Spot the fault line

 

The overriding lesson from the calamities in the global financial mess was that the monitoring systems were inherently flawed. 

Exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”. 

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet. 

What’s the worst that could happen following a spectacular flame out? Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high. 

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse.

Apart from the self-inflicted wounds the general public fell foul of the culture. One whistleblower at Barclays was quoted as saying   “It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.' He added  “Some of the things we sell — such as structured products — are rubbish.”

A little like bolting the stable door after the horse has bolted the FSA has now decided it is time for a clampdown on bank, building society+ insurance company staff being paid commission on sales. 

This follows years of obvious laissez faire when for example it was quite normal for people to borrow based on self-certification of earnings, a recipe for disaster if ever there was one. 

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances. What is required is that the senior management spend less time forecasting their own bonus and more time scrutinising the bottom line and understanding how results are achieved. Until this balance is in place disasters in the financial system will continue to occur.