Those evil bankers, how could they do this to us? Because of their greed they have destroyed the global economy, caused global warming and killed Elvis. Their extreme capitalistic neo-liberal Reaganomics ways have doomed us all, while we the general public were going about our daily lives helping the poor, spending wisely and spreading goodwill throughout the world.
This simplistic view of the global economic crisis might help us feel better about ourselves, however the truth is that most of us did our own little bit to pump up the credit bubble to bursting point. Australian’s for example over the last 20 years have taken on a lot more household debt and in particular over the last 10 years, there has been a surge in loans for investment purposes.
As people borrowed more for investment purposes they sought returns that would justify the risk they were taking on-board, and as a result a range financial products and investments entered the market to meet that demand.
At no point over the last 10 or 20 years do I recall teams of extreme bankers setting out in SWAT vehicles to surround peoples homes until they took on more debt. Nor do I recall any press gangs roaming the streets making people buy flat screen T.V’s, cars or spend rather than tuck money away for a rainy day.
Up until late 2007 we were feeling good about ourselves, the economy was booming and there was a queue of people waiting to drink from the fountain of wealth.
The corporate world too was having a grand old time, plenty of easy money meant companies could take on loans to expand their business and/or expand overseas. We also saw the rise of a variety of investment trusts, investment banks and there appeared to be a countless number of ways to invest our hard earned (or borrowed) money. Times were good and few people complained about the bankers.
But then the sub-prime loan bubble burst and triggered a series of events that has lead us into this global economic crisis. Suddenly bankers (especially Wall Street types) were seen as villains (again) and politicians across the globe were quick to take up our cause. (but were still open to political donations from any banks or bankers that still had cash)
The media as always went for what they felt was was the high moral ground, so banker bashing and stories of greedy CEO’s make frequent appearances in business and finance reporting these days.
Now I am not defending bankers who have been involved in questionable conduct, nor do I feel particularly fond of bank CEO’s who pocketed large salaries while their company sunk. But these issues are related to regulation and corporate governance, they are not as a result of bankers being some form of greedy human sub species.
It might be popular to complain about the large salaries of some banks CEO’s, but the public does not seem to have a problem with the same behavior exhibited by major Hollywood actors, rock stars or high profile sports professionals.
If a bank flops then okay, the CEO should take a pay cut and this seems fair enough. So how about we apply the same rules to actors and have them hand back some money if their movie flops? How about politicians as well, perhaps Rudd should take a pay cut this year if Australia enters a recession or if we are going to be fair about this, then NSW Government Ministers should not have been drawing a salary for years!
The painful truth about this crisis is that in most cases banks were simply responding to government policies and market demand. In the U.S. successive governments were quite happy to stimulate housing demand by leaning on the banks so they would make loans more widely available, and the Federal Reserve helped fuel the credit bubble by creating a low interest rate environment. The U.S consumers consumed, the U.S economy motored along and the world went along for the ride. So you see, we were all in this together until of course things went wrong, then we turned on the bankers.
I am not a banker, nor I am not attempting to defend the banks or bankers in general. All I suggesting is that as individuals we need to accept that when we play the market economy game that we have to take some responsibility for our own actions when the inevitable crisis strikes.
It was not the bankers alone who created this crisis; politicians, individual investors, corporations, business owners and consumers all played their part in creating this nasty economic bubble. This may not be a particularly popular view but it is the truth nonetheless, and only by accepting this will we be able to be prepared for the next crisis when it comes along.
Can we avoid another global economic crisis? Probably not, because as history tells us we will soon forget a lot of the lessons to be learned from this mess and slowly go about building up another bubble somewhere else. However we can at least try and make sure we do not repeat all the same mistake again, and for that to happen we need to get over bashing banks and bankers.