Reference Points and the Banking Crisis (2010)

Reference Points and the Banking Crisis (2010)

We need mental and physical reference points.

We need physical reference points such as signposts to show us which way to go, for example to the airport or the hospital, and we also need reference points to show us where we are. Why? If you don’t know where you are, it’s quit a difficult job to find your way, thus landmarks and “lieux de memoire” play an important role in our lives.

We need physical reference points like the meter to be able to ‘feel’ distance, to be able to measure and to be able to communicate the results of such measurement.

We also need emotional and mental reference points. If you see someone laughing it should be a safe conclusion for you to deduce that he is laughing/enjoying himself.

We need reference points like currency to pay our bills. This currency allows us to have a feeling of value. The step towards the euro has caused a lot of benefits but also a lot of trouble as people have had to change their reference points. Although not always reluctant, some of us have needed many years to adopt to this new Euro reference point. Culture can also be perceived as a set of reference points: how we behave, the way we define a social situation, good and bad, nice or ugly.

Reference points may be formal or non-formal internal programs (also known as ‘cognitions’ or ‘frames’) and may take the form of rituals, e.g. the ritual that you don’t discuss business during holidays or that you don’t embark on a certain topic before the first cup of coffee. There are lots of reference points in social life, for example such things as your education, membership of Rotary-like clubs or the newspaper you choose to read may be understood as establishing different social reference points. We can’t function without them.

My feeling is, even though I am not an anthropologist, that reference points shouldn’t change too often. A change of reference point or set of rituals is really very confusing and it takes time to adopt the new ones. That, for example, is the reason why avant-garde artists often have difficulty selling their art: they don’t sell art. What they are selling is, in fact, a worldview, albeit one based on very different reference points than those you and I probably have. That’s why the BAUHAUS[i], built almost a century ago, still looks ‘modern’.

What about reference points in your life? Do you know them? Are you aware of them? Major events in a person’s life are usually reflected by a shift in reference points. A divorce, a serious illness, a sudden loss of a beloved. Winning the multimillion jackpot. All these events may be looked upon as a reset of various reference points.

I will not systematically survey what reference points we have or need in life, although I’m sure there are many in various aspects of life, even in its most intimate parts. My intention is simply to give you an outline of what a reference point is, describe how it serves you and explore our limitations when it comes to changing them. This paper will focus on the banking crisis to illustrate my arguments.

It colours my statement that we experience so many massive changes in numerous aspects of our lives nowadays that many of us face the experience of having no reference points. In the business realm, in politics with respect to the sociological viewpoint of society and even in day to day family life many of us really don’t really know where we are or what we see, with the consequence that we dare not derive conclusions from what we see. We get stuck. Paralysed. We don’t act and do not take decisions as we fear they may be wrong.

Context drives meaning

If many reference points change in a short period of time, there is no context to give meaning to facts. And without context there is no communication. And without communication and the feeling of being part of something, fear and uncertainty enter the picture and the feeling of personal significance is lost. With this fear the ego enters the picture as well, being one of the human mechanisms to cope with fear, uncertainty and the sensation of meaninglessness.

I give you one more example how changing reference points affect communication. Communication depends on established reference points: if I don’t know whether you are a friend intending to help me or an enemy focused on damaging me there will be not much exchange of thoughts, you will not leave your comfort zone and we will not enter a real relationship or connection.

But in this comparison, what about politicians, what about banks, what about visiting China looking for new business? Business has to do with interrelating, where all types of reference points are at stake. This is the reason video conferencing usually works fine when we know each other: established relationships need clear reference points.

We need a set of fixed points: flexibility through stability

Fixed points may be very concrete and very abstract, for example the definition of the ‘physical meter’ is fixed. What also should also be fixed, to give a few examples, is the administration of property, the municipal individual records and the rule that we drive at one side of the road (whether to the left or right I don’t mind). Each society needs a set of these rules and our political convictions as well as practical considerations determine how broad and extensive this set is.

It is this institutional and psychological societaland business stability that allows for flexibility. It is your stable and mature basic trust that allows for flexible personal behaviour.

Sometimes one may use quirks of national character to shape effective solutions. I give you the Chinese example on how they have organized tax paying. Like in other countries people in China don’t like to pay taxes. So, there is a tendency to avoid them. How did Chinese leadership solve the problem? If you ask for a formal invoice, the Chinese salesman has to glue a receipt stamp on your bill reflecting the tax amount being paid. However, this stamp also serves as an instant lottery ticket. So, one is able to encourage the payment of tax by making use of the enthusiasm for gambling of many Chinese: each correct invoice is a gamble and a promise for a huge amount of money. This is an example of how reference points and rituals may shape and serve formal policy.

Money, banking and reference points

Let’s turn to the financial system and find out whether reference points have a role to play.

As I have already stated, each system needs reference points: legal systems, mathematical systems, banking systems[ii]. My question here is: does the financial system now have clear reference points and at least one fixed point?

First of all, money itself functions as a very important reference point. It is a well and commonly understood ‘language’, actually a code system, that objectivises and expresses value. Everybody understands money and its related earning power as a code of communication. There are even many songs about money[iii]. If this objectivity is harmed, it immediately causes social unrest, a revival of barter and many usually flee to the last financial reference point: gold.

Today it might be a good idea to create that transparency with respect to gold and to express all currencies like dollar, euro and yen in the related quantity of gold on a daily basis, putting us in a ‘Bretton Woods extended’ situation[iv].

But what about banks as social reference points? My guess is that banks in general have a severe problem with how they are seen. People seldom love banks (of this I am certain) and are unsure as to how banks should be evaluated. Are they social? Are they friends? Is it ok to visit that party organised by a bank?

On the other hand, many of us consider the actual bank representative we meet as a friendly, cooperative person acting in our service. Most of us are not willing to accept that a commercial bank is just a company, striving for profit the hard way, even at your cost. The mental concept that the bank is a shark you should be aware of just doesn’t enter your mind. Fascinating, isn’t it? You know it but many of us don’t still feel that way. That’s the very reason banks do not have to change their behaviour.

Our banks now have a lot of work to do to restore their credibility. However, their actions still do not reflect a sense of urgency, and I’m sure this will translate into a high of cost for banks which will ultimately be paid by the consumer: PR costs for damage control, HRM costs as people become less willing to accept bank jobs and strive for compensating risk premiums when they do. The banks’ shareholders will become less lie ‘shareholders’ in the strictest sense, but more like ‘sharehoppers’, confronting the bank with dynamics of the international financial markets and making them even more vulnerable.

It would be wise for bankers to re-establish social and commercial reference points. These are vital for customer intimacy and, without them, a bank cannot survive. It would be wise, for example, to reduce the 70% proportion of trades now performed unattended from isolated bunkers and controlled automatically by spreadsheets, and I am sure it would be wise to prepare for peer to peer banking, already put in place by, and many others, using social currencies like the VEN or the LETS.

In the paper finance2.0[v] there was a plea for companies to eschew legal entities, because personal business creates personal responsibility. The recent decision of the Americans to forbid trading with money that is not yours as a bank may be seen in that perspective. I believe this is a step in the right direction, forcing banks to act and seem much more responsible.

Fixed points and the financial system

One can analyse the last two years and the way the international political and business arenas have sought solutions for the financial crisis as a singular cry for fixed points. Banks are no longer fixed points, and so countries have served the international financial system in this respect and, by the means of their Central Banks, provided a last resort. Nevertheless, Central Banks are finding themselves increasingly extorted by commercial banks that are “too big to fail”.

I’m sure we all have an interest in extending research into the issue of reference points, especially in the context of the systemic pressures produced by a capitalist economic (banking) system. Is Mr Kerviel, former employee of the Société Générale, really an archetype, a reference point?

The next move: as some European countries have met more challenges in this field than expected, the Central Banks of some of them are no longer able to serve effectively as fixed points. So, an EU supporting structure of 720 billion euros has been developed to solve this problem and the German Central Bank has taken over from the Greek. This European structure now serves as the fixed point, a safety net for the financial sector, communicating to all of us that there is a fixed point that has the capability to pay in the end.

The question now however is how long this extended financial capability can survive, serving as a new fixed point. The Dutch National Bank has already sold more than half of its gold supply by now and there are even rumours that our Fort Knox is empty. It would be a very good idea for the European Monetary Authority to check the quality of the balance sheets of those banks that are ‘too big to fail’ at once and bring an end to the current lack of transparency. The leadership of those banks must understand that their public responsibility is much more profound than their responsibilities towards their shareholders must act and decide accordingly. If not, and their power is not offset by responsible behaviour, we will run into problems which I fear will be far beyond those of the first part of the financial crisis.

Perhaps some infrastructures serving the public are just too important to leave to the market system.

Future scenario

As financial and political planners always tend to expand their outlines to the bitter end, I now give you a picture of the future of this scenario.

First, realize that not many of us are really aware of what’s going on: this is my view as someone who is also one of the many. Secondly, realize that in this world of distributed power no-one whatsoever, no person and no institution, has the real power to set the right agenda. So, as the ‘planet’ is lacking the power to set the agenda and solve the problem, things will continue as they are.

The next stage therefore will be to intensify the role of the IMF as the new fixed point, with gold also taking over as a reference point. Then, of course, the question will be as to how long the IMF will be perceived as being able to pay the bill.

What will follow? What’s next? I don’t know. Sure, the Chinese will have to fund the IMF, since they have all the money. But would they be willing to do so, and at what price? As an alternative, are we willing to accept a lower standard of living for many years?

I’m almost sure that IMF stability has to be bought. This will further accelerate the transfer of both welfare and political power from west to east and probably a shift towards Chinese viewpoints in the European region[vi]. I am quit sure we severely underestimate the effects these viewpoints will have, as they do not fit into our current system of reference points. Nevertheless, I expect we will have to face these developments as long as Western democracy doesn’t really solve its problems and continues to face its challenges.

Perhaps 2012 will really be the very important year some of us already believe. If a big bang were to come we would probably end up starting new small P2P village banks where people know each other, with clear reference points.

Perhaps there is reason for optimism and we should look beyond 2012 to 2013?[vii]

I repeat, responsibility should always follow power. If one becomes more powerful, and many empowered citizens and institutions do have real power, one should behave with more responsibility. If power comes without a sense of personal responsibility, we are in deep trouble. This could, by the way, be business, tech, all sorts of power.

Final remarks

At the moment, there is little alternative than for countries and governments to take responsibility as quickly as possible and to communicate planned action. Otherwise, our current financial system needs drastic reconstruction. Perhaps the Euro will turn out, in the end, to be a currency as artificial as many African borders. These borders have caused a lot of trouble over many decades, being artificially defined without consideration to national and local conditions. Perhaps we need currencies that reflect our value reference points again.

What could we do as “empowered citizens”? Influencing the macro-system and the big picture is always difficult. One might, however, become much less naïve and act as a responsible consumer, demanding transparency and integrity from banks. The good news for the consumers is that, in the end, you have a choice.[viii]. So, be aware and go for it.

I will leave things at that, as I’m not yet prepared to consider other consequences. We certainly live in interesting times…


a shortened version of this articel has been published in

Reference Points,  (in) Secondsight on tangibility, issue #40, spring 2015, p. 38-43


[v] here the Chinese leadership has an advantage as they are, more than in the European world, in a position to implement an action with force. Sometimes it seems as if ordinary people in China have a lot of freedom where the leading class is supposed to follow the rules. In The Western world, especially in Europe, it seems t be the other way around.
[vi] China takes over in Africa, the Africans not really expressing gratitude to the Europeans for 40 years of aid. Why don’t we build a plant for producing aids drugs in Africa?
[viii] E.g.Clay Shirky, Here comes everybody, Revolution doesn’t happen when society adopts new technology,it happens when society adopts new behaviors, New York, 2008.

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