Part of the joy of the summer is being able to catch up on reading and thinking, and I am two-thirds of the way through Andrew Ross Sorkin‘s epic book about the 2008 battle to save Lehman Brothers and, by extension, the entire financial sector: ‘Too Big To Fail’. It is a great read, and was well-received when it was published first in 2009, and then again with an afterword in 2010. I have been particularly struck so far by the following about the bankers of Wall Street:
- The sums of money they were dealing with were astronomical – billions and trillions of dollars: sums beyond our understanding and grasp. And the associated salaries were breathtakingly, obscenely vast, especially when you turn on the news today and see what is happening in East Africa, with 10 million people who have nothing. This was inequality laid bare.
- They had completely lost perspective on what they were doing with that money. In their simplest form, banks create money by lending, but there were people at work in these banks in the years before it all went horribly wrong who were thinking up ever-more creative ways of making enormous debts seem like huge bonanzas. It was all so complicated, so sliced, diced and repackaged, that only a few people could understand it – but plenty of people liked the financial boost it seemed to bring their balance sheet, and they let the practice go on unchecked, ignoring the basic dangers – obvious to anyone else who has to budget for their own household – that this was all imaginary money.
- They did work hard. I write this somewhat grudgingly, of course, given the upshot of all this hard work, and how it led to a near financial collapse and a direct and painful impact on the lives of millions of hard-working people who have suffered as a result, but it is clear from the book – which relates scores of early morning management team meetings (including at weekends), 18 hour days and limited holidays – that these people did put in the hours and the effort. While with hindsight – always an easier place to ride a moral high horse – it was clearly misdirected, it seemed worth it at the time, and proves the maxim that hard work is necessary to achieve anything in life. It still doesn’t excuse the salaries, though.
- They were all, almost to a man, as it were, men. The cast of players contains the odd woman, but almost without exception the main players were men – white, middle-aged men. Funnily enough, social class seemed not to be an issue – there were plenty of stories of men who from inauspicious beginnings had risen through the ranks on merit to reach the giddy heights of CEO – but race and gender certainly were. This was a function of our social history, certainly, but in the same year that a black man became President, choosing as his Secretary of State a woman who had narrowly lost to him in the race to become the Presidential nominee, you can’t help but wonder why Wall Street was so far behind in terms of equality.
We know that the gender pay gap in the City of London financial district rises from 19.8% to over 30%. We know, as a result of Lord Davies’ report in February 2011 into Women on Boards (which set the target of raising the percentage from the current woeful 12.5%) that ‘There is growing evidence to show that diverse boards are better boards, delivering financial out-performance and stock market growth.‘. Would Wall Street have been saved if there had been more women in top jobs? Harriet Harman thought so at the time, but the truth is that we can never revisit history, and we will never know. Something in me is less sure about the underpinning notion that women would make better bankers because somehow they are less prone to risk-taking behaviour; balanced risk-taking can be extremely good, both for the individual (who will be stretched and challenged by it), and for institutions (who will develop a creativity and dynamism which moves them forward in every respect). Risk-taking is certainly not restricted to men – look at what girls’ schools are teaching! Risk-taking is something that we should be teaching all our young people in life.
What matters, of course, is not the risk-taking itself but the ethics behind it. That was what was lacking on Wall Street. Without a moral purpose, it was bound to fail eventually. No wonder it all went wrong.