Blaming banks for the financial crisis is unfair. They are a symptom, not the cause, of a disease that made greed good
The knives are out for the vampire squid, and salivating diners around the world are licking their lips in anticipation of a feast. The question of whether Goldman Sachs is convicted of fraud over the Abacus affair has been reduced to a minor detail, with the usual suspects happy to declare the bank guilty from the off, regardless of whether or not it is ultimately proved innocent. Ever since the credit crisis brought the global economy to its knees, there has been little sympathy for letting bankers have a fair trial, especially if it gets in the way of the detractors’ venting of their self-righteous rage. Guilt is in the eye of the beholder – and in Goldman’s case, as well as the plethora of big banks before them, those looking on have nothing but contempt for those working within the belly of the financial beast.
Even if Goldman Sachs employees are guilty of the charges against them, they are not a special breed of evil banker. As Dean Baker noted: “In fairness to Goldman, there is no reason to believe that they are any less ethical than any of the other big Wall Street actors, just more effective.”
But it doesn’t end there: the banking industry is not a singularly malicious entity adrift in a sea of worldwide righteousness, however much the naysayers preach that the opposite is true.
When I interviewed Simon Cawkwell (known in City circles as Evil Knievel) for my book, Binge Trading, he launched a devastating and damning critique of Gordon Brown’s handling of the British economy, which he described as “the greatest peacetime deception ever”. Brown had, according to Cawkwell, successfully pulled off a heist on a national scale, duping an entire electorate into believing that an end to the cycle of boom and bust was truly upon them:
“He anaesthetised the British [public], because if he’d warned people that there would be a bust, people would have been much more cautious. He wanted to keep them being reckless so he could tax them on the transient profits earned … Brown knew perfectly well that there were heroic rises of general indebtedness in the British economy, so as a result the borrowing went on and got worse and worse. This was a deliberate and sustained exercise in deception.”
Recent history bore out Cawkwell’s theory that another bust would eventually rip apart the fabric of lies woven in the upper echelons of British politics, yet – egged on by politicians keen to save their own skin – the public is still ready to cast the first stone at the banking industry as though they alone are responsible for driving a stake through the heart of a previously fully-functioning economy.
The Goldman Sachs affair ought not to be taken lightly, but at the same time should be viewed in the context of an entire political and financial system in which smoke and mirrors are an integral part of the process rather than a one-off anomaly.
The knee-jerk response of the anti-banking masses is to call, yet again, for tighter regulation and tougher penalties for those who break the law – but actions such as breaking up the major banks into smaller entities will not make the problems disappear overnight. Greed is good regardless of scale: attacking the underlying lust for lucre should be a central plank of the platform of anyone who truly wants to eradicate the endemic corruption in the world of big (or small) business, but to take such a stance is far too radical for the mainstream parties or their cheerleaders.
The Wild West badlands of the CDO market only existed because no one on the outside cared enough to properly regulate them when the going was good, and for all the 20:20 hindsight displayed after the event, it is all but guaranteed that future crises will be born out of similarly lax approaches taken by the next generation of half-hearted compliance officers.
I spoke to a banker from one of the major players in CDO circles, who summed up perfectly the attitudes prevalent throughout the industry at the time:
“Every time we did a CDO we made eight or nine million dollars of fees … You had CDOs buying into CDOs, which were buying into more CDOs and so on. When I first joined, I said to the guy I was working with, ‘This seems a bit fucked up, doesn’t it? We’re kind of part of this whole vicious cycle that’s going around.’ He said, ‘Look, I agree with you, but we’re not paid to think like that – we’re paid to make money. And if it becomes a problem then we’ll deal with it.’ And that was the end of the conversation.”
Such a mindset did not emerge from a vacuum – both bankers involved were simply dancing to the tune called from higher up the food chain at their bank, which in turn was a response to pressure from investors among the public to make ever-larger and ever-faster profits.
Politicians took a laissez-faire approach because government coffers were swollen with all the extra tax, and at street level no one batted an eyelid while house prices rose and the feelgood factor reigned supreme.
Now that the chickens keep coming home to roost, it still seems simplest to attack the symptoms of the disease rather than the cause. The bankers’ behaviour was only a symptom, however unpalatable that might seem. Society’s readiness to set up cash as king is the real driver behind all that is wrong with the banking industry and the wider economy. Until such a realisation dawns over society, there will be countless more cases of financial fraud and deception, and countless more politicians and pundits for whom slinging rocks at the City from their glasshouses is the only response they know.
We’ve been here before, with media commentators and politicians calling for heads to roll and regulators to sweep the industry clean, and outraged members of the public throwing their uninformed and hypocritical two pence worth into the mix for good measure. Such talk makes for great copy in the papers and fills comment threads and letters columns but does nothing to address the core problems at the heart of both the banking world and society as a whole.
Wednesday 21 April 2010