The genius of securitization, the great innovation of the 1990s, was that it allowed investors — in theory — to bypass non-transparent black-box banks. Securities took the place of traditional bank credits. But banks used the innovation to place transparent securities in highly opaque “investment vehicles.” Banks’ black-box character survived to became an even greater vulnerability. After all, black boxes are most lethal when they conceal a malevolent or fraudulent human being.
It is possible to imagine that in the longer term finance will become less prone to problems of asymmetrical information, which demand a high level of confidence on the part of depositors and investors in order to reduce the risk of panic and crisis. But finance will no longer be our master only if there is no need for “insiders,” and that requires both transparency and the spread of financial knowledge.
In the same way that automated payment mechanisms have rendered trading floors mostly obsolete, many banking functions can and will become simply an interaction of software systems.
As in previous transitional phases, individuals who work in the industry will try to produce convincing arguments about why their business depends on the human touch. A personal banker is a status symbol, but certainly not a necessity. The “Monday morning car” — caused by an early and error-prone production run of a new model — is rapidly becoming a thing of the past. Its equivalent in the financial world should meet the same fate.
Harold James is a professor of history and international affairs at the Woodrow Wilson School, Princeton University, and a professor of history at the European University Institute, Florence.
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