Given that my recent sequence of posts was partly concerned with our need to learn from past mistakes rather than risk repeating them, it was not reassuring to find that key insiders do not seem to have learned the lessons from the September 2008 banking collapse. A Guardian article by Joris Luyendijk posted at the end of September deals with this failure in depth. Below is a short extract: for the full post see link.
The post-Lehman panic was followed by a wave of investigations and reconstructions by journalists, writers and politicians. More than 300 books have been published about the crash in English alone. Every western country held extensive hearings and produced detailed recommendations. Everything you need to know about what is wrong with finance and the banks today is in their reports; the problem is that there is so much more that needs to be explained.
Most areas inside banking had little or nothing to do with the crash, while many players outside banking bore a heavy responsibility, too, including insurers, credit rating agencies, accountancy firms, financial law firms, central banks, regulators and politicians. Investors such as pension funds had been egging the banks on to make more profits by taking more risk. Unless you had a firm understanding of finance, the causes of the crash were very unclear, and this must be part of the reason why the clearest and most urgent lesson of all would get lost or buried: the financial system itself had become dangerously flawed.
After the crash of 2008, ignorance among the general public, reticence among complicit mainstream politicians and a deeply skewed and sensationalist portrayal of finance in the mass media conspired to create the narrative that the crash was caused by greed or by some other character flaw in individual bankers: psychopathy, gambling addiction or cocaine use. (A whole genre of City memoirs sprang up with titles such as Binge Trading: The Real Inside Story of Cash, Cocaine and Corruption in the City. Gordon Gekko returned for a sequel, Wall Street: Money Never Sleeps, and Leonardo di Caprio scored an immense hit playing the title role in The Wolf of Wall Street, about a whoring and cocaine-snorting financial fraudster.)
From there it was a small step to the notion that we can fix finance by getting rid of the “jerks”, as the plain speaking former Barclays CEO Bob Diamond put it. When Diamond was forced to resign in July 2012 over a scandal involving interest rate rigging by his traders, his successor, Antony Jenkins, also promised to focus on changing the culture. And so the same banks that brought us the mess of 2008 eagerly embraced the need for cultural change – which alone should arouse our suspicions. If there is one recurring theme in the many conversations I had with City insiders, it was the need for structural rather than cultural change; not so much different bankers, but a different system.
“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?”