Excerpt from COMPLICIT: How Greed and Collusion Made the Credit Crisis Unstoppable, by Mark Gilbert with permission from the publisher Bloomberg Press (February 2010). Part 2 of 2. Here is Part 1.By Mark Gilbert, London bureau chief and global capital markets columnist for Bloomberg News.
Psychiatry suggests that people whose lives have been engulfed bycatastrophe follow a predictable coping pattern. They start off engulfedin denial, try to bargain their way out of the dilemma, then succumbto depression before finally accepting their misfortune and resumingtheir lives as best they can. Unfortunately, most of the financialindustry hasn't even made it to the first stage. Too many bankers areacting as if the disaster never happened. The financial industry's siren song is easy to summarize. Regulateus too strictly, the bankers say, and global growth will suffer. Nevermind that this argument assumes that banks cannot innovate andthat self-regulating is precisely what brought the economy crashingdown. The banking community hasn't made amends for its profligatebehavior. Indeed, it will always find ways to argue that business asusual is the only way to safeguard the global economy. Government-sponsored mergers and opportunistic purchaseswill mean fewer and larger banks in the landscape that emerges afterthe credit crunch's dust settles. Governments, however, cannotallow these banks to dictate policy and must ignore finance chiefswho bleat at the prospect of new rules. The market needs safetystrictures, even if new safeguards make it harder for investmentbanking to invent and profit from new techniques and strategies. Following is a list of changes designed to protect us from the worstexcesses of the finance industry, without killing its ability to contributeto the global economy. In this credit crunch, national regulators rescued at least some failinginstitutions. In doing so, they have essentially committed to futurerescues. "The government has dispelled any constructive ambiguityon how far it's willing to let banks and investors suffer," former Bankof England Deputy Governor John Gieve said in June 2009. "There'snow a safety net covering every significant bank, even banks thathave failed. Moral hazard is a real issue now."