Quote Book -[23]-Civilsation, People, Blame, Bankers & Government

Whenever anything goes badly wrong, our first instinct is to blame those in charge – in this case, bankers, credit agencies, regulators, central bankers and governments.   We turn to blame the ideas only when it becomes obvious that those in charge were not exceptionally venal, greedy or incompetent, but were acting on what they believed to be sound principles: bankers in relying on risk management systems they believed to be robust, governments in relying on markets they believed to be stable, investors in believing in what the experts told them. In other words, our first reaction to crisis is scapegoating; it is only by delving deeper into the sources of the mistakes that the finger can be pointed to the system of ideas which gave rise to them.

Bankers have been the easiest targets, and understandably. They controlled trillions of dollars of wealth. They ruined their shareholders, their customers, their employees and the economy, while continuing to collect large bonuses.   They had ridden a boom in which nearly all profits went into private hands, followed by a gigantic bust in which taxpayers became liable for their losses. Spectacular payments for success may be acceptable; spectacular rewards for failure – especially if unaccompanied by contrition – are obscene.

‘Bring back the guillotine…for bankers,’ cried Britain’s Liberal Democrat Treasury Spokesman Vince Cable in the Daily Mail on Monday 9 February 2009. ‘The bonus-hunting bankers…stand charged with destroying wealth on an epic scale. Foolish, greedy, irresponsible behaviour and excessive risk-taking led to massive losses…which [are] now costing millions their jobs and many their homes’. ‘Betting our cash for personal gains’ should be outlawed, thundered Will Hutton in the observer on 25 January 2009.

Keynes – The Return Of The Master

Robert Skidelsky

Nevertheless, there is something disagreeable about the mass hysteria directed against the bankers, reminiscent of ancient witch-hunts, pogroms and human sacrifices at times of poor harvest. It is also counter productive. Unless one is prepared to take over the banking system oneself, one cannot attack bankers for reckless lending and then expect them to lend, any more than one can condemn excessive profits and expect businessman to invest. Also, the polemics missed something. What does it mean to say bankers were ‘greedy’? The concept of greed is incomplete unless on has a notion of what is ‘enough’, which we lack. The more thoughtful realised that bankers’ failures were part of a wider intellectual and regulatory failure, as well as a moral climate which celebrated moneymaking above all other activities. Bankers were scapegoats for the whole Reagan-Thatcher era, which exalted finance and humbled industry, and which had allowed the fruits of progress to accrue disproportionately to the rich and super-rich. (The new class struggle, the quip had it, was between the haves and the have-yachts.)

Moreover, in following ‘risk-management’ models which they barely understood, bankers acted, in their own lights, correctly.

Indeed, had they acted otherwise, they might have been held culpable for failing to ‘maximise shareholder value’. Their behaviour, while selfish and self-satisfied, was in the highest degree conventional. They swallowed the whole securitisation philosophy without understanding its ramifications. Many of them no doubt felt they were conferring a public benefit by enabling poor people to acquire homes and other desirable goods. Keynes hit the nail on the head when he wrote, ‘The “sound” banker, alas! Is not one who sees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with this fellows so that no one can really blame him.’

Keynes – The Return Of The Master

Robert Skidelsky


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