Identifying the fault line

The overriding lesson from the calamities in the global financial mess was that 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 also paid the price for this flawed culture.

 

One whistle-blower 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 regulatory authorities have now decided it is time for a closer scrutiny on bank, building society an 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.