I like Joris Luyendijk’s Guardian blog. And the latest revelations
about Standard
Chartered in the cavalcade of misdemeanour that is the financial services
industry reminded me of one particularly pertinent post of his. In his February
17th blog Joris described the peculiar world of ‘spaceship
finance’: the world of elites working close to the clouds in the top floors
of the tallest buildings in the square mile, with no allegiance to any
particular national project and little regard for the opinions of the national
populace. This was exemplified in his interview with ‘Phillipe’, a financial
services headhunter who was asked a very simple question: “how can bankers live
with themselves?”. This was his reply:
"They feel unjustly singled
out…What I hear is: look, nobody would run a bank with the intention of
wrecking it, would they? Banks lent to people who couldn't repay. But nobody
forced these people to take out loans that they must have known were far beyond
their means. Banks may have been enablers, but in the end it was reckless
individuals who did this. But what politician is going to blame this crisis on
his voters, some of who must have been among the reckless borrowers? Much
easier to heap it all on the bankers….Then again, many of my clients simply
don't seem to care a whole lot about what the general public think. These are
extremely well-educated and multilingual professionals. Many are in mixed
marriages with kids who have lived on two or three continents. These people
don't belong anywhere and don't feel beholden to any national project. They
want to pay as little in tax as they can, and they want to be safe. That's it.
Rule of law is very important for them.”
It should be said that many within the industry accept something has gone seriously wrong in banking, and that behaviour must change. But the kind of alternative history expressed above which exculpates their own and implicates others still remains a powerful narrative within spaceship finance.
It is, of course, beyond plausibility that those
discussed by the interviewee did not sense the wrongdoing
in their organisations: they may not have been familiar with the detail of
those excesses, but they must have suspected that enterprise was a little loose
in the engine rooms. It is, then, all the more perplexing that contrition is
expressed only under duress in the public circus of the Select Committee or
under the glare of the television cameras. Even here remorse may take the form
of inoculation
where a tincture of guilt is added to disarm critics and to make a more
extravagant claim about banking’s national
benefits appear more reasonable.
Privately, it is clear that often no such remorse exists – indeed there is a
deeply engrained sense of defensiveness and injustice within the banking
sector. They view themselves as convenient scapegoats for a global crisis.
So how is it possible to be both aware of fast and loose
play in your organisation yet remain so defensive about its culture? The simple and easy answer is delusion – that this is a group of people so wrapped up in their own self-interests that they cannot see
the wood for the trees. Another answer is that it’s a smoke and mirrors tactic:
bankers have a lot to lose if the propitious regulatory conditions and mindboggling
innovation which create ample opportunity for enrichment within the sector are
threatened. Both are undoubtedly part of the story. But from the few
conversations I have had with friends, associates, and others working in the
industry, I think there is another equally valid explanation, which brings us back to the issues around cultures and structures discussed elsewhere in this blog
series.
For some in the industry, there seems to be a genuine internal
conflict - the feeling of persecution is real. They feel they are blamed, yet
also feel they did nothing wrong because they always obeyed the formal and informal
codes of conduct within the organisation (or at least kept within acceptable
deviations from those norms and codes). Their internal conflict here is born out of psychological dissonance when the reflexive ‘other’
changes, and individuals re-evaluate their cocooned, insular world of the
spacecraft - with its own autochthonous understandings, explanations, history,
culture and morality - in a different moral register. How individuals come to
terms with those conflicting values plays out in different ways. Some, particularly
those leaving the industry (often involuntarily), reject the banking industry
culture as if they were leaving a cult and become major critics. The bookstores
and blogosphere are full of poacher turned gatekeeper stories like those of Michael
Lewis, Tetsuya Ishikawa, Yves Smith at Naked Capitalism et al. Others, perhaps
the more instrumentally minded, find a bit of dissonance no problem, and life
goes on. But a third group - like those in Joris’ extract – react in a very
different way; one that reflects the peculiar parallel universe within which
many bankers operate. They preserve inner coherence by defending their organisational culture and externalising blame.
This reaction should come as no surprise to psychologists
and criminologists familiar with the work of Gresham Sykes and David Matza.
They argue that those who engage in delinquent behaviour are not immune to the
demands of social and moral conformity, but when accused, draw on certain
framing devices to justify their actions. They term these devices ‘techniques of
neutralisation’. These include: denial of responsibility ("It wasn't
my fault"); denial of injury (“It’s no big deal”); denial of the victim ("They
had it coming"); condemnation of the condemners ("They were just as
bad"); and appeal to higher loyalties ("We did it in the interests of
others”). These techniques reduce the social controls over the actor and allow
the person to rationalise or justify transgressive acts, and so explain
continued patterns of deviation.
If I were to summarise three explanations I have heard bankers
use to justify or defend action in the financial services industry, they powerfully
echo these techniques of neutralisation.
The first explanation is a familiar one about moral
hazard, and the corrupt incentives produced by government and its
regulatory exigencies. The second, and the one preferred by Standard
Chartered’s own CEO Peter Sands, is that banks are overly-enthusiastic,
waiters in a system where everyone was hell bent on getting drunk. The
third, that everyone has blood on their hands, so no one can take the moral
high ground.
The moral hazard argument is a classic case of 'denial of
responsibility': bankers here represent themselves as playthings of the wind, tossed
and blown from one act to another; inert agents responding mechanically and
unthinkingly in a moral vacuum to the incentives created by someone or something else. It is those who produce the incentives, not the
agents who act on them, who are to blame. This is the equivalent of saying that
if you park near broken bricks, then it is your fault (not that of the thief) if your
window gets smashed and your briefcase stolen.
The overly enthusiastic waiter argument is another form of
displacement of responsibility, only here there is an 'appeal to higher loyalties' – that of their service to customers. Here fault and blame are loaded onto the clients
or onto an impersonal ‘system’ who ‘make them do things’ they otherwise would
not have done. The more cynical ‘everyone has blood on their hands’ argument is
one that bankers use to blame the credit rating agencies, the central banks, Fannie
and Freddie, the regulators, politicians and homeowners. 'Condemning the
condemners' by questioning whether any actor has the moral high ground to judge
is another powerful way of displacing their individual blame.
Blame displacement, and its allied hostility to reproach
from outsiders, is a cultural feature of the financial services industry. This
culture is hot-housed in an environment of late hours, high intensity work and
‘up or out’ competition. It produces an identity, a unity, a sense of ‘us’ and
‘them’. It also produces groupthink and confirmation bias. And those are
particularly damaging in our core financial institutions because they encourage
arrogance, detachment and disregard.
Those cultures, as we have previously argued,
evolve in particular structures. When banks become loose
federations of money making franchises, fast and loose activity can be
expected when safety controls and oversight duties are dampened to maximise
returns. The sense of invulnerability, of immunity from criticism, comes from
those fluid organisational structures where small groups within silos lift large values. Here, power and status drifts inexorably to key traders or 'the bricoleurs', who subsequently become untouchable. The sense of invincibility is also
caused by weak regulatory regimes which open out large spaces for autonomous
action and privately advantageous (but socially useless) innovation. The
absence of paranoia, of fear of moral judgement and legal redress that a more panoptic
regime might bring, is a recipe for hubris. We should all be worried when more
and more activity reaches for the shadows.
The result, as the headhunter in Joris’ extract later
explains, is the hardening of a genuinely global elite with no connection to or
regard for its national base:
“A highly educated professional in
the City of London has much more in common with a peer in Hong Kong, New York
City or Rio de Janeiro, than with a monolingual, mono-cultural teacher or nurse
somewhere up in Birmingham or Manchester. Solidarity for the new global elite
is not geography-based or tied up with a state”
I have heard this kind of rhetoric before; and not from within
the pages of the Harvard Business Review or the Journal of Finance. This is the
language of class. In form and language it is strikingly reminiscent of the
kind of thing that would appear as caricatures in pamphlets of the Trotskyite
left. Perhaps our politicians and regulators should begin to understand finance as finance sees
itself?: less as a set of impersonal national economic institutions, and more a collection
of densely networked individuals with shared backgrounds and interests whose
temporary base for their spaceship is the jurisdiction which expresses the
least resistance. And although, as the Bischoff and Wigley Reports show,
finance is particularly adept at mobilising
the national imaginary when it suits their purpose, isn’t it now in all of
our interests that we begin to think about how we exert greater democratic
control over these elite networks? Banking culture will only change when we develop regulatory structures that are the equivalent of Bentham's panopticon: a space of open visibility and moral judgement that checks the power of unaccountable elites to work against the national interest.
Stanley
