Mark Carney has a message for greed: Your time is up
By Mark Carney
McClelland & Stewart
Bankers were once the epitome of pin-striped, button-down, small c conservatism. These men (sadly, women were not included in their club) held esteemed leadership positions in society and never threw caution to the wind. They treated your money like it was their own.
The tightening of controls that protected everyone’s money was a direct result of the Great Depression, when gluttonous financiers took advantage of doomed transactions. The unregulated markets came crashing to the ground on Black Thursday in 1929, billions were lost and thousands of bankers across North America were out of work.
The markets had been on such a dizzying run that many financiers lost all understanding of basic controls. Between 1922 and the crash, the value of U.S. stock markets had ballooned by 219 percent, or 20 percent, on average, each year.
The economy was performing well, but not nearly that well. Speculators and astoundingly reckless practices had driven up prices to such an unstable point, they had to fall off a cliff.
Stocks had been bought on margin accounts by investors with no cash, the most unethical financial institutions even invested their clients’ deposits without telling them, desperate to catch a ride on the rocketing returns.
In the end, within three years of the financial collapse, 90 percent of the stock market value was gone, vanished, largely due to the unchecked behaviour of these institutions.
Sweeping reforms were brought in. Strict regulations were introduced, and the public was made aware of just how powerful, and potentially destructive, the banks were.
But humans are human.
The deregulations passed in the Ronald Reagan presidency in the 1980s and then by Bill Clinton a decade later created a new era in banking. Rapid expansion of investment banking followed with large players underwriting new tradable financial assets that were built around debt, banks became more involved in the selling of these tradable products, other types of securities and they stepped up their facilitation of mergers and acquisitions, acting as brokers for two separate parties on opposite sides of a transaction.
The largest firms also dramatically increased their own investments in companies that typically needed large amounts of financing for major projects and expansions.
This was all done south of the border as old regulations that ensured the careful monitoring of banks were stripped away, allowing American bankers certain advantages. Risky behaviour, with the potential to generate handsome returns, was even encouraged if it resulted in quick profits.
It was a return to the dizzying days that led up to Black Thursday.
But this time, banking would never be the same.
Commerce school sharpies invented derivatives and currency swaps and other unique and hard to decipher products that objectified money, as if it was like creating new model cars that would pour off the assembly line.
Investing became a fearless and feckless pursuit of return on investment (ROI), and the world entered the age of casino capitalism, with debt being the generator of profits. The more people bet and lost or spent on credit, the richer those holding the debt obligations became. The banks and investment firms were the house.
Many of these new products were as lucrative as they were dangerous, especially put into the wrong hands. Remember Nick Leeson, the 28-year-old derivatives broker from the UK who, while working out of Singapore for Barings Bank, caused its collapse. This stodgy old institution of British merchant banking which began in 1762 was felled in 1995.
The virus of short-term gain infecting the banking industry spread, and the financial crisis of 2007-08 followed, triggered partly by the collapse of securities or tradable investment products that were comprised of mortgage obligations. What the firms that ended up getting stuck with these worthless products didn’t know was that other investment banks had knowingly sold them off for bargain basement prices realizing they would soon be toxic. Many of the mortgages couldn’t be carried by the homeowners who had been suckered into financing arrangements designed to fail. But if they could be sold to another firm salivating over the returns mortgage assets represented, it didn’t matter. Eventually, the shell game exploded and the mountain-sized U.S. housing bubble burst.
The debasement of loan standards on mortgages folded inside complex bonds was like kryptonite to the last super-banker holding the bag.
It wasn’t so much that bankers were clueless, the acts of financial fraud had been going on undeterred for decades. They had become baked into the DNA. Another iconic institution, Lehman Brothers, bit the dust as competitors went on life support until governments around the planet came to their rescue with trillions of dollars in taxpayer-funded bailouts.
What happened to the days when banks were safe harbours, and stodgy bankers were pillars of the community – our great arbiters?
Luckily, most of the financial carnage of 2007– 08 bypassed Canada because our banking system held firm. It was saved by regulation, and the smooth leadership style of Mark Carney, governor of the Bank of Canada (2008- 2013). He deftly stickhandled the interests of the country as adroitly as any hockey player, just like he did in his younger days on the ice growing up in the Northwest Territories, and then Edmonton.
How he handled the great recession here, put him on notice by the bigwigs that ran the Bank of England, and soon he was off to the UK to run it, which he did from 2013- 2020.
He is now vice-chairman and head of “impact investing” at Brookfield Asset Management, based in Toronto. It’s an “alternative asset management company” focusing on real estate, renewable power, infrastructure and private equity. The company has branches world-wide. Impact investing refers to those "companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return". This provides capital to address social and/or environmental issues.
It’s a player in the green new deal that is sweeping across our eco-abused planet.
Mark Carney has become a leader in the realm of green finance
Carney is also author of a newly released book entitled Value(s) – Building a Better World for All, which is being interpreted by some as either a political manifesto that sets down his marker for future ambitions, a cautionary tale about the evils of past financial misdeeds or a guidebook on how the financial and political world should move forward in the post-pandemic era.
There’s a reason for the singular value and plural value(s). He not only talks about the tried-and-true value of products like toasters and cars, but the broader, more ethereal form, based on a new system of living and investing that is holistic and humanistic. It’s about using both to create a better world, especially after the horrors of the past year.
While Carney’s conservative bona fides seem to place him in the category of an old-school banker, quite the opposite is true. He was only 43 in 2008, a mere babe in the woods in banker’s years, when he headed up Canada’s fiscal policy, and this book suggests he was always a bit of an outlier who is now leading a new school of thought on fiscal policy.
His announcement as the keynote speaker at this week’s Liberal Party convention has revved up speculation that he is ready to join Justin Trudeau in government.
The finance minister role vacated by Bill Morneau in the summer would be an obvious fit, if the former banking leader takes the plunge.
Much has been made about the term “intersectionality” in the past few years, how disparate movements have coalesced and created a need for realignment, where things like politics, pandemic response, capitalism, and stewardship of the planet’s eco-system, can meet at this critical time in history and create one BIG solution to all that ails us.
Yes, writes Carney, the world can and must reinvent itself to save us from a dystopian future. And the financial system can and must help lead the way.
Carney has one of the deepest CVs on the planet, both in terms of education (bachelor’s degree in economics from Harvard, and masters and doctorate degrees in economics from Oxford) and other accomplishments (chair of the Financial Stability Board, chaired the Global Economy Meeting and Economic Consultative Committee of the Bank of International Settlement, plus a 13-year career at Goldman Sachs).
This book makes clear that he is standing on the shoulders of others, which proves to be quite an eclectic mix. He weaves thoughts supplied by his doyens throughout the pages, but three in particular, stand out: the great economist Joseph Schumpeter, the creative “gale of destruction” who believed society had to burn to the ground first, before new growth could take place; Marcus Aurelius, Roman emperor from 161 to 180, the stoic philosopher and author of Meditations; and Greta Thunberg, the Swedish teen activist, who challenges world leaders to take immediate action on climate change.
His mixing of economic theorizing with humanism might strike some as an airy-fairy approach (especially for a banker) and the book has been roasted by some critics. But the pages are a thoughtful unpacking of his life, and highly readable. Sure, there are plenty of charts and graphs and all the nuts and bolts of economics, but by venturing into deeper water like discussions about how money is just money, and eventually it all gets down to how humanity manipulates it – and uses it to create a better society – the work by Carney should be of interest to a wide readership.
This is also a Canada-centric book, and it is easy to parse out how some of his key points apply to the local scene in Mississauga and Brampton.
It’s Carney’s contention that the “Open for Business” mantra, the one that so drove the economic impulses of Mississauga’s long-time mayor Hazel McCallion, and is now shared by her disciple, Patrick Brown in Brampton, and is the ruling passion of Premier Doug Ford’s leadership style at Queen’ Park, is, by nature, a limited value when it comes to achieving success.
He says economies that are too “managed” tend to be hostile to innovation, while “market-driven” ones thrive.
In other words, the massive give-over of city-building in Mississauga and Brampton to the residential developers, didn’t create a dynamic effect, but stunted growth, and was the cause for later issues, like infrastructure shortfalls and lack of interest from dynamic employers and other investors.
This system of selecting and rewarding a favoured few, is flawed. He proposes a free trade policy for small and medium-sized business that will eventually produce cities where innovative Small to Medium size Enterprises can flourish. The likes of Shopify, Tmall, Etsy, and Amazon arose in these crucibles that welcomed change.
Cities like Brampton that impose targets for getting to zero Co2 emissions, and then at the same time, support the building of the 413 highway, can’t be taken seriously if they continue talking out of two sides of their mouth. This is the work of a politician like Patrick Brown, who has zero vision and only cares about his own ambition – Brampton represents nothing more than one of his stepping-stones. The recent re-think by other leaders now opposing the 413 only creates confusion and distrust.
“Climate change is the tragedy on the horizon,” writes Carney, bluntly.
This will mean an all-hands-on-deck approach to decarbonizing our planet, especially in transport. That puts a bull’s-eye on industrial plants like the Fiat Chrysler one on Williams Parkway in Brampton. Its 3,500-work force currently makes carbon-spewing sedans, which Carney writes are doomed to die when building plug-in hybrid passenger vehicles will reach close to 100 percent by 2030. This puts the Brampton plant on the clock.
Carney writes the world has to build bridges to the future, not the past.
He met Thunberg a few times and cites her speech at the UN Climate Action Summit in 2019 in his book: “I have met numerous leaders in politics, business, religion, the arts and philanthropy. It is surprising how ‘average’ most of them appear, how disappointing the encounters often feel. But sometimes they are exceptional. This Swedish teenager challenges with a clarity and force of reason that belie her age. She reinforces the remorseless logic of a carbon budget that is rapidly being spent. Her determination lays bare the imperatives of climate physics and the scale of the challenge that we face. With her, you are always conscious of misplaced priorities, of the time slipping away, of the need to rearrange national priorities and act. Now.”
He has done an arm-lock with the Green Party that believes the world has no Plan B if climate change isn’t met head-on.
Carney has come to the realization that a carbon neutral future is unstoppable, and if businesses don’t ride the wave, they will be swept under by mere numbers. The danger for banks, he has said in the past, is that they will find themselves with stranded assets that turn out to be worthless if those firms they are loaning to remain reliant on burning fossil fuels. Threadneedle Street (London’s bank junction) has said as much as $20 trillion of assets could be wiped out by climate change if it is not effectively addressed.
He wrote an open letter last year to central bankers and financial regulators outlining the steps necessary to tackle climate change.
The era of mega oil sands in Alberta looks as if it is a bad bet for the moneyed interests. The cancellation of Teck Resources Ltd.’s Frontier project in northern Alberta seems to signal the struggles of an industry that has already seen most foreign investors flee. Imperial Oil Ltd. last year delayed its $2.6 billion Aspen oil sands project, which had been approved and was scheduled to start production in 2022, because of Alberta’s production limits. The new Joe Biden regime in Washington killed the Keystone XL pipeline, which begs the question: Is Trans Mountain in Canada fated to follow suit?
Carney holds Canadian, British and Irish citizenship, and he brought his worldly view to the chairmanship of the Financial Stability Board (2011-18). In an open letter in the UK Guardian last year, he said the promise of a green revolution is encouraging and warned businesses (and countries) that those who “fail to adjust” will “fail to exist.”
Carney announced a taskforce on ‘scaling voluntary carbon comprised of 40 leading experts and business leaders around the world,' which aimed at accelerating the development of credible CO2 offset trading, as increasing numbers of firms look for short-term offsets to deliver net zero targets. Big corporations like Shell, BP, RWE, Unilever, UBS, Siemens, Nestlé, Bank of America, and Maersk joined up, alongside carbon market specialists such as ClimateCare, Verra, and Natural Capital Partners.
The worry, of course, is in pricing the transition to a carbon-free world. Financial markets are assigning only a modest probability to a transition to next zero consistent with temperature increases remaining below 2 degrees Celsius, he writes.
The planet is precariously close to this threshold, from which there is no return for Mother Earth.
Carney was and still is at the centre of talks about the Paris Climate Agreement, and renewable energy versus the old models based on fossil fuels. He points out ‘The Transition Pathway Initiative,’ launched by 13 leading asset owners and five asset managers in 2019, aims to better understand how the transition to a low-carbon economy will impact investments. He assesses how companies position themselves for this transition.
He writes that investment must be accelerated to a warlike level, to fight what President Joe Biden’s new climate-change guru John Kerry calls, ‘World War Zero’.
Carney is a certified 1-percenter, and an intellectual powerhouse, and if he does seek political office (he already advises Prime Minister Justin Trudeau) how high are his ambitions?
Other intellectuals have sought office in the past, the most recent, Michael Ignatieff, the Harvard professor who led the Liberal Party during the Stephen Harper era. But his uppity attitudes and his brainy delivery, never found favour with the work-booted and hockey-jacketed Canadian electorate.
Unlike Ignatieff who seemed lost among everyday people and didn’t have tangible expertise to lift the country, Carney doesn’t seem cut from a different cloth and boasts his all-Canadian background as a talented goalie who led two federal banks. Who couldn’t root for someone born in the Northwest Territories? Does he have the street cred to win over voters looking on from the coffee and donut shops?
Carney doesn’t dip his toe into talk about political ambition, but with Trudeau already worn down by scandals like SNC Lavalin, WE, and the government’s weak response to vaccinating the public during the pandemic, there seems a clear path for him to seek out the very top rung.
His book suggests the world needs to retreat back to basic values, and also move forward at breakneck speed. There needs to be a more moral, and constructive approach to money management. The plundering of our environment to plump up the bank balances of the few, is being done in the name of greed, not common sense, he writes.
COVID has been a major test of stakeholder capitalism, he notes. Once the crisis passes, we will be able to judge which companies supported their employees and did the right thing. Those that didn’t, like the private long-term care homes, will pay a price.
He writes: “The Covid crisis reduced the perceived tensions between maximizing shareholder value and stakeholder value. It is consistent with the experience of prior crises.”
He adds that history teaches us how the values underpinning true "corporate purpose”, can help solve the problems of people and our planet. There are lessons to be learned from each major crisis: 1929, 2007, and 2020-21. He contends that everything gets measured by value and values.
The book discusses our three most pressing crises: credit, climate and COVID. As a central banker who has worked through a financial crisis, he found it a frustrating experience. “I had all the numbers at my hands, I could see much, but do relatively little in the face of big drivers.”
Which makes him predict: “We won’t go back to the old certainties of the past.”
Another prediction: "Covid is using up the buffers of business, households, and government – buffers that would have helped cushion the wrenching changes that transformative technologies will bring.”
“In an environment where many assume that interest rates will stay low forever and that authorities will always bail out markets under stress, a more active and holistic approach to managing risks in market-based finance is imperative,” he writes.
He unveils a 10-point plan to help build a society where everyone benefits. This is all based on “mission-oriented capitalism” which works toward a future instead of preserving the past.
Carney is irked by the term “business as usual,” which simply doesn’t apply anymore. And that includes in the banking business.
The fusty old example of bankers past, to the voracious remodeling that took place during the Reagan era and right into the financial crisis, needs to change, and be tempered by two isms: humanism and realism.
Extremis capitalism helped ruin our planet, set off our climate crisis, and the costs of the clean-up and reordering will be great, in the trillions. But if we don’t, we will be staring into the abyss, he writes.
The days of deifying those investment bankers with the Midas touch, when greed was good, and all critics were communists, seems to have come to a full stop during this pandemic. We are still trying to sort out the winners and losers.
Carney’s book said we have to reflect and redefine things like the terms value and values.
The central question of the book is why things that are valuable, such as healthcare workers, or those staffers in LTC homes or any of our other essential workers, are undervalued in our markets? He believes we have to reject the “market fundamentalism” of the past and find a way to rebalance capitalism itself.
Are we on the edge of a new, more authentic and holistic life, or standing on the ledge and staring into the abyss?
Capitalism was prone to ossification, he writes. This happens when large corporations become self-perpetuating bureaucracies, and put profits ahead of humanity, and don’t do the right thing for the planet. When all the forces of good intersect, real change happens.
The pandemic gives us a chance to do a “great reset” that will see international, national, local and corporate forces unite as one to fight climate change. Singular value isn’t enough. The pluralized version is so much more important, and this is what has to be the ultimate goal to drive societal change.
We can’t keep putting good money into bad, or we will come up with a lousy result. Meanwhile, our planet’s degradation will continue unabated until it’s too late to act.
He writes that any budget measures done within companies, or at the national, provincial, or local level of government, must focus on green initiatives. Everything must be done with climate change in mind. This is where future jobs are coming from, and this is where capital has to flow.
Since we can’t stop the rapid changes in technology that have historically killed jobs, why not embrace them, give them a green tinge, and create new jobs, and new investment possibilities?
There is plenty to unpack here. Climate deniers and neo-con fogies will pooh-pooh his lofty ideals, and there are holdover business leaders from the last industrial age who are addicted to plumping up the quarterly returns. It’s easy for some Luddites to miss Carney’s sweeping assertions.
But his arguments and his passion on ecological stewardship carry weight and are compelling, and because it comes from an economist with deep ties to the investment and banking industry, it is striking, substantive and stylish. It also seems to be the next logical step in the long arc of the financial world’s history.
He writes that each morning he arises with Marcus Aurelius’ phrase stuck in his mind: "Arise to do the work of mankind.” This book will play its part.
The goal is not just to help banks, the business world, and governments fix their bottom lines, but to save humanity itself.
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