How Following Hayek Leads to Regulating Banks Like Utilities, Looking Askance at Liquidity and Securitization

I highly recommend this short interview by John Authers of the Financial Times with Amar Bhidé, a professor at Tufts, in which he argues that a proper reading of Friedrich Hayek would lead to considerable skepticism about whether most of the changes in finance over the last three decades actually represent progress. Amar’s viewpoint is radical: he thinks very few financial markets have the inherent traits that lend themselves to arms-length, anonymous trading and they would not exist in their current format (at least for all that long) absent government support. He also thinks that bad incentives are an incomplete explanation for the crisis, as in better incentives won’t assure better outcomes when you have standardization gone too far and resulting loss of information.

There are a couple of places where Amar makes passing references to orthodox monetary ideas. I’ve known Amar for (lordie) 30 years, since we both worked at McKinsey on the Citibank account; he was also briefly a proprietary trader before going into academia, where he has focused on finance and entrepreneurship. He’s long been iconoclastic and his views on finance don’t depend in any way on macroeconomics but on market behavior and institutional arrangements.

This is a clear and provocative chat, and I trust you’ll enjoy it.