Recently we featured a series of three articles by Robert Pringle on The MoneyTrap blog that take a look at what lessons might be learned from the last great financial crisis. That crisis prompted central banks around the world to experiment with policies never tried before and shook the trust of the general public in the existing monetary system.
Robert has finished up the series with an additional six articles for a total of nine lessons he feels could be learned looking back over the last ten years. Below are the links to Lessons 4-9 and a brief excerpt from each.
"The countries worst affected by the financial crisis, the United States and especially the United Kingdom, have since experienced severe political turbulence. I believe this can be directly traced back to the financial crisis and the way it was dealt with by governments, central banks and the financial elite.
Essentially, the general public came to the view that the elites’ first priority in the crisis was to look after each other. They were the first to get into the lifeboats." . . . click here to read in full
"This is another unavoidable lesson. Banking has not been reformed by actions taken by the state, central banks or regulators since the crisis. Indeed they have set back the prospects for improvement."
. . .
"Banking industry leaders have resisted all efforts to reform. That shows that in the current state of society, banking can be regulated – raising costs to society – but not restructured."
. . .
"Public officials can never, ever understand how business works. Either financial services are nationalised and run by boards of civil servants or they are set free. Given a truly competitive environment in which executives are personally liable for mistakes and in which institutions (including the largest) can and do fail – then we will have at least have one of the anchors of a sound system of money." . . . . click here to read in full
"How has the state punished the financial industry for its crimes, corruption and anti-social behaviour?
By showering it with subsidies, privileges, perks and by offering it protection from an angry public. And by reducing its profitability and capacity to change by piling new regulatory layers and requirements." . . . . click here to read in full
“The global financial system has evolved in such a way as to distort incentives of the players, corrupt the relationship between states and markets, and impose unacceptable collateral damage on the real economy” . . . . . click here to read Lessons 7,8, and 9 in full
8.….. of ethics……
"The system, I said in 2012, was grossly unethical: “because of this, it was storing up political trouble”. I warned that while people had shown great patience, the public “could not be expected to put up year after year with inequitable outcomes, where rewards bore no elation to effort, skill or common sense”.
ight up to the late 1970s, banking was populated by proud names – great institutions with marvellous histories – names to celebrate. Names like Citibank, Chase Manhattan, JP Morgan, Wells Fargo, HSBC, Barclays, Lloyds, Deutsche, Standard Chartered, UBS, Credit Suisse and the rest.
I personally knew the top executives of all these banks. It was my job as the Editor of The Banker from 1971 to 1979. They were not all the most cultured of people; many had not even been to university. They were, often, creatures of convention. They followed rules. But they were totally honest. They watched their peers like hawks. They were shrewd and usually very able people.
The reputation of these institutions – and others – has been badly tarnished. True, many bankers are trying hard to restore public respect for their profession. New bodies have been set up to fight corruption.
But they are battling what in many institutions is a rotten – “we can get away with it” – culture at the top. For example, remuneration committees routinely rubber stamp the most outrageous recommendations on appropriate salaries for top executives that come from so-called renumeration consultants. They invariably use comparablity criteria that result in large upgrades for the nonentity who happens to filling the CEO slot.
Their predecessors – the men I knew – would be profoundly shocked and horrified."
Reading through these lessons, it becomes clear that Robert Pringle wants to do what he can to try and shed light on bad practices that have led to substantial public distrust with the banking system (both the big global banks and central banks).
It remains to be seen if these lessons will result in reforms that improve the existing banking system or if public trust will continue to erode to the point where the current system is no longer viable and is replaced one way or another. It may be that the rise of Bitcoin and other private currencies is one kind of pubic response to the issues raised here by Robert Pringle.
Whatever happens, I think we would be wise to hear the warnings Mr. Pringle issues in this series of lessons and view them as an opportunity to be informed from someone who truly knows the existing system from the inside.