In a must read Guardian column, Joris Luyendijk looks at the the response to the financial crisis over the last nine years and concludes it won’t save us from the next crash.
Because the response didn’t fix the underlying cause of the financial crisis, but rather rebuilt the financial system that produced the financial crisis.
As Mr. Luyendijk put it:
The main outcome of the crash is that the DNA of the system that nearly destroyed the world economy is still there. In 2015 Andrew Haldane, the Bank of England’s financial stability chief, suggested that not even the regulator can know what banks really own and owe because they are still allowed to hide so much off the balance sheet.
Please re-read Mr. Haldane’s observation about the banks still hiding the risks they are taking from the regulators. Then recall these are the very regulators who every year since the crisis started announce the banks can withstand financial armageddon without needing another taxpayer funded bailout.
Then ask yourself how can the regulators know the banks can withstand financial armageddon when a senior official at one of the regulators that conducts the bank stress tests admits the regulators have no idea what risks the banks are taking on?
Of course the regulators cannot due to the opacity of the banks.
Regular readers know in Transparency Games I explained opacity is the necessary condition for a financial crisis to occur. Mr. Luyendijk vividly describes the impact of opacity:
It is worth recalling just how close we were to unimaginable disaster after Lehman Brothers failed in September 2008. Since nobody in the sector knew what other banks’ real status, pure panic broke out. The entire global financial system threatened to collapse. [emphasis added]
Nothing has changed. The financial system is still opaque.
Why didn’t anything change?
In Transparency Games, I referred to the lack of change as the result of the efforts of the Opacity Protection Team. Mr. Luyendijk seconded this idea:
And without public awareness of the need for a genuinely different financial sector, there is precious little political capital in truly taking on the banks and their accomplices.
Who are these accomplices? Mr. Luyendijk observed:
Indeed, as soon as the shock of the Lehmans moment subsided, the banks went on the offensive again. In America the financial lobby has been able to make the Dodd Frank legislation – brought in after the crash to make things safer – all but unworkable. Huge campaign donations helped “financial business-friendly” politicians get elected and re-elected. Those presidents, prime ministers and finance ministers who stayed within the lines set by the financial sector were rewarded lavishly. Some got lucrative speaking engagements – Hillary Clinton’s $200,000 speeches to Goldman Sachs come to mind. Others found new work after their time in politics was over, with Tony Blair taking a reported £2m a year as a fixer for JP Morgan.
Truly changing the global financial system and preventing the next crash requires the restoration of transparency. This is the reason the Transparency Label Initiative was started.
Banks today are as opaque as they were at the beginning of the financial crisis. Banks were not investible then and they are not investible today.
Because an investor could not know what they own if they invest in a security issued by a bank. After all, if bank regulators don’t have access to all the risks a bank is taking on, how are investors who have even less transparency suppose to be able to assess the risk of a bank?