Show Trials: Why They are Not the Solution

Flying back to London I was astonished by the level of vitriol pouring from the majority of publications towards the leaders of banks, particularly HBOS and RBS. It has now become commonplace to try and point fingers at easy targets -- "it was them, it was them!" -- a bit like kids do in the playground.

However, while some may take comfort in sticking the boot in to high ranking executives, whether on Wall Street or in banking more generally, we would do well to remember that the broader problems of the real economy are more complex and not so susceptible to ready-made packages of show trials.

The consistent pursuit of a credit-based solution to the credit economy that we have is a very good example how our entire understanding of the problems we face lag well behind with the so called "solutions" that seem to be on the table with the Stimulus plans on both sides of the Atlantic.

The key transformation in recent years in western society is how we have gone from a production based economy where things are made by people to a credit based society - and what the implications are of this. A real and serious economic and political discussion needs to be had - rather than attempting merely to ameliorate or offset it by emergency cash injections - that seek simply to re-introduce a credit-based society.

Of course, it is far easier to castigate and vent at the "fat cats", the inconsiderate, selfish, greedy individuals - although as with the scapegoats of the markets in previous periods it does little to furnish us with real insight in to the underlying dynamics of what caused the problems, how and why - and rather seeks to provide a quick-fast feel-good explanation that really leaves the broader and more challening issues go unconsidered - and unchecked.

Comments

[olephart]

"it is far easier to castigate and vent at the "fat cats", the inconsiderate, selfish, greedy individuals - although as with the scapegoats of the markets"

While your overall contention is correct, talking about justice is not the same as finding "scapegoats". The overall fix is a change away from a consumer/credit based economy to a balanced producer/consumer based economy. However, that does not in any way eliminate a need to investigate wrongdoings. Indeed our very market based economy demands that such actions be implemented. The fiduciary basis of the free markets demands that an honest relationship exists between the parties. Without these relationships our systems are no more reliable than the worst third World corruption laden system. Productive investment, the heart of capitalism, would cease. Thus it is incumbent on those charged with these responsibilities to act in a swift and firm manner. This unfortunately this has not been the case.

It seems that everyone from the Treasury Secretaries, Presidents and members of Congress are politely dancing around the obvious. That is the unquestioned facts that this is the result of a massive and systematic conspiracy and fraud. Each liar loan that was written, sold, securitized, rated and resold involved multiple felonious acts. That millions of these were so dispatched states the magnitude of the crime. Anything less than a complete investigations follow by thousands of prosecutions makes those with legal oversight accessories after the fact.

[DiogenesOfAlaska]

I wholeheartedly agree that it is useless to simply scapegoat the fatcats, since that would make the analysis only harder.

At the same time, I think it would be disastrous to let them get away with their abundantly obvious failure of leadership.

At the macro-economic level, there is a role for the consumer and for everybody to be played in the analysis. But at the level of the financial system - and without the financial system, there wouldn't have been any credit-based economy - the flaw is in the fact that the indications for a bubble of epic proportions were dismissed.

And this results from fundamental design errors in the way banks and Wall Street firms are set up.

Again, it is useless to talk about big paychecks here or even about talent. That's a minor issue. The problem is that people in the sector were basically forced into doing bad work because all pay was growth oriented, not risk oriented. This is a recipe for disaster, and indeed disaster struck.

To ignore this fact now would be to program the next crisis.