What’s Wrong with Banking feat. Anat Admati

Before the coronavirus pandemic, one of the biggest crises of our time was the global financial crisis. And even though that crisis passed, the underlying issues which gave rise to it have not been resolved. 

Anat Admati is the George G.C. Parker Professor of Finance and Economics at Stanford University Graduate School of Business, a director of the Corporations and Society Initiative, and a senior fellow at Stanford Institute for Economic Policy Research. 

She has written extensively on information dissemination in financial markets, portfolio management, financial contracting, corporate governance, and banking. Anat also co-authored the book “The Bankers' New Clothes: What's Wrong With Banking and What to Do About It” with Martin Hellwig.

In this episode we’re diving into the world of finance, with a focus on housing subsidies in the United States, corporate finance education, and whether or not the private sector will solve our global problems. 

Episode Quotes:

Money influences every sector 

So money speaks everywhere, including nonprofits and universities are not immune from that actually. Their donors, especially of business schools, are from the private sector and you don't want to annoy them. That's why the only way you're going to talk about society is to make everybody feel good about themselves and do impact investing in philanthropy and all of that. So that's sort of the winner takes all charade of changing the world sort of part of it. So academics are not immune.

Change is difficult in academia

So change is difficult also in academia and business schools especially. In the eighties there started being this mantra with Ronald Reagan, the government is always a problem, the government is corrupt and incompetent, etc. And therefore you have all these heroic CEOs, that they will take care of us because the government can't. To which my response is if the government can't, why is that? And did you have anything to do with it, with your own actions to corrupt the government basically? To weaken the government to rob it of resources in every clever way you can. And now we're all paying the price.

The lack of education of corporate finance

When I started looking into banking as a corporate finance and corporate governance expert right after the financial crisis, I was shocked. I mean, you really actually have academics writing textbooks and it's as if like the civilization of corporate finance and what we understand about the basics of corporate finance just hasn't made it there. They just have a whole other set of words that they use. And they just seem to refuse to accept it's really in the sort of domain of willful blindness. 

Funding & debt

We just rely too much on debt. And the debt often becomes predatory in bad terms, payday loans, and other things, and even student loans. In other words, what is it you want to fund? And how is it you want to do it? We do way too much funding by debt in general.

Show Links:

Guest Profile:

• Faculty Profile at Stanford Graduate of School of Business
• Professional Profile at VoxEU.org
• Anat Admati’s Website
• Anat Admati on LinkedIn
• Anat Admati on Twitter
• Anat Admati at TEDxStanford

Her Work:

• Anat Admati on Google Scholar
• The Bankers' New Clothes: What's Wrong with Banking and What to Do about It - Updated Edition