothesis. There's a plethora of evidence to show these aren't correct but they still persist. And I think the failure to really question the financial markets in 2008 and turn the shock of the crash into a program of reform meant that the financial crisis very quickly morphed into a crisis of government spending. And across the world we saw governments implementing austerity programs backed by the OECD and the IMF and other multilateral institutions so that the people that had done the least to cause the crash suffered the most. And it is clear that the establishment view has at least somewhat reverted to pre-crisis thinking. Mark Carney, the Bank of England Governor, has recently made statements where he said that the UK should double the size of the financial sector over the next 25 years. He also said that the UK should become Europe's investment banker post Brexit. Now the idea that either of these things are in line with the Bank of England's mission which is to promote the good of the people of the UK is completely unfounded. There's absolutely no evidence that a large financial sector relative to the size of your economy results in better resource allocation or better returns for savers and investors. If anything, the opposite seems to be the case. The financial sector is inherently rent seeking and so its growth is a result of extracting greater and greater rent from the rest of the economy. This should be a cause for concern and not celebration. So the city's contribution to growth and jobs, although often applauded by politicians, is vastly outweighed by financial instability and the cost of the last crisis is estimated at £7.4 trillion to have costed the UK. And even if we look at bank lending and where it goes in the good times, how much of it goes into the productive economy, it's pretty dismal with less than 10% of new loans going towards businesses. The vast majority is to property and financial markets which results in the UK economy being skewed towards an oversized financial sector, housing bubbles, asset price inflation and people are having to rely on taking more and more debt to top up falling incomes. And despite delivering negligible social benefit, they still receive a massive public subsidy. As Martin spoke about, banks create money when they make loans and they have this unique privilege and they're able to do it in the knowledge that if any of those loans go bad, the state will step in to protect citizens' deposits. And this protection means that they can charge really high interest on loans while at the same time not giving any return to depositors. And this public subsidy, the New Economics Foundation has estimated is around £25 billion a year. And when there's a recession, the UK taxpayer, the state will step in and bail them out, which was a chain of over 130 billion in the crash. But obviously the cost, as I said earlier, was estimated at £7.4 trillion, a vast amount of money. So what can we do? When the UK were dominated by five shareholder banks, it's obvious interests are to their shareholders primarily, so that needs to change. But what we should be questioning now is our public institutions, the Bank of England, the Treasury, that should be putting society's interests first, whether they are. And there's a sense that the Bank of England and Treasury understand that we can't go back to pre-crisis finance. So Mark Carney caveated his statement about doubling the finance sector by saying that we need tough regulation. So he does think that the finance sector should be tamed but not changed. And there's clearly not been a discussion in any of those institutions around what is actually the purpose of finance. So my organisation Positive Money was founded with a radical vision to challenge the way money is created. And we quickly understood two things. That first of all it was a bit of a taboo to talk about how money is created, less of a taboo now. And secondly that there's a huge lack of knowledge in this area. And we witnessed that in the election early in the year when Theresa May questioned a nurse and said that the nurse didn't deserve a pay rise because there was no magic money tree. Now clearly it wasn't just Theresa May's lack of understanding of the monetary system that led her to make that statement. There's also political ideology at play. But very few people are aware that there are two large magic money trees. We have commercial banks, they create money when they make loans, and we have central banks. And central banks across the world have been creating vast amounts of money through quantitative easing since the crash. The way QE works is it floods financial markets with money, it creates money and buys financial assets from mostly government bonds. And the idea is that it should encourage bank lending, essentially trickle down. It doesn't work. And there's no evidence it's had a very good effect and it is literally making the rich richer by boosting asset prices. Right after the crash we probably could have forgiven this policy as maybe being the best tool available in a hurry. But when the Bank of England announced its expansion of QE last August after Brexit, a policy they know will increase the wealth of the top 5% when wealth inequality is threatening social cohesion in the UK. The idea that that is the best that they can do, some of the brightest minds in this country, is completely unacceptable. So we know we need people to shift the debate and so whilst we like holding debates with very intelligent people and getting the discussion about how we do reform, we also know people power matters. And so we've been, hopefully some people in this room were also with us outside the Bank of England twice. We've mobilised over 10,000 people and we got the Treasury Select Committee to start an inquiry into monetary policy. Questioning ideas like why are they doing corporate QE, where they pick corporations to buy bonds in, why are they doing QE when they could be doing alternatives. Monetary financing, QE for people, there's also a range of options. Unfortunately the quarry's got shelves because of the election so now we are calling on Nicky Morgan who's the new chair of the Treasury Select Committee to reopen it. And I'd urge all of you to email your MP. I think you can do it via our website. But actually these things matter because in these turbulent and uncertain times what is clear is that the most important and powerful macroeconomic institutions we have, central banks, are not being adequately scrutinised. And if what emerges from the current breakdown of the system does not seek to democratise central banks and does not seek to democratise the financial sector at large, then it's going to be very difficult for what to emerge to be fairer, more democratic and more equal. Thank you. For you to take this now, your thoughts, your neighbours, just let me remind you of where we started. The talk is out of the darkness, can a reformed financial institution solve the world's big problems? What are the world's big problems in your eyes, in your mind, and is the right kind of reform taking place to solve them? If you can just spend a couple of minutes now, we're not going to listen in, just talk amongst yourselves, introduce yourself if you haven't done already, throw something out there, be big and bold and radical, and then we're going to put them into questions for our panel again to get as much in as we can. We've only got half an hour, so keep your thoughts succinct and sort of focus to our speakers after you've had that moment. Nervous, you don't actually need us anymore. Let me pull you back into the room. This is very encouraging, and I'm going to ask for some hands now to our speakers, to our guests, just to kick us off in the right place. Sir, yes? My major question is, if there is another downfall fast and Ed Balls is in another little coterie, probably the only thing you will have, the only lever you'll have, coterie, grouping of people, the only lever you're likely to have is quantitative easing. The central bank magicked up £435 billion, which has gone into asset inflation of the already wealthy. If you had green QE, and were actually spending that money into environmental work, energy efficiency, transport, blah, blah, blah, all over the place, you would help tackle the left behind, which is one of the crucial reasons for Brexit. But you would also begin to rebalance the economy towards real things rather than just asset inflation. Advocating green quantitative easing, yes? Sympathy with the argument. If you look at what happened between 2007 and 2010, the coteries, having not seen the financial crisis in advance, absolutely learned the terrible lessons of 1929 and 1933 and went for central banks and governments, big monetary and fiscal stimulus. It was the right thing to do to stop us slipping into a depression, and the problem was that then went into reverse in 2010 in pretty much every developed economy, the exception with Australia, who by the way avoided having a recession where everybody else did, and just said we're going to do nothing with fiscal, we'll leave it all to manage your policy. And the reality was that once interest rates have gone that low, the only weapon the central banks had left was quantitative easing. I think if it hadn't been for the quantitative easing in that period, we might have seen another much bigger downturn, but you're right, the better thing to have done would have been to have had some active fiscal policy. An active fiscal policy means governments choosing to support the economy. That's a classic Keynesian response, and what could you have done? Well, you could have built houses, you could have invested in green technology, and that didn't happen, and I think that was a mistake. Now, if we had another crisis in this situation with interest rates already very low, you're right, the only thing would be fiscal policy. I don't think we will for the reasons Martin said, which is I think if there's another big financial crisis, it's probably decades away, but who knows it might be just round the corner. I think it's more likely the thing which would cause the crisis would happen somewhat for a downturn would be something which we're not looking for, whether it's a big event or a weather event or something which happens in a developing country, maybe a cyber attack, who knows. But whatever it's caused by, I think it's unlikely to be the next one, the financial crisis, unless governments are going to be more open minded about fiscal policy if they try and leave it all to the central banks, it can't be done. So, I agree with you. Fran, do you think that there was an alternative to QE in the way it was used last time, or would you say this was a black swan and we needed to pull relievers? Last year. Yeah, definitely. No, no, no. In 2009, I mean, I kind of understand that it was like they needed to do something fast and that was perceived by the economic establishment and everyone as an okay tool. I guess, you know, potentially that was the best tool available without like shocking all of the markets or getting people like, oh my goodness, what are they doing? Obviously, at the same time, they were like, it was maybe the best thing that they could have done. They could have also been ensuring that they were, that a fiscal stimulus happened at the same time. But I guess it went on until 2012 after which austerity had started. And there was then this toxic mix of QE on the one hand and austerity, which we've seen for the last few years. But I guess, I think on the crisis point, I think we need to get away from needing a perceived crisis. Like we're still in a kind of long drawn out crisis, you know, one in eight workers can't afford three meals a day in one of the richest countries in the world. But if that isn't a crisis, then what is? And I think, like, part of the problem is, in a way, when we talk about financial reform, we're always trying to have a crash before we go into the reform agenda. And the problem is financial reform has shifted off the mainstream debate and we need to bring it back. QE and positive money aren't the answer to that, are they? Well, in 40 years we have created, in the world's information system, we've created a much bigger revolution than the one that we're looking for in the monetary system. And there's a couple of observations related to that. One is that our financial system is still not pluralistic in the sense that a tyranny or feudalism was not pluralistic. We developed a much more resilient political system by becoming politically much more pluralistic, having more centres of power in different places. So the internet is pluralistic in the sense that it's not a single network, it's a network of networks. So I've been involved in developing a local currency, we traded about a £120,000 equivalent over 20 years between a few hundred people in Coventry. We created our own monetary system, we kept score. The system operated about 22 years. We came down to safe landing, the flight of the Wright brothers was not a failure because that plane came down to land. So again, how are we going to think more creatively? We do have the opportunity for firewalls between the networks and that comes from the tax system, how that works. We've got a lot of hands, so let's just get a few more thoughts and I'm going to go to, I think I saw you first, the red scarf. That's you. Private banking sector. To what extent do you think the fact that they're patching up this current mess is based on ignorance of other solutions or short term greed? Great. I'll just get the, there's a lady in front of you, so if you just pass it forward for one second. I wanted to ask, it seems to me that a lot of financial stability is based on our confidence in the system. We need to know that we'll work for pounds because we believe that pounds have value. We'll put money in banks because we think we'll get it back. When we're talking about more creative solutions, I wonder to what extent you think that the way that they're framed is a problem. How you can frame it to people so that they don't freak out so that they agree that it's a good system. Great. And there's one more just on this side. Just two rows behind you. I'll keep the mic on that side and then we'll put them to our panel. I'll come to the middle section in a second. Thank you. Looking at the chart that Martin Wolf showed early on, he showed that during this period of time when the financial system was growing very rapidly, the trend growth was pretty flat. So all this extra growth in the financial system clearly wasn't contributing anything to the real economy. I'll just come on to my next point. The main point is that we've got a lot of growth of financial assets, financial growth, which is going into financial assets, not into real economy. So it's going into property price increases, asset price increases, M&A, so this is going into existing assets. I think that's the cause of the problem that we have because that's where the speculation comes and where the crash happens. And I'm thinking now of ETFs, which are currently growing very rapidly, and are you concerned that that's where this thing is still going to happen again? Thank you very much. Martin, let me go to you first of all. Maybe you can start with the middle question, this whole idea of confidence coming in how these sort of radical ideas are broached. There are so many interesting questions that have been raised that we can't really comment on and some of them are really deeply philosophical. Okay, yes. The monetary and financial system is a confidence system. Absolutely great. Actually, if you start thinking about it, all social systems are. The government of the UK survives as a government, as long as people believe it's the government of the UK. And if we all agreed tomorrow that Theresa May and all the rest of them were not the government of the UK, they would cease to be. That's one of the most interesting things about human beings. So it's a confidence system that raises some two interesting points. The first is, as I've described, is break is in the nature, it is in the nature of the link between our monetary and financial systems, which is sort of the point in a way that Edward's getting at. That confidence will break at precisely the moment that you don't want it to. That's exactly the main point I made. So it is a fundamentally defective system from a confidence point of view. Internally, it cannot provide the confidence that is needed when it's most needed. Only the state can provide it. So the monetary and financial system is ultimately parasitic on the state. It is possible to imagine a system that doesn't have that characteristic, but it is radically different. Most of the proposals here, by the way, in different forms, green finances, have all involved more fund state activity. But at least a complete takeover of the system is implicit in these suggestions. You asked about the attitude of people in the financial system, if I understood it correctly, I've got the question wrong, to alternatives which don't have these characteristics. My own impression for what it's worth is that most people in the financial system quite literally never think about alternatives because the present system is working very nicely from their point of view. So why should they? And the essence of, and this is a very real difficulty and think about reform more broadly, it's my last point. We can obviously imagine any sort of reform and they all have lots of problems and questions in terms of the systemic effect. But the main argument against change is always going to be the alternatives to what we have is deeply unfamiliar. If you move to something that is deeply unfamiliar in many dimensions, it will shatter confidence in what we have. And therefore, the process of change will itself be wildly destabilising. And that's a very powerful source of conservatism. If I bring Ed in, this I think goes to the heart of your point, which is the people that were patching it up. And I think that was a very carefully chosen verb. We're driven by ignorance or greed. Is that too far? Would you say that's broadly right? I think where I absolutely agree with what Martin just said is that in the end it comes down to the confidence will come from government leadership. That's the important thing. I remember very early on in my time as Shadow Chancellor going to a city seminar where one person, this isn't extreme. This isn't totally representative but a very senior banker says to me, I don't know why you politicians keep going on about the banks all the time. The public don't really care about the banks. Housewives are more bothered about the supermarkets. They're the real enemy. I think this is totally to not get where people are and my constituents. And I think there is absolutely a group of people, not just in the financial services sector but also in some governments and in some parts of business who just think if they wait long enough we can go back to how things were before and the right thing to do is to keep the heads down. And for some of them, going back to how things were before, you could describe as neoliberal. It's basically an anti-government, more free market, things will sort themselves out and wealth will trickle down. Now my personal view is it is impossible to see us getting back to stability, growth and fairness by going back to anything which you might call neoliberal and free market. In fact, all of my life I was battling against those right of centre forces. I was very critical of monetarism. It's partly why I'm bit cautious about the positive money proposals. All I want to understand them and discuss them more because that is sort of where they come from, from that view of the world. But the only solutions, they're not going to happen from individual governments. There's something individual governments can do. Individual governments can tackle food banks by changing the tax system. But if you want to have a financial system which is stable, to tackle the environment, to actually make trade work fairly, to make companies pay their fair share of taxes, that means governments coming together to cooperate. And at the moment we have an American president whose American first rhetoric is anti-corporation. We have a British government which is currently walking away from international cooperation in Europe. I don't think the G20, the G7, the IMF, the World Bank have been weaker in my lifetime as international fora unless you have governments coming together to deliver a collective agenda about change. I don't think we can get confidence back. That is I think the thing which has to happen. Can you get a few more hands? There's lots of people. Yes, you madam in the blue. I wonder whether you know about the model that happens in the Bank of North Dakota which has been taken over by the government and they do do this. They manage it for the benefit of the people. So they don't have this banksterism. And Ellen Brown blogs about it all the time. If any of you want to know about it, I'll forward you the information. It's a model that seems to work better. Thank you. If you just pass the mic forward to this. Anthony Molloy from the Labour Land campaign. All of these questions, it seems to me that there's a lot of problems arise from unhealthy interaction between the rent-seeking asset-based economy and the productive real economy. Is the only way of uncoupling those two? A decoupling. OK. Thank you for being brief. You sir, right there. OK, very simply isn't it, but all we have to do is take away the wealth socially conceived with confidence from the people who appear to have it at the moment and re-redistribute it back to people in the middle. How would you do that? OK, atly level sorts levels of taxes would be one thing, inheritance tax would be another thing, a lot more public transparency and anger about the situation. Fine. You've been very patient. Given that our money exists as a debt to the banks on which interest is payable, is it not the case that even if every man, woman and child in this country worked 100 hours a week, we would still owe more money to the banks than we have? And does the panel think that's reasonable? No more money about the banks. Do you want to answer that one? I know you don't. I can answer it. So your question was debt to the banks because we pay interest on all of the money that we owe to the banks. So I think there's always this conversation that it's a debt-based monetary system that means we have to grow. Is that what you're getting at? Oh, yeah, yeah, yeah. So we're getting... I mean, I think it's unfair on multiple levels. And I think absolutely the fact that we basically all rent our money from the banking system is one of the key points that positive money makes. It's a massive public subsidy that actually the private bank shouldn't be getting. Am I allowed to make a few general comments, Emily, and pose a couple of questions to these two? Is there something to add just at this point? Because a lot of the questions that we're getting at is pointing in a, let's say, in a Corbynys direction, okay? It's about redistribution. Am I wrong? Am I wrong here? Okay, well, the questions that we're getting is about redistribution is about... Andy Inheriton is about high levels of taxation, Andy inequality. I'm wondering whether you think that there was a point at which Labour, and I know you're only in power for another two years after that crash, but was there a point at which Labour could have reset the whole economic terms after the banking crash and said, do you know what was wrong before and it needs recalibrating? I'm worried about the politics which we've seen come out of the financial crisis, and I talked about the kind of things which have driven that, which were around slow growth, slow growth in wages, rising inequality, rising working poverty, unfairness in trade. And so I just think you have to kind of decouple that from the issues around financial regulation and look across the piece. I was part of, after 1997, a government which did more to reduce child poverty and tackle inequality than any government Labour or Conservatives since 1945. 45-51 definitely did more than us because of the National Health Service and because of the introduction of the welfare state. We were definitely second. What we did was in terms of the introduction of the national minimum wage and tax credits was... Okay, you don't believe me? Okay, I'm just telling you the truth as far as I see it. We reduced child poverty doubled under Margaret Thatcher in a writer's centre economics, and we reduced child poverty between definitions either 600,000 or 1.2 million depending on how you measure it, but it came down very substantially. We raised taxes in 2001, raised national insurance, not because we had failed on the economy, which is why most governments raised taxes. We raised them because we made a positive argument to the country that we wanted to invest more in the National Health Service. Now, I would agree with some of the things Jeremy Corbyn says. I personally want tougher regulation of the banks. I'm not personally sure that nationalising the banks is the right way forward, but we can debate those things. But the broader point, which is unless you have international cooperation and government action to tackle inequality and the sources of slow growth and get wages rising for most people, unless you do those things, our politics is going to continue to be sour, but I'm not a nationalist. I think it has to be done internationally. Yeah, I was just going to quickly respond to that, and so I guess the point being maybe you did the best that you could have done in the situation, but you're working within this neoliberal political economic system where year on year inequality is getting worse, and actually we have to look at the system as a whole and reform it if actually we're going to get to a place where year on year things could get more equal. Because inequality still grew in that country. It wasn't a neoliberal economic system because we introduced a national money wage and tax credits, tougher competition policy including fines on managers who were characterising. The great irony is that people on one side of the left think that the new Labour government or the Labour government was too right-wing and it hopped to neoliberalism. And you can think that, and that's absolutely fine. All the time I was a government adviser and a minister, we were not attacked by the left for being too right-wing. We were continually attacked by the right for being too left-wing because they all believed that we were regulating too much, spending too much money, not a big... Sorry? Okay, so I was just answering the question. I think like... Let's get some more questions in front, you can come back to these. I saw your hand first. And then I'm going to go, nobody on this side that I'm missing. You sir, yes. Colin Becks, I'm President of the Wessex Regionalist Party, been campaigning for 42 years to solve the major problem everyone faces, which is to get a democracy into this country and to have sovereign power distributed throughout the parishes. Because until we get that, it's painfully clear that our economic system is totally and utterly corrupt, it is irredeemably reputable. Can I just push you towards a question sir? A question is, would the panel not agree that until we remove, deconstruct, not reform, reform isn't an option, we deconstruct the existing government system, the existing finance system and we make it democratic and then we will have a chance of implementing the changes that positive money above all wishes to put in and that Mr Bolts has said he couldn't do it when he was in power and could have done. Thank you very much. Sir, I still have come to you next and then there's a hand that's been waving frantically at me from the back. Thanks. My name's Frank. I work at the New Economics Foundation, formerly of Positive Money. I was wondering, Martin, it's always wonderful to hear you speak by the way and everybody else while you've done a great job. If you could maybe expand on the benefits or, let's put it this way, the blurs between sovereign money being a monetarist idea versus it being a post-Cainzian one, me being a post-Cainzian and kind of wanting you to maybe expand towards Ed on the sovereign money post-Cainzian elements that there are to it because in my opinion it is not a monetarist idea and I think it's one of those kind of rebuttals that somebody put forward this idea once to dispel. Great. We'll come to you on sovereign money in a second. There was one hand at the back. Yeah, you've got the mic. Right. Yeah, someone alluded to it over there. The crux of the real problem is the way money comes about and how it comes into being and that is the banks are allowed to create it for nothing. They then tell the government to tell the people that the government's borrowing, say 100 billion from the Bank of England, you have to go back to the people, the people pay taxes. What would you change? What would you change? I would bring back the Bradbury pan. Now, I've only spoke to one person that knows about the Bradbury pan. The Bradbury pan was introduced in 1914 by the Secretary of the Treasury, John Bradbury, to prop up the financial system because we were going to go belly up. Bring that back, bring basic income in and let's get rid of all the problems we're facing in society. Cos, Ed, all you're doing is plugging and tinkering with a sinking ship. One last question. Yes, ma'am. Sophia Morell, I'm Chair of Labour in the City. I wanted to raise the issue of pension fund capital and institutional capital, which doesn't seem to have come up much this evening. McKinsey estimates that the global needs of infrastructure or UK needs of infrastructure will be 50 trillion by 2030, which exactly matches with the amount of pension capital and institutional capital we have, which is obviously could be democratised by encouraging people to think about where their money is being invested and getting it flowing through our economy, investing back in development and infrastructure for everyone. Does the panel have any thoughts on that? Thank you very much. Right, I'm going to let Martin, you kick us off if you don't mind, talk about sovereign money first of all and then I'll bring in Ed and you get the last word. I hope you won't mind, I'm sure you'll all understand there are lots of incredibly wide-ranging and radical ideas that have been raised, all of which deserve about an hour each and I don't have the hour, so I'm not going to be able to respond. You won't be surprised if there's a fair amount of what you said that I don't agree with, but that's all right because that's part of the fun. I want to make one preliminary point which is I think related to Collins and this is a matter of intellectual, what I regard of is intellectual cleanliness. I can't say more than this one point is it's really important in my view to try and separate out what are fiscal policy decisions from what are monetary policy decisions. Now that's quite a difficult thing to do but I think most of what you're after is a transformation of fiscal policy. Monetary policy can be used to support that but it isn't fiscal policy. You don't want the central bank to decide how we deal with climate change. It's not its job, it's a government decision and it's perfectly legitimate to ask how we should have used fiscal policy during the crisis and I've had a very consistent position, we should have run larger deficit and invest them in infrastructure and borrow from pension funds. Pension funds need a return so for fairly obvious reasons but so I believe fiscal policy is very important but that's not decisions central banks should take. That's my little point where there's lots of others. Now the key point where I disagree with Ed which is what you asked I don't think it is perfectly possible that you might be a freemanite monetarist actually it was Fisher before him and Marshall before that very great British economist by the way who invented monetarism really Marshall's K so the quantity theory of money is a very old economic theory. You can believe in that or you might not believe in it. I don't think that's relevant to whether you're in favour of sovereign money because you could take the view that we want sovereign money the government creates all the money I won't go into the much deeper question about how you ensure that monopoly that's a very deep sin I don't have time to go into that I'm afraid which Ed was right but you have sovereign money and you could decide actually the right monetary policy with sovereign money is to very enormously growth of money from year to year none of the properties that freeman had in mind the monetary policy you use in terms of how much you expand or shrink money from year to year is independent of how money is created that's very important at the moment our decisions and how much money we don't have a decision and how much money is created our decision on how to pursue monetary policy has no quantitative goals it goes through a monetary system which has the characteristics we've discussed I don't think there's any disagreement about that it goes through a monetary system that has the characteristics we've discussed and at the moment we happen to use it to target inflation but we could do it something else the essence of what we do if something like sovereign money were to work which is essentially to take away the capacity to create money by lending of the banking system or seriously modify it ensure that a very specific but vital range of financial crises can't happen and the specific and vital range of financial crises that can't happen are ones in which people panic because actually if this financial system goes under the ATMs all close as Ed said which is exactly what people were worried about in 2000 and then you're in Armageddon so the aim of this proposal as far as I'm concerned you can think of two things one is to ensure we get away from Armageddon that's not a sensible way to run a financial system it's a moderate modis proposal and you can be a neocansian who believes you use monetary policy in that new system one way you can be a monetarist who believes you use it in another way but the essential point is the system you're using is robust that's the point once you've done that you can then get a separate discussion of where we got this new monetary system regulated by the central bank how should we use that in terms of the allocation of real resources in our country and that is a completely legitimate debate between the left and right on do you want to invest in a green revolution or something else so I really disagree with Ed's description it isn't monetarism in its technical aspect but it is true that it was put forward by people who were monetarists but their real concern is the same as yours you know you should often this is my absolute last point on this you should sometimes take in my view one your enemies I'm assuming from everybody here your enemies' agreement with you when they have it and the thing they agreed with you on is having a monetary system in which private institutions create money is wildly destabilising and corrupting that's what the Chicago school thought I happen to think they were right I'll let you take on from that sorry I'll answer that in the debate between monetarists and Keynesians Martin and I are both Keynesians and there's no doubt about that I am not saying what Martin's advocating is a monetarist solution what I'm saying is that the original idea came from the monetarists and they thought it was a good idea because they thought two things one it would work in a simple way and secondly the free market system was equilibrating they were neoliberal once those two things aren't true actually it's not easy it's complicated the monetary output relationship and the economy is not self equilibrating which is either not neoliberal then it gets really complicated and it's really hard and all I was saying to Martin is the people who originally advocated thought it was easy and actually this is very very difficult and the question is is it more difficult than the alternative which is to regulate the way in which banks operate rather than trying to replace their role and that's a legitimate debate within the space of Keynesianism now there is one answer to the it's really hard and it's really hard because you've got banks and companies and people around the world which is a far left of centre version of take back control where we just decide that we're going to nationalise everything and control everything and once you've done that it's definitely much easier other than the fact that your economy probably runs into the ground and you don't innovate and you don't actually invest productively and you cut off from the rest of the world and I don't think that's a very good idea now there will be some people here who think that's a good idea I've never thought the state taking control of everything the allocation of assets is a good idea and I think that you have to have private agents including institutions including banks which governments deal with now there may be people who think we shouldn't have any private institutions or banks or companies but I'm not in that world and it's more complicated the question then is what do you do and the answer is neoliberalism is not the answer because the monetars are wrong but I don't think one nation go out alone solutions are going to work either whether they come from Donald Trump or whether they come from the far left and therefore the complicated thing is an international solution to inequality, growth, trade and financial stability and it's really difficult and we can debate within that there's a small bit of that debate which is this a good idea but it's a small part of a much bigger debate and the only thing which worries me sometimes when I'm reading the positive money stuff is that sometimes you give the impression this is going to solve most of our problems and in fact it's not going to solve hardly any of our problems but it might solve a little bit to those who didn't get their question answered don't think of this as the end of the session but as the beginning of the drinks so it can continue with our guests in a moment but I'm going to let Fran Boyd wrap up this session Fran there's a lot of thread still that I will leave to you to pull in a question about democracy a question about the Burberry pound a question about pensions as well but it is a big job as I say it's not the end it's the beginning of the next bit but if you want to give us your last thoughts I agree with a lot of the points and questions and I think there's a lot of excitement and energy around community currencies I know the point was made a while ago we need a diverse monetary and banking system we need to diversify ownership like not necessarily keep it all in well it shouldn't be it will in private or state hands it should be a diverse new economy of multi-stakeholder public participants I think like asset prices have been mentioned quite a few times in the questions and I think that the conversation that UK isn't really happening now with Brexit is like where do we want to go like we need to understand that we are literally running the economy on asset price inflation and debt and that is unsustainable even more so with Brexit and we do want to double down and double the size of our financial sector through Brexit I don't think most people in this country do and so those are the kind of conversations we need to be having I'm raising with our MPs and saying you know the price of my house is going up but my children won't be able to afford a house and actually they won't be able to get a job and they don't really want to work in the city because actually it's not really cool anymore because we know it's kind of evil so what do we want to do? and I think that you know actually we're relaunching our website are you sure about evil? I mean we could get into the philosophy of evil if you want I think it is not promoting the benefits of society the thing you've got to be slightly careful about here is there are hundreds of thousands of people on £20,000 a year who work really hard and you work in the financial services industry do you want to call them all evil and say their jobs aren't worth something? I'm just not sure I was trying to make a point it's not a massive industry most people in this country want loads of people in our country need a mortgage for their house are they to save fairly save a pension it's not evil let Fran use the word evil and finish up and you can take this one outside as we say okay and I just wanted to end by saying you know I didn't want to get too much into the the positive money proposal because it is complicated and actually we're relaunching our website next week and we're not going to say it's going to solve all the problems but we know it's systematic it's a system change the whole system isn't working and we're going to focus on the money and banking system and we don't only need the Bank of England to start working in the public interest and not financial market interest but we need a diversity of banks we can't just have five stakeholder banks we need cooperative banks regional banks we could have nationalised RBS and broken it up there are so many options out there and at the moment we're not really doing anything and I think the point that I wanted to make and the point I was kind of hoping that you two might respond to which we can go out afterwards is like central banks are so powerful and at the moment and throughout history they've only really been questioned by technocrats and actually we need to get them to put the public interest first and there is an alternative to policies like QE which are literally kicking the can down the road in terms of keeping asset prices high but doing nothing for the rest of the economy and I think I'll leave it there