Why we need to humanize Finance

Source :SIFY
Author :Sairaj Iyer
Last Updated: Thu, Jan 17th, 2019, 18:21:14hrs
Why we need to humanize Finance

Technical jargons and financial mumbo-jumbo may not be appreciated by the laymen. Turns out, even learned academicians and experts such as Harvards's Mihir Desai do not have a liking to this practice.

The professor of Finance from Harvard Business School believes that usage of financial mumbo-jumbo by analysts as well as journalists is counter-productive.

During a short tete-a-tete at the recently concluded 9th India Investment Conference organized by CFA Society India, Desai explains that catchy acronyms and abbreviations have done more harm than good. "I think it may not be productive to those within finance who are relying on acronyms, and intimidation to sell people financial products or use such a practice to impress upon people as a means of sophistication," he says.

"We should make finance more accessible, and thereby stop its demonisation," he adds.

This is the same feeling that Desai espouses in his book- 'The Wisdom of Finance, Discovering Humanity in the world of Risk and Return'.

Speaking at the conference, Desai says that the gulf between finance and humanities has turned into "real loss". "Finance can use the humanization provided by humanities. Investors are fearful of uncertainties around capitalism. However, they forget how capitalism has benefited economies around the world. Let's improve practice of finance by reconnecting practitioners with elements of humanity."

In an age of crazy valuations, Desai's emphasis on humanizing finance might ensure arming the average Joe with adequate information to take a call on why to buy or not to a particular equity. Information that is easier to the commoners also has potential to increase acceptance of financial products such as insurance and bank deposits among others.

However, in the past 400 years since Joseph Peso De La Vega, who wrote the Confusion De Confusiones (Confusion of Confusions) not much seems to have changed. De La Vega’s transcript is perhaps the first to shed light on the inner-workings of a stock exchange. Desai says, "De La Vega (the author) says the financial market is noble as well as savage."

"It (the book) has the best description of finance that I've ever read which is that Finance is one of the most evil yet has some intellectual sparks. It is the best representation of humanity, however we may have that lost sense," he says with a slight dejection in his tone.

When asked what remains the best moments in 2018, Desai remarks that, generally risk was getting mis-priced. In reference to how the US equity markets tumbled in 2018, Desai explains, "the actual correction being witnessed wasn’t confusing. In the sense that we need to have risks better priced and that’s part of the problem."

At the start of 2019, two of the most innovative companies- Samsung and Apple have had their own share of problems. The latest quarterly results of both companies have sparked a major debate among technology and equity circles. When asked if the two technology behemoths had reached the end of their innovation cycle, Desai advises that innovation was sought by both markets and consumers, however, one shouldn't "fetishize these companies."

To that perspective, Desai is optimistic that markets may get to see more innovation.

From India-specific, Desai talks on two of the major issues- independence of institutions and lack of promoter-led-capital. The issue on the independence of institutions, however, has been reported in the West too.

"Integrity and independence of institutions are paramount. It's [on institutional independence] linked to the general rise of populism and skepticism about experts and institutions. It’s happening everywhere, and yes it’s a source of concern. And we should be fighting it at all places," he says.

"I think we are making the wrong observations from the lessons learnt in the last 40 years. For example, one such observation is capitalism is a failure and that markets are failing. That's the wrong lesson. There are significant problems, but we are underselling what markets and capitalism have achieved. And we are turning to alternatives and deviations including non-market solutions."

Another observation that he had to offer was on the reasons why Indian companies are not among well-positioned global leaders. He reasons that this is linked with the mobility of finance, in particular with Indian promoters not investing adequately in their own ventures.

"I think it's a puzzle that we don't get to see more large Indian corporate becoming global players. We need large corporate investing," he says. In the quest for humanizing the various intricate concepts of finance, Desai compares mergers and acquisitions to marriages. He quips, "Real value comes from symmetric mergers which are complicated as compared to asymmetric mergers which are easy but don't create much value."

Mihir Desai is Mizuho Financial Group Professor of Finance at Harvard Business School. He is also a Professor of Law at Harvard Law School.

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