and recession – they were just making money by selling dodgy stuff. They were just being used-car salesmen, in a sense.(?)
Yes, but it raises this issue of intentional fraud, which has been at the root of a lot of the charges against banks like Goldman. The book is a story about these five or six weird individuals that realise what’s going on – that this housing bubble was expanding and then eventually would burst – and the other thing it makes very clear is that it undermines any kind of notion that the crisis was not foreseeable. In fact, you can see that a lot of the big banks began to understand that it was not going to be sustained, and did a lot to promote it, hoping that they would be able to get out before the whole thing collapsed. . .
I also know quite a few people who have worked there, and I find the idea of systematic fraud hard to buy.(?)
It depends what you mean by systematic. Lloyd Blankfein doesn’t get up in the morning and say, “OK. How are we going to defraud people today?” but I do think the relationship of these banks to social rules is fairly dodgy. Rules are viewed as potential obstacles that you try to get around if that maximises your profit. This is a deeper social issue that I think has to do with the economisation of a lot of thinking. Economists have this model of rational utility maximisation – that social benefit comes out of everybody pursuing their private rational self-interest. This has shaded over – imperceptibly over the past couple of generations – to a downplaying of social norms as constraints on behaviour. You see this in a number of places. In business schools, for example. Back in the 1960s and 70s, business schools regarded themselves as professional schools along the lines of law schools or architecture schools. They were meant to inculcate a certain sense of professional responsibility, that you have obligations to society at large. But as a result of the economisation of a lot of what was taught in these schools, individual profit maximisation began to displace this normative sense, and this spilled over into the behaviour of the people who went on from these programmes into the financial sector. In their minds, they weren’t deliberately trying to defraud people, but if they saw an opportunity to take advantage of less sophisticated buyers of subprime mortgages, they would go ahead and do it. . .
A lot of people on Wall Street itself say that the norms were quite different 30 years ago. When everyone was part of a partnership, there was more of a normative sense that you had a responsibility to customers and that your long-term reputation mattered a great deal. This shorter-term trading mentality has really displaced that in many firms. Whether you can get that back or not is another big social challenge in the future. . .
As the industry has got bigger and more competitive, and involved more money, the kind of clubby, elite-run brokerages and investment banks that existed a generation or two ago have just disappeared. More competition, more participation and less elite control don’t always lead to the best outcomes.'
He's nailed it.
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