... or, ARE YOU SMARTER THAN AN INVESTMENT BANKING CEO?
Phew, we finally got through the death week of AIG, LEHMAN and MERRILL! Now that we are all in hindsight mode, can the real culprit please stand up?
Huh, no one seems to be forthcoming. Let's see, who can it be ... here are a few suspects :
1. Capitalism : Love that one. Let's all blame it on an abstract philosophy and get it over with ... haha!
2. Exec Comp : "If only I got paid way less than I did ... I'd never have allowed this to happen" .... yeah right.
3. Wall Street : yes, lets go blame a street. That'll fix it.
4. Mortgage markets : abstract enough to not offend any real person ... specific enough to sound insightful on CNBC ... hmmm, good one.
5. Toxic assets : sure ... when they paid my bonuses over the last 6 years they sure looked diet friendly ... all of a sudden I see the toxins within!
6. Greed - my personal favorite. Don't blame the greed-y ... just the greed. Don't investigate the fat-cats who sat and watched the thing go down - just hypothesize and lament the growing greed in society. What a brilliant idea! "Its not me, its the invisible aura of greed around us .... "
Well, let's get real. All 6 of the above candidates have one thing in common. They are concepts, not people. And we all know why blaming concepts is far easier than blaming people.
The fact that not a single human being has been held accountable ( not counting those "fired with a fat severance") for 1 trillion dollar debacle is simply astounding. In fact, Hank the saviour has come up with a brilliant plan to kill the 'toxic assets' and save the 'toxic banker'. What a stroke of genius!
The events unfolding around us are testimony to the fundamental problem that nobody is willing to address. The problem of not just a few bad apples, but an entire rotten orchard. I remember a comment made by an Indian politician several years ago ...
"The problem is not when one becomes corrupt, its when one starts believing that corruption is the new normal"
This is a case where several individuals, over time, came to the conclusion that collusion, non-disclosure, public lies (obfuscation taken to the extreme), in-group favor trading, flawed ratings, and complete lack of accountability ... had become the new normal. These individuals are now trying to quickly shift the blame on to anything other than them - helped, in part, by the growing panic that the common man will take the hit.
Don't get me wrong - I don't think Andrew Mellon's 'lets purge the system' approach will yield a different outcome this time than it did in the 1930s ... I am squarely against a revisit to depression era economics.
What I would like to see, however, is a plan for rescue and a plan for renewal. Lets rescue the banks and the markets by all means. But lets renew our expectations of bankers. Lets hold significant individuals accountable for criminal errors in judgment. Lets set new expectations in transparency ... train the next generation of bankers to talk straight, be authentic, speak simple english and stand up to pblic scrutiny.
Lets take a stand that the financial elite is no longer an acceptable social class - just like we discarded the royal elite in the French revolution. Lets recallibrate our expectations from our bankers and hold them accountable to a new era of market practice.
How will all this get done?
Well how 'bout you send me a blank cheque for 700 billion and I'll send you a plan ....
5 comments:
Good post, Indraneel. You are absolutely right that up until now there has only been a discussion on these abstract concepts that caused the crisis. But if there is one person who is to blame for this mess then it has to be Alan Greenspan. If he had not pushed interest rates down to ridiculous levels we might not have had a real estate boom and the subsequent bust. Would you agree?
Nihar
I honestly don't think this was Greenspan's fault. If low interest rates alone triggers wide spread criminal behavior, Japan would probably be a mafia country by now. Low interest rates did fuel the lending boom, but the guys who built and sold mortgage products to people who couldn't afford them are the ones whose feet need to be held to the fire. Funnily enough, Barclays has just announced that ex-Lehman employees of exactly that genre will be getting guaranteed bonuses for 2 years (to ensure retention). The saga continues ...
Hi Indraneel,
I agree that Greenspan was not the only one responsible for this mess. But once you provide the liquidity, bankers will do what bankers have always done. Japan was already reeling from a bad loan disaster when interest rates were pushed to zero. And as every credit crisis shows no amount of liquidity can overcome the risk aversion that comes with the crisis (something we are seeing right now in the Western world). A credit crisis can only be solved over time as balance sheets get repaired and confidence returns.
Would love to hear your views...
Indraneel, you might be interested in Buffett's interview with CNN where he talks about who's to blame for the crisis. I am posting a excerpt from that interview. You can find the whole interview on CNN.
Sinners and saints:
In a subsequent interview with CNNMoney.com, Buffett said he wasn't interested in placing blame for the crisis.
"I don't worry too much about pointing fingers at the past," he said. "I operate on the theory that every saint has a past, every sinner has a future."
He said the problem boils down to widely-held assumption during the housing boom that prices could only go up. And while the theory's flaws are all too apparent now, the misconception is understandable, said Buffett, pointing to previous asset bubbles going back centuries.
"There are not bad guys in that situation," said Buffett. "It's a condition of human nature."
Have you heard Paul Krugman's hypothesis about 19th century regulations failing to keep pace with 21st century banking?
Bankers will always be driven by sheer greed. It is up to the regulators to ensure this greed does not become destructive.
- Mano
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