“It’s a habit of the French to stigmatize finance, it’s hard to fight misconceptions”
Biased stories and media force shortcuts, and a large part of French opinion has a negative perception of finance. From traders to markets, through banks, securitization, dividends or the stock market, it is obvious to most people that something is wrong in this opaque universe. Evidence of this could be provided by financial crises, especially the subprime crisis, which would clearly show the direct responsibility of the relevant institutions.
First, the banks, which are made easier to take reckless risks with the certainty that they will be provided with public money in the event of a problem. The banks we know are still getting rid of their bad loans thanks to securitization, which was a major factor in the subprime crisis. It would be equally clear that the stock market is a place of selfish speculation and easy enrichment. Moreover, an unregulated financial world in the Stock Exchange and other non-transparent markets would be different from the established, closed and economic world.
Dividends: a bad test of finance
In this context, dividends paid to shareholders would be particularly unfair because they are money taken from companies, to the detriment of their employees and investment opportunities. Questions based on negative aspects of growth can also be added to this.
These negative perceptions are all the more difficult to combat because they benefit from the support of many economists, even the purported theoretical justification.
This is how it is explained with the concept of textbooksmoral hazard liability of banks in financial crises. The phrase is indicative of the risk aversion of banks, which think they are protected by the state, no matter what. A somewhat surrealist claim based largely on a superficial reading of the subprime crisis. Although it is true that billions of euros were paid to French banks in the context of emergency mortgages, the most important thing is not said, these money were lent to the banks, not given.
The state replaced the temporarily closed money market. Everything is paid including interest. The only bank that had to be pulled out was the partially open Franco-Belgian bank, which has since been liquidated. It is important to understand and say it, to overcome it bank robbery everywhere. It should be noted that the textbooks in question are almost silent about the positive role of securitization, a tool developed in the United States since 1938 as part of the national policy of housing assistance for the most disadvantaged, less surprising but social policy. Very real and practically unchanged in 2022!
The quasi-official version presented to the French is that securitization will allow banks to get rid of bad loans. It is not widely publicized that the ECB encourages this practice.
What are the relationships between economics, finance, and the stock market?
Equally remarkable is the virtual silence in textbooks and the media about the role of the stock market in providing companies with free capital. Shares are like loans with no repayment terms. Thus, each share issue by the company corresponds to fresh cash flow, which accordingly increases its investment and growth opportunities.
Dividends, in this sense, are incentives given to current or future shareholders to subscribe to future issues. A comparison of the amounts involved between the payment of dividends and the proceeds from the issuance of a new tranche of shares would be enough to silence the criticism of dividends.
Similarly, the idea of deregulation of markets has appeared in textbooks, among others, a simple search on the Internet reveals the role of these powerful regulatory institutions, the French Autorité des Marchés Financiers and the particularly dreaded US Securities Exchange. Commission.
Subprime chain, educational topic
These few examples illustrate the gap between the common perception of finance and reality. Restoring the true image of finance is an educational activity that is both immediate and long-term. In the near future, one can imagine a short but effective exercise starting with a synthetic presentation of the subprimes chain.
The first argument for this is that misconceptions about finance are mainly built or reinforced by the misinterpretation of the crisis of the same name, so they need to be corrected. But above all, the educational potential of such an approach should be considered.
“The Church punishes financial excess, but speculation has virtues!”
Investigating the subprime chain provides a truly global understanding of the world of finance and financial instruments. It shows the logic of the interaction between the main actors, the general utility of finance for the economy, and in particular the discovery of the inextricable links between the macro and micro economy. Such an education can be easily implemented in higher education and preparatory classes as a priority.
Finance is not the alpha and omega of the economic world, but a vital component, the equivalent of the blood system. And more because it is also a tool of independence and a geopolitical weapon. Our National Education should understand the importance of these issues for our fellow citizens, whom we are responsible for training.
Alain Lemasson, former banker, author and founder of Infofi2000.com
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