Seven years on from the credit crunch, it is plain that the bankers entranced the world with ideology – in the Marxian sense, of ideas that exist to further interests. They may have been fabulously wealthy, but only because they were doing fabulously clever things. Clueless politicians would meddle at their peril.
The intellectual intimidation was such that when Northern Rock cracked, as a result of spectacularly stupid decisions, a Labour government wasted months trying to avoid nationalisation and leave private-sector practioners of the failing witchcraft in charge. A year later, a Republican White House was bailing out banks in Washington while London was buying up Britain’s biggest financial institutions. Yet these disaster responses came coupled with a commitment to leave experienced money men at the helm. It was, we heard, imperative that the taxpayer-owned RBS would be run as a quasi-commercial outfit, arms-length from the dead hand of government.
The mystique of financiers could survive catastrophe because few had any idea what they were up to. Politicians could look up derivatives and credit default swaps in finance books, but found definitions that mixed baffling explanation with justification about how these things were supposed to facilitate investment and spread risk. The whole economy had been caught uninsured, and investment was on the floor, but no matter. The bankers were obviously doing something significant to amass such fortunes, and politicians felt that they had to hold back from interfering, until they understood what that something was.
Slowly but surely, ugly truths are emerging about how the money was made. Banking profits owe less to mastery of fiendish theories about optimal risk allocation or anything else, and more to an old-fashioned case of what Adam Smith called “a conspiracy against the public”. There has been skullduggery on an industrial scale, from the laundering of Mexican drug funds to aggressive peddling of useless payment protection. A lodestar of the financial universe, the so-called Libor rate, turned out not, after all, to be set by vast, impersonal market forces, but instead shifted around by a few rogues. Wednesday brought another multibillion pound fine – this one served by UK, US and Swiss regulators on five giant banks – for rigging foreign exchange trades.
As The Guardian says: “The industry is rotten to the core. But six years after Lehman toppled, and two years after Bob Diamond was forced out of Barclays amid the Libor scandal, the protective overgrowth of ideology is still not cleared.“