Fool’s Pardon for Bankers? I Think Not.

9 July, 2009

John Kay in Wednesday’s Financial Times has gone surprisingly soft on those villainous bankers.

“Better, as so often, to follow an aphorism of Warren Buffett’s: invest only in businesses that an idiot can run, because sooner or later an idiot will. Our banks were not run by idiots. They were run by able men who were out of their depth. If their aspirations were beyond their capacity it is because they were probably beyond anyone’s capacity….. we would be wiser to look for a simpler world, more resilient to human error and the inevitable misjudgments. Great and enduringly successful organisations are not stages on which geniuses can strut. They are structures that make the most of the ordinary talents of ordinary people.”

I think John Kay is too kind to bankers.  It was not complexity but greed  that caused senior bankers to over-reach themselves and effectively destroy the banks they worked for.  That greed may have been a logical strategy on their part, insofar as (a) their pay and bonuses were linked to short-term performance and were non-repayable if things went pear-shaped (b) prudential oversight, whether internal or external, was inadequate and (c) their competitors would have hoovered up the short-term gains (and concomitant annual bonuses) if they didn’t.  But greed it certainly was. 

I suspect there were many senior banking figures (chief executives included) who had an insight into the sort of risks they were running, but were reluctant to shout stop; they saw the gravy train as just too good to miss, and anyway their competitors were in the same boat.

Citigroup CEO Charles (Chuck) Prince gave the game away two years ago: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

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