Further, Kay says, leaders such as Margaret Thatcher and Ronald Reagan, whose policies helped usher in financialization, would be chagrined by the replacement of their ethos of hard work, self reliance and compassion with “the greedy individualism and sense of personal entitlement characteristic of much of the finance sector today.’’ The circle of influence of the finance sector includes policymakers, academics and journalists, Kay says.

What is the answer to this massively thorny problem? Kay spends nearly 50 pages on the issue, in “Reform’’ and “The Future of Finance.’’ His forecast is gloomy, but he says the damage is not irreversible. More laws and regulation are not the answer; restructuring the industry so that the culture of self-interest is checked is essential.

Kay says his six proposals for reform, all of which call for streamlining, shortening and eliminating in the era of “too much of a good thing,’’ will “reduce the amount of capital available to support trading activities and eliminate cross-subsidy to these activities,’’ and, “reducing trading volume to modest levels, which will curb financial instability and lessen the costs of financial intermediation.’’ He acknowledges high-frequency traders and the unscrupulous will balk at these proposals.

Kay argues that the legal/regulatory framework already in place should impose and enforce “obligations of loyalty and prudence, personal and institutional, that go with the management of other people’s money.

If there is no restructuring of financialization, “there will be another major financial crisis,’’ Kay says.

Other People’s Money. The Real Business of Finance, by John Kay. PublicAffairs. $27.99.

Eleanor O’Sullivan is an award-winning freelance journalist who writes for Financial Advisor magazine.
 

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