16 October 2015

The Guardian: “How the banks ignored the lessons of the crash”

Financial system domino

Sometimes I feel as if finance has reacted to the crisis the way a motorist might after a near-accident, said the City veteran at a small credit rating agency whose wife had almost chucked his phone into a lake at the height of the panic. There is the adrenaline surge directly after the lucky escape, followed by the huge shock when you realise what could have happened. But as the journey continues and the scene recedes in the rear-view mirror, you tell yourself: maybe it wasn’t that bad. The memory of your panic fades, and you even begin to misremember what happened. Was it really that bad?

Perhaps the most terrifying interview of all the 200 I recorded was with a senior regulator. It was not only what he said but how he said it: as if the status quo was simply unassailable. Ultimately, he explained, regulators – the government agencies that ensure the financial sector is safe and compliant – rely on self-declaration; what is presented by a bank’s internal management. The trouble, he said with a calm smile, is that a bank’s internal management often doesn’t know what’s going on because banks today are so vast and complex. He did not think he had ever been deliberately lied to, although he acknowledged that, obviously, he couldn’t know for sure. The real threat is not a bank’s management hiding things from us, it’s the management not knowing themselves what the risks are.

He talked about the culture of fear and how people are not managing their actions for the benefit of their bank. Instead, “they are managing their career”. He believed that the crash had been more “cock-up than conspiracy”. Bank management is in conflict, he pointed out: What is good for the long term of the bank or the country may not be what is best for their own short-term career or bonus.

Joris Luyendijk

Worrying conclusion to the article, foreshadowing more severe financial crises as the banking system has failed to reform enough to prevent and contain shocks. It’s encouraging that the issue is being at least picked up in the US Democratic presidential debate, but nevertheless it will take a long time until campaign speeches can materialize into concrete measures.

Mrs. Clinton said that her plan to crack down on wrongdoers on Wall Street would have the potential of actually sending the executives to jail, but that Mr. Sanders’s proposal to break up banks was naïve. Mr. Sanders grew animated.

Congress does not regulate Wall Street, he said, setting off roars from the crowd. Wall Street regulates Congress.

Michael Barbaro & Amy Chozick

Post a Comment