This post was contributed by Daniele D’Alvia, MPhil Law student in Birkbeck’s School of Law. Here, Daniele reports on the Law on Trial 2016 event held on Thursday 16 June: “Can the EU Regulate a Financial Crisis?”

This year, Law on Trial – the School of Law’s week-long programme of free-to-attend public lectures and panel discussions – focused on the EU referendum. The annual showcase brought together academic staff, recognised internationally as authorities in their field.

Law on Trial 2016

The 16^th of June 2016 has been a landmark event for the 2016 ‘Law on Trial’ series of conferences. Indeed, the 4^th day of ‘Law on Trial’ has been specifically dedicated to the role of financial law in Europe. The main question that Professor Michelle Everson has posed for the panel discussion, namely ‘Can the EU regulate a financial crisis?’ has shown to be a popular topic for the high interest that the audience has manifested during the event.

In particular, Prof. Ellen Vos (Maastricht University) illustrates the regulation and the role of European agencies. She reminds of the importance of delegating powers to agencies in the EU in order to regulate risk and uncertainty (for instance, risks in the environment, food, health and safety and specifically in relation to financial crisis). On this line Prof. Michelle Everson introduces the concepts of moral hazard, risk management and systemic risk. These terms are exceptionally important in the understanding of the current financial crisis and pave the way for the speech of the third guest speaker, namely the head of the compliance office of Wells Fargo, Patrick Devine.

He gives an outstanding presentation by pointing out how the current financial crisis is global in nature, but the solutions provided therein are local. For instance, think of the EU banking insolvency procedures there is not a universal bank insolvency law, because insolvency law is national in nature. To this end, the Single Resolution Mechanism in Europe is a first attempt to provide a uniform regulation of bank insolvency through the operation of the Single Resolution Board. He outlines that the credit-crunch that occurred in America in 2007-2008 was only the trigger, but not the cause of the current financial crisis. Indeed, he concludes that the cause of the current economic crisis is just inside the same economic system, namely capitalism.

This has always been the cause in his view and the legislative frameworks have only tried to regulate the trigger and not the environment in which triggers stand. Finally, Dr. Matthias Goldmann presents the idea of Karl Polanyi on the utopia of the ‘self-regulating market’. Indeed, in 1944 Polanyi wrote the ‘Great Transformation’, which divided between a society that uses markets as one valuable tool, and ‘market society’ that places everything on the auction block, even labour. Therefore, Dr. Matthias Goldmann argues that the idea of ‘market society’ has been one of the causes of the current financial crisis and he, therefore, provides a re-interpretation of the phenomenology of contemporary financial markets, where the market itself should play a more prominent role.

In the end, the panel discussion has been dominated by the conception of risk in financial crisis and how risk can be prevented or regulated.

The conception of risk and financial risk between economic theories and philosophical arguments

I would like to introduce here the concept of the ‘past qualification’ of risk based on a possible re-interpretation of Professor Frank Knight’s book ‘Risk, Uncertainty and Profit’, which has developed a philosophical argument on risk instead of a pure economic theory on profit. The book has always been recognised for its outstanding contribution towards a distinction between risk and uncertainty, namely between objective and subjective dimensions of risk towards a theorisation of insurable form of hazards and true uncertainties.

Prof. Knight’s theory of risk is part of the remarkable story on risk.^[1] Indeed, according to Bernstein risk management is a revolutionary idea where far from being an antagonist, as the mysterious fate or the voluntas dei, the future has become an opportunity. The concept of risk-taking has been developed in Western countries from Fibonacci’s Liber Abaci (1202), Cardano’s Liber de Ludo Aleae (1525) and Galileo’s Sopra la Scoperta dei dadi (1623) through the laws of probability framed, inter alia, by Pascal and Fermat,^[2] and in particular the science of statistics of Graunt, Petty and Halley,^[3] promoting the concept of insurance as a commercial tool in the eighteenth century. In other words, the story of risk has initiated by formalising its ontological meaning based on an objective dimension.

This was a necessary conclusion because from an epistemological point of view the discourse on risk can be complex. Risk under this new light is the probability of occurrence of an event that may or may not occur, but risk is always a measurable uncertainty. In Prof. Knight’s words:

‘the practical difference between the two categories, risk and uncertainty, is that in the former the distribution of the outcome in a group of instances is known (either through calculation a priori or from statistics of past experience), while in the case of uncertainty this is not true (….) the best example of uncertainty is in connection with the exercise of judgement or the formation of those opinions as to the future course of the events, which opinions (and not scientific knowledge) actually guide most of our conduct’^[4].

So, it is possible to state that the knowledge about risk is the knowledge of a knowledgeable situation. In other words, the ontological discourse on risk is representing what is knowable in principle or a priori by virtue of laws of probability and the science of statistics. It is knowledge of objective facts. For this reason, in my view the real revolutionary idea of Prof. Knight is the categorisation of risk on the past line.^[5]

The practical effect of the ‘past qualification’ of risk in global financial markets

Now, the words of our guest speaker Mr. Patrick Devine are even more intelligible: in his view capitalism has always been the cause of the current financial crisis. In philosophical terms we could say that the past qualification of risk in its objective dimension has always been the cause of every financial crisis because simply it has always been there, but it has never been regulated. In Patrick Devine’s words: ‘we regulate the trigger of a crisis (we could say what has caused the uncertainty), but not the environment in which the triggers stand (we could say the real risk).

Find out more

• Law on Trial 2016
• Courses at the School of Law

Footnotes

^[1] Bernstein (1996). Peter L. Bernstein (1996) Against the gods: the remarkable story of risk (John Wiley & Sons)

^[2] Bernstein (1996) pp 57-72.

^[3] Bernstein (1996), p 92.

^[4]   Knight (2002), p 233.

^[5] Knight expressly said that uncertainty is the formation of opinions as to the future course of events (i.e. a subjective belief).

This post was contributed by Birkbeck Law students Janet Cheng and Henrique Nobre. Here, Janet and Henrique report independently from the Law on Trial 2016 event held on Tuesday 14 June: “Brexit: Should the UK leave the EU?”. Speakers at the event, which Janet and Henrique moderated, were Professor Justin Frosini; Professor Christopher Lord; Professor Albert Weale; Dr Angela Ward; Dr Roch Dunin-Wąsowicz.

This year, Law on Trial – the School of Law’s week-long programme of free-to-attend public lectures and panel discussions – focused on the EU referendum. The annual showcase brought together academic staff, recognised internationally as authorities in their field.

Law on Trial 2016

Henrique Nobre’s report

The second evening of the Law on Trial event reflected the public expectation in discussing this extremely hot topic. The room was full of students, academics and members of the public eager to listen to our guest speakers’ arguments on Britain’s membership of the European Union.

The beginning of the session was very engaging, especially when Dr Angela Ward showed a copy of the tabloid The Sun full of scaremongering arguments and urging its readers to vote leave. Dr Ward shared with us her extensive experience and opinions on how a leave vote would endanger our economy and international relations.

Arguments were presented in relation to the position that the UK will assume in relation to trade agreements, the impact on freedom of movement, the possibility of national instability, e.g. a second Scottish referendum and the possible end of the United Kingdom, and the general uncertainty of a positive outcome.

The guests were outstanding in presenting positive and negative arguments without trying to compel the audience. The intention of the event was not to campaign for one side or the other, although it is difficult to hide personal views when talking about an issue that will affect all of us. The audience opinions were varied and contributed massively to a very fruitful discussion.

To moderate an event of such a high level and importance was a real pleasure. The panel was highly selected, the event was extremely well organised, the public was participative and there is no better company on stage than Janet Cheng (President of ELSA Birkbeck).

I felt that the event was a great opportunity to voice and discuss our concerns and that Birkbeck School of Law has chosen the right momentum to do it. As mentioned at the end of the event, independent of personal views, I urge everybody to exercise their democratic right and vote to the best outcome.

Janet Cheng’s report

The referendum coverage has been dominated by debate on immigration and trade in the media and national press from both sides of the campaign. These might be the voters’ greatest concerns, however, there are still many other issues we should be aware of.

Our panel was comprised of five outstanding scholars – Dr Angela Ward, Professor Christopher Lord, Professor Justin Frosini, Professor Albert Weale and Roch Dunin–Wasowicz PhD, all from different academic backgrounds. Through their expert presentations, looking at subjects including the review of the latest newspapers’ headlines; environmental ethnic concerns; political views in European countries and so on, the audience gained a better picture of the whole referendum.

When it came to the second part of the evening, the members of the audience were enthusiastic in expressing their views and questions to our panel. Although thoughts and opinions might differ, I think we had a healthy channel to express our views and opinions freely. And this is most important to our democratic society.

Tomorrow, we have to decide whether to leave or remain.

Looking ahead into an uncertain future the two sides weigh up the risks and opportunities and come to different conclusions. Is it safer to continue with our current multi-national arrangements, minimizing risk and change, or is the EU an outdated 1950s concept which ties the UK to the old world and which is dysfunctional and doomed to fail?

Are there realistically alternative modes of international co-operation in a more connected world? Are the advantages of a single market outweighed by regulation and the opportunities of trading with the rest of the world? What should our immigration policy be? From a legal perspective, how should our laws be made in today’s global society and how much democratic control of legislation do we want?

The decision facing us will have far-reaching consequences for the future of the UK. This is the most important decision voters are likely to be asked in our lifetime so we encourage everyone to reflect seriously and to exercise their right to vote.

Find out more

• Law on Trial 2016
• Courses at the School of Law