Since the world’s financial system went into meltdown, there has been a certain amount of tooth-gnashing and mouth-frothing about the dreadful greed and recklessness of bankers — a lot of it from politicians who frankly aren’t in a position to lecture anyone about short-termism. I find it difficult to work up much righteous anger.
Firstly because complaining that bankers get too excited about money seems like complaining that gannets get too excited about fish. But also because we’re not talking about one or two individuals doing a Nick Leeson job on the world’s banks: as far as I can gather, most of the world’s bankers were making the same bad decisions at the same time. So I tend to think: there but for the grace of God go I. Of course it’s possible that I would have been one of the few bright sparks who spotted what was going on and tried to avoid it, but the odds are against it.
I suspect, ironically, that some of the very people who are most full of outrage at the excesses of global capitalism would be the first to excuse bad behaviour and reckless short-termism in the case of, say, the urban poor. It’s not that merchant bankers are bad people; they’ve been failed by the system.
» the video is of course from West Side Story; the actual song starts at about 1:50.
5 replies on “Gee, Officer Krupke”
of course bankers get excited about money, and who would go about extolling their characters? still, i think it is pretty reprehensible that when your company fails to make a profit, you take money from taxpayers in order to pay your managers a bonus (take, not borrow). That kind of pisses people off. If the “appetite for risk” only takes into account an upside, it isn’t “risk” anymore, it’s payday one way or another.
I agree that any executive who takes a bonus after being bailed out by the government is a bit of a dick.
It’s galling that the very industry which has caused all this mess has now been given lots of money by the government. But if the alternative is a full-blown run on the banks, it seems like the lesser of two evils. And as I understand it, they aren’t just being ‘given’ the money: they are getting it in return for a large stake in their companies which the government will hopefully be able to resell at a profit when something like normality returns in a few years time.
The thing is, I’m not particularly sticking up for bankers. They (and hedge fund managers, and mortgage brokers, and central banks, and politicians, and regulators) have taken a whole lot of decisions which, in hindsight, don’t look very smart. But that’s hindsight for you. And since the whole world seems to have been making basically the same mistakes, it probably wasn’t obvious at the time.
I was listening to something about the Great Fire of London on the radio the other day, and apparently one of the immediate reactions after the fire was to say it was a punishment from God for the immorality of London (you could either blame it on the debauchery at the court of the newly-restored Charles II, or the various forms of Puritanism and republicanism, according to your political tastes). I’m sure at the time, it was cathartic for everyone to point fingers and write pamphlets, but if you’d actually wanted to prevent the Fire happening in the first place, it would have been more productive to set up a well-organised fire-fighting service and some appropriate building regulations.
I suppose it’s cathartic to be angry at the banks, but I think it’s more important to focus on the financial equivalent of a better fire service and stricter building regs.
And yes, I know the parallel isn’t exact, since the court of Charles II didn’t spend all their time playing with fire. Still, I think this financial crisis is caused by systemic failure rather than a moral collapse. If this financial crisis is more severe than the crash at the end of the 80s, it’s not because this generation of bankers are any greedier the Gordon Gekko generation.
The Economist once began an article with this sentence:
“The four most expensive words in the banking industry are, ‘This time, it’s different.'”
The entire banking industry managed to convince itself that securitizing loans would eliminate the risk of borrower default. They all acted on the firm belief (wrong, of course) that unless they foolishly bought the “low” tranche of the security, they could never be affected by a default. You can never eliminate risk. You can only move it around. But by acting as if they had eliminated it, they managed to magnify to unimagined levels.
And it annoys the bejeezus out of me that nobody in Congress had the foresight, or the cojones, to demand an accounting from the banks as they have from the auto industry.
Perhaps the one lesson to take away from this whole mess is that, left to their own devices, bankers are no more capable of ensuring the long-term health and stability of the financial system than fishermen are of ensuring the long-term health and stability of fish stocks. Despite the fact that in both cases it would seem to be in their interest to do so.