Bankers are responsible for the current crisis. Their greed and their remuneration schemes have pushed them to take ever more risks. Their culture of short term profits rewarded by immediate big bonuses is what has triggered the current crisis.
These are highly popular (and populist) theories. We hear a lot about them these days, being repeated all day long as they are by journalists who have long ago forgot about discovering and telling the truth. They just content themselves with what the public opinion wants to hear (so they think) as the only possible truth.
No matter how convenient and popular are these theories. They are wrong.
None of this would have happened if we had learned how to live within our means and not beyond them. None of this would have happened if we had not seen the housing market for the last ten years as some in their time had seen the stock market: a quick and easy way of making a fortune, on assets that could not go down. None of this would have happened if our politics had not encouraged this kind of behavior: Mr Clinton wanted to turn his country into an America of landlords. Mr Blair had no other ambition for Britain. None of this would have happened if the bankers had rung the alarm bell of a booming credit market. And none of this would have happened if the regulators had been competent enough to understand what was going on and take preemptive actions.
Risk taking is the very nature of the banking industry: if banks were not taking risks, credit would simply not exist. Most bankers have had for the last few years their bonuses paid in deferred shares. This practice was put in place to make sure that talented people would stay in the company and that long term profits rather than short term ones would be rewarded. A lot of them have lost years of remuneration in the last year or so. The public opinion usually does not know that.
Yes some of them managed to make enough money just before "the end", and yes it can be shocking. But just like a lot of property managers or estate agents who got out of the market right on time. It does not mean that they are all crooks. They have been just like us all: greedy and irresponsible with just an extra bit of luck.
These are highly popular (and populist) theories. We hear a lot about them these days, being repeated all day long as they are by journalists who have long ago forgot about discovering and telling the truth. They just content themselves with what the public opinion wants to hear (so they think) as the only possible truth.
No matter how convenient and popular are these theories. They are wrong.
None of this would have happened if we had learned how to live within our means and not beyond them. None of this would have happened if we had not seen the housing market for the last ten years as some in their time had seen the stock market: a quick and easy way of making a fortune, on assets that could not go down. None of this would have happened if our politics had not encouraged this kind of behavior: Mr Clinton wanted to turn his country into an America of landlords. Mr Blair had no other ambition for Britain. None of this would have happened if the bankers had rung the alarm bell of a booming credit market. And none of this would have happened if the regulators had been competent enough to understand what was going on and take preemptive actions.
Risk taking is the very nature of the banking industry: if banks were not taking risks, credit would simply not exist. Most bankers have had for the last few years their bonuses paid in deferred shares. This practice was put in place to make sure that talented people would stay in the company and that long term profits rather than short term ones would be rewarded. A lot of them have lost years of remuneration in the last year or so. The public opinion usually does not know that.
Yes some of them managed to make enough money just before "the end", and yes it can be shocking. But just like a lot of property managers or estate agents who got out of the market right on time. It does not mean that they are all crooks. They have been just like us all: greedy and irresponsible with just an extra bit of luck.
Well said.
ReplyDeleteThey are all guilty. Guilty of greed.
Greed seems to be in human nature. But humans make laws and regulations. So does greed dictate regulations?
I know, my logic leads to a nasty vicious circle.
Can such well-intended individual as Obama change the face of greed?
"Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."
ReplyDeleteAdam Smith - The Wealth of Nations, Book IV Chapter II