I gave a talk last night where the Q&A turned - as it always does - to "How did the banks get away with it?" Every time I talk about the Credit Crunch that's almost the first question I get asked. And lest you think this is a sleeping dog let me point out that this sleeping dog is about to bite you in the backside in the coming weeks. We never solved the banking crisis of 07-08, we merely deferred the problem. We saw the greatest transferal of private debt to public debt in the history of humanity and we were so relieved that the world didn't fall off a cliff that we forgot to demand the money back off the banks.
So how did the banks get away with it? How did they get away with costing the international community trillions of dollars in bail-out costs? The answer is as simple as it is depressing. They got away with it for three reasons:
First off, the banks committed a complicated crime. When a guy walks in the front of the bank wearing a stocking over his head and a gun in his hand we can all get our heads round the fact that he's a bad guy intent on ripping the place off. When a guy sits seven stories up wearing a suit, devising bogus derivatives that add no value to anybody but his own pay packet we get a brain freeze trying to see what he's doing wrong. The entire sub-prime mortgage crime was institution after institution piling into new derivatives that any first year college student could have told you were going to end in tears. Tears for us, the patsies bailing out the greedy banks.
Secondly, banks have more resources than the people policing them. They have more lawyers, more lobbying power, more PR power. And they use it ruthlessly and relentlessly. When Harry Markoplos tried to repeatedly warn the SEC about Bernard Madoff they dismissed him with - amongst other reasons - the fact they were focusing on mutual funds. The regulators can only fight so many fires and Wall Street lights them all over the place.
Then - sick Goldman Sachs punchline alert - they also figure that on the rare occasion that they do get caught that, what the hell, we'll pay the fine. In the long run it still pays dividends. (To the bankers, not their shareholders, obviously.) Oh, and if we're doing punchlines here why not let's top that last one with this: Wall Street used the bail-out money to lobby Congress to not tighten the banking regulations that they had so comprehensively abused. Boom, and the banks bring the house down - literally.
Thirdly, bankers have a greater incentive to commit crimes than the regulators do to stop them. If the regulators spot the rules being bent or broken or wholly new and unexpected crimes being committed and they manage to stop these, well, the world becomes a slightly less screwed-up place. If the bankers drive through a new derivative or bogus money-making scheme they make millions - billions even. Now, who do you think is more motivated in that fight?
Why is this relevant today? Because Greece is about to default. Because Portugal could be next. Then Ireland. Then Spain. At which point all bets are off. Because the ratings agencies - the very people who took fat paydays off the banks in return for slapping AAA-ratings on their ultimately-junk sub-prime derivatives - are downgrading these economies. And instead of telling them to go take a hike we're cow-towing to them. Because the very existential threat that visited us in 2008 with the demise of Lehman Brothers is back and this time deferring the entire crisis won't wash. Because the banks screwed our economies and us. All so a tiny group of people could earn millions, leaving us the bill.
"How did the banks get away with it?" That's how. The tragedy for me is that the banks didn't have that Milly Dowler moment. That crystalising moment where the soft crimes they commit day in, day out, like News International's worst excesses, suddenly could be understood. Because if there's one thing we can understand it's a human price. When we rage against Murdoch and the tentacles of his empire we should consider how alike this is to the world of banking. How corrosive their endeavours are to our societies, how damaging.
The politicians have shown us what is possible when they harness public outrage, have shown us how an over-reaching bully like Murdoch can be beaten into a retreat. We need the same with the banks and we need it more urgently than any problems deriving from News International. Because the Credit Crunch is back and, trust me, the banks will be shrugging their shoulders and saying "It's nothing to do with us". Wrong. It's everything to do with them.
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