Rahul Bajaj, Chicago Booth The future of finance at Chicago Booth

The Chicago Booth 2010 Management Conference was held in Chicago on April 29, 2010. As is the case every year, the highlight of the event was a panel discussion among the top guns of the Chicago School of the biggest economic issues of the day. This year, the topic of discussion was “The Future of Finance.”

The discussion was spirited and in true Chicago style, generated some heat. Raghuram Rajan, former IMF chief economist and advisor to the prime minister of India, remarked that the world had long ignored the financial “plumbing” of the global economic system.

“Well, if you ignore the plumbing, then it will back up and soon you will smell it,” Prof Rajan remarked. He would know; for Prof Rajan famously predicted the financial meltdown of 2008 as far back as in 2005 – in fact, he had prophesised about such a meltdown at a function commemorating Alan Greenspan and many at the time had considered his prophecy “misguided” and distasteful.

The conference at Chicago Booth

The conference at Chicago Booth

Chicago folk tend not to be shy and the points made by the panelists were often challenged and countered.

From my perspective, a few salient points stood out. First, there was a growing sense that debt had played a huge role in destabilising the world economy.

The fact that government tax codes subsidise debt perhaps encouraged the over-leveraging of the world. Tax codes ought to be reworked to take away this distortion. Equity, which is a more stable form of financing, should be encouraged.

The role of the government in subsidising housing (and propping up house prices) in fuelling the asset bubble that burst in 2008 was also discussed.
There was much talk of risk shifting, of asymmetric incentives (companies taking up huge gambles knowing very well that they would be “bailed out” if the bets went sour, since they were perceived to be “too big to fail”). Even a change in corporate governance was debated, with some panelists suggesting that a return to the days of Wall Street partnerships instead of publicly traded firms reduces risk and is therefore desirable.
In true Chicago style, all in all, it was a day well spent!