Irland Unter Allen

Nearly a year ago I posed the rhetorical question, are bankers just inherently evil? Now more evidence is in.

Earlier this week my (and a lot of other people’s) question was echoed in The Irish Independent, which asked in a headline, “Are banks simply hardwired to behave amorally?”

The article takes the question quite seriously. It quotes a professor of neuroeconomics (a field I didn’t even know existed until now) at Atlanta’s Emory University as having concluded “that financial services types became addicted to the pleasure of making money while increasingly losing touch with the risks they take.” Professor Gregory Berns goes on to say, “You are addicted to returns, you are addicted to risk, you are addicted to cocaine—it’s all the same as far the brain goes.”

A Cambridge neuroscientist who reached the same conclusion suggests that the solution may lie in hiring more women and older men into the industry. A lengthy report from a UK parliamentary commission similarly recommends a new regime of “senior persons” at the banks.

This is very interesting, and everything these people say may be exactly right. But are governments really going to impose a new form of “affirmative action” that discriminates against young men in the financial sector? Hard to imagine.

Anger against bankers is freshly all the rage again in Ireland this week, after the Independent somehow got hold of and released recordings of phone calls between executives at the spectacularly failed Anglo Irish Bank during the financial crisis of 2008. I still have trouble believing that they are not really outtakes from one of the country’s wicked political satire shows, like Irish Pictorial Weekly.

The executives are heard laughing deviously (or nervously, it’s hard to tell) as they plan to ask for a small government bailout initially, calculating that the government will be less likely to turn them down for future bailouts so as not to lose its initial stake. In another recording a banker is heard to mockingly sing “Deutschland, Deutschland über alles,” as they delight in the money flowing to them from Germany.

The Fine Gael government, which surged into power after the financial debacle, has since suffered in popularity due to budget cutbacks and fee rises demanded by those same Germans the banker was singing about. So it has lost no time talking up a “Fianna Fáil-Anglo Irish Bank axis,” trying to stem the opposition party’s recent comeback in opinion polls.

Journalists and ordinary people talk about how no one responsible has paid for the behavior that brought down the Irish economy. Prosecutors are preparing files, and there may indeed be charges brought in the wake of the release of the recordings. But it is hard to see exactly what laws were broken. My cynical side expects the main outcome to be a new iteration of a uniquely Irish institution, the tribunal. That would amount to (probably) years of hearings and testimony, big fees paid to attorneys on all sides, constantly dribbling revelations to keep the journalists going and, in the end, nothing produced but a dossier, to be handed to prosecutors who may or may not act on it.

In the end, the best realistic silver lining out of the debacle is for principles for better governance to become more firmly established in the political culture. This starts with a clear-eyed recognition of what has been learned by this painful experience.

One clear lesson is that bailing out banks and their bondholders is a really bad idea. The very notion that a bailout is a last resort causes bankers to act, well, like the evil bankers described above. It only encourages risky behavior. Deposit holders are a different matter, and the government was right to guarantee their assets—although there probably should have been a cap on the insured amount. The unlimited guarantee spurred Irish bankers to use it as a selling point to pull in more money from abroad—in defiance of the terms of the guarantee.

Another lesson is that all the regulations in the world do no good if they are not vigorously enforced. The joke of a head of the Irish Financial Services Regulatory Authority at the time of crisis is now comfortably ensconced in a comfortable retirement in a posh area of Dublin. He was given a €630,000 euro golden parachute when he left and gets in excess of €100,000 a year, courtesy of the taxpayers, and his main worry is turning away the occasional curious reporter who comes knocking on his door. If he had done his job, the crisis might have been less catastrophic.

Other lessons: investment banking and retail banking should be kept separate, and banks should not be allowed to grow to a point where they are Too Big To Fail. Of course, the latter is theoretically easier to accomplish in a large country like the U.S. than in a small one like Ireland.

As much fun as it is to examine all the ways in which bankers are bad people, those looking to avert such crises in the future would do well to spend less effort on examining what is wrong with bankers and more on ensuring that bankers are the ones mainly affected by their own risky behavior.