Most just don’t have the ability to do their jobs
THE MAIN PURPOSE of recrimination, Winston Churchill once observed, must be to ensure effective action in the future. That comment applies especially to the banking/ financial crisis now taking such a heavy toll on the world economy. Fortunately, South Africa has less to grieve about directly than many other nations. Key reasons for that are:
A combination of exchange controls and relatively small size by the standards of the global giants kept SA banks largely insulated from the global turmoil. Vital help in that respect was the introduction in 2007 of the National Credit Act (NCA).
That overturned dominant ANC thinking in the Nineties by making it much harder for borrowers to seek loans they couldn’t afford – and imposed severe penalties on lenders seeking to evade the restraints.
The NCA was a successful throwback to the past – and it’s a lesson that many other countries are currently re-learning.
However, SA couldn’t possibly escape the fallout of the financial crisis in the global economy. In that crisis all the usual suspects are involved to various degrees. They include: charge currently levelled against the management is “greed”. I can see that argument well enough. But I think the critical failing has been “incompetence”. Nobody has ever expressed that view more exquisitely than the great economist John Maynard Keynes. He wrote in 1931, just before The Great Crash: “Bankers are the most romantic and the least realistic of men. It is so much their stock in trade that their position should not be questioned that they don’t even question it themselves until it is too late.”
Keynes added: “Bankers feel a proper indignation at the perils of the wicked world in which they live – when the perils mature. But they do not foresee them.”
There remains much painful truth, nearly 80 years later, in those mocking comments by Keynes.
Bankers generally aren’t crooks – though there are exceptions. They mostly just don’t have the ability, though, to do their jobs. run by people inherently more talented or more honourable than those in charge of mega-corporations. That’s why virtually all such banks in SA went bust in the Seventies, as later happened with the deregulated building societies. However, that was very much an international trend – and the failings have continued right into the current crisis. European countries originally stood smugly aside from the sub-prime mortgage issue, which they briefly thought was “merely a problem for Americans”. Then they found a large number of banks, of all types and sizes – in Germany, Japan. Britain, Holland, France, among others – had “invested” billions in bundles of securitised mortgages from the United States.
That brought more suspects to the fore. Where were all the bank regulators and financial overseers? We’d been assured that banking practices internationally were greatly regulated by the Basle 1 and Basle 2 agreements. Those, technically, imposed major limitations on what banks could and could not do.
But in practice it was quite different. Basle 1 was hugely out of date; and while Basle 2 was formally drafted in 2004, few countries actually ratified it. Many different nations had many different reservations.
Also, most countries put great faith in their own regulatory authorities – such as the Securities and Exchange Commission in the US and the Financial Service Authority in Britain. We know now that none of those authorities had either the numbers or the quality of staffing anywhere near to manage their formal responsibilities. Then there are the politicians. European Central Bank are, in theory, supra-national but in reality are constantly subject to a lot of powerful lobbying by purely national interests within the European Union. from Congressional political demands (primarily from Democrats but with many Republicans climbing aboard) that mortgage lenders be forced to lend increasingly more to the “underprivileged” – ie, to those who couldn’t securely afford the loans.
In 2007, President George W Bush sought to impose some restraints on that. But the then Senator Barack Obama was one of many Democrats who conveniently abstained from voting. On the other side, the Republicans now attributed many current banking problems to the repeal in 1999 by the Clinton administration of the Glass Seagal Act, which separated commercial and investment banking. But many Republicans supported that and it was Republican Senator Phil Gramm who formally proposed the motion.
Yes, the entire system has to be rebuilt: there will be new, or renewed, regulatory changes. However, the global economy has never prospered as it did between 1950 and 2006 – and that fact must also never be forgotten.