Just Finished Reading: Bad Banks – Greed, Incompetence and the Next Global Crisis by Alex Brummer (FP: 2014)

When the banking crisis hit in 2008 and brought the world’s economy to a shuddering halt few seem to have predicted anything of the kind. Indeed, not unlike the days just before the Crash of ’29, some were in fact predicting an index that would keep raising forever. Those few who did see that such things were unsustainable where called nay-sayers and were side-lined or simply ignored as the parties continued. Oddly when the crash did happen few congratulated them for their foresight. But what we did find is that, after a few financial institutions had collapsed sending shockwaves around the globe, others seemed to be too big to fail and the men who actually caused the crisis with their reckless greed seemed too big to jail. Rather ironically (or predictably if you have that kind of twisted view of the world) the very people who caused the problem where called in to fix it – at great public expense. Of course the delicious irony, not lost on but little exploited by the Left, was that the State, that oft criticised and seemingly redundant establishment was needed at the critical juncture to save Capitalism itself. You could almost hear Marx spinning slowly in his grave with a knowing smile on his face.

All of this (and more) is outlined in this sometimes hard to put down analysis of what went wrong, what was done about it and where we stand today as the wreckage is still being cleared away. The author regales his readership with story after story of unconstrained but targeted greed whose only object was to make as much money as possible in the shortest possible time no matter the potential risks, consequences of failure or the fact that the money in question wasn’t really theirs to gamble with in the first place. Layered on top of this culture of expanding greed was an oversight regime which favoured a light-touch approach when it bothered to actually find out what was actually happening in the financial markets. Within it where people who moved seamlessly from government, to financial institutions whose share price heavily depended on lies and wilful manipulation of information and the banks themselves who were supposed to look after our money.

That all seemed to change after the crash when the eyes of the world focused on the banks and demanded to know how such a thing was possible. Easily possible, indeed inevitable, came the reply. When banks had the power to manipulate markets and effectively buy governments how could such a thing not happen. Many of the devices or schemes designed to maximise profit were so complicated that literally no one understood them. So when things inevitably went ‘bang’ the whole edifice unravelled at light speed leaving governments and tax payers in the softly glowing rubble of a seemingly rock solid system. Of course, with lessons learnt and apologies made, everything is so different now? Right? Not so much say the author. Not only are the criminals (for that’s what they are) designing the new system that is supposedly more robust than before but many of the mandated checks and balances have been quietly dropped (being bad for business and therefore threatening the recovery) weakened or delayed that things are almost back to the way things were before the crash. Bonus culture is back in fashion (after all they need incentives to retain their best people right?) as is risk taking and the scandals that follow it. Are we in a better position than 2008? Probably. Will it be enough to prevent another global crash? Probably not.

Told using mostly UK examples (with a handful of US examples used to contrast things) this is a very sobering read of a financial system completely out of control and immensely dangerous. If you think that the worst is behind us and it can never happen again you’ll change your mind after reading this.