Since its inception, this blog has consistently maintained that the idea that more legislation, more regulation, more governance and more controls could forestall another financial crisis was at best ridiculous—that strategy has already been tried and has failed too many times.
Well, it appears that at least US Treasury Secretary Geithner has seen the light on that subject. Speaking at an event in Oregon, Reuters reported Geithner as stating that:
“Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope,”…
In the article Geithner then goes on to say that:
“You can’t legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk,”…
There are many in politics as well as in the general public who might be disappointed with Geithner’s comments as they see more legislation, more rules and the imposition of more controls as the only way to keep banks in check. Alternatively, there are many bankers who will welcome a statement which recognizes the limitations of such controls. However, their joy should be short-lived.
In the same way that this blog has strenuously argued that more regulations and controls have for the most part become an exercise in futility, and that equally important is the responsibility and onus which this places on banks to make the necessary changes from within. The fact that many banks look to ever more governance structures, committees and meetings to better manage their risks, means that they too do not fully comprehend the scale of the changes that need to be made.
Stupidity, greed and recklessness as Secretary Geithner describe it, are really about the mission and values that organizations respectively set for themselves and determine that they are going to live by. Others call it the organization culture or the way things are done around here. It was the kind of thing Greg Smith referred to in his resignation letter to Goldman Sachs.
Judging by their collective response to the crisis, this blog is yet to be convinced that banks have fully understood the how and why this inner change needs to be made. They need to dig deeper.
Jonathan Ledwidge is the author of the book Clearing The Bull: The Financial Crisis and Why Banks Need a Human Transformation. Use this link to give your opinion on the performance of banks post the financial crisis.