This cannot be true. From the life of bankers

We spoke with Joris Luyendijk about the panic which occurred in the City of London after the fall of Lehman Brothers in 2008, the mechanisms that guide, guard, and govern banks and Joris’ book „Swimming with Sharks: Inside the World of the Bankers”.

Joris Luyendijk – is one of Europe’s leading commentators and journalists. He was a staff writer for The Guardian, is a regular contributor to Swedish, Danish, Flemish and Dutch newspapers, and his writing has appeared throughout Europe. He is author of international bestseller Swimming With Sharks: Inside the World of the Bankers and Hello Everybody!: One Journalist’s Search for Truth in the Middle East.

Marta Kozielska, Rafał Górski: You start your book how Alfred Hitchcock’s begins his films – the tension reaches its zenith from the very first page and only continues to grow. Why is an empty cockpit on the plane a symbol of your conversations with the more than 200 people who work or have worked in the City of London, the financial centre of Europe? What were the key questions that you asked them?

Joris Luyendijk: The empty cockpit as an image came to me when I realized that the problem with the financial sector is not some evil conspiracy, but the absence of effective coordination or regulation. This is far more frightening than a bunch of bad people.

I focused my research on those bank employees tasked with making sure the bankers did not break the rules or bankrupt their bank. My question was: why are you not more effective because rules are constantly broken and in September 2008 your bankers nearly ruined the global economy.

Their answer: we have very little power and the rules are often so bad that you do not even have to break them to wreck the global economy.

Mind you, this was in 2011-2012. Since then a lot of new and better rules have come into effect. However, many conflicts of interest are still in place. Banks are still too big to fail and deeply interconnected. And while there are huge bonuses for when things go well there are almost no maluses for when things go horribly wrong.

„The only conspiracy in the financial world is the sound of silence”. How and why did these words (from Philip Augar) become the motto of your book?

Because there’s endless talk about cultural change in finance. But what we need is systemic change. Not better people but better incentives.

Your interviewees emphasized that banks nowadays operate in the same way as other corporations. Can you explain?

They are publicly listed under limited liability. So bonuses: yes. Maluses: no. Also, shareholder own the bank and other corporations and demand maximum returns. But if in pursuit of those returns banks or corporations damage the public interest, there is no liability for those shareholders. Worst case they lose the money they paid for the shares. But what if the damage far exceeds that?

„Banking these days is a game of Russian roulette using someone else’s head,” you write in your book. What do you mean by that?

The general interest is the head. Every time the gun does not fire, you get a bonus. When the gun fires, society’s head explodes, but not the banker’s.

Why is the vocabulary used by the finance sector devoid of words that could provoke discussions about ethics?

Because banks don’t want people to think about ethics. They want them to think about maximum profit.

How much damage can the finance sector do? Do other sectors pose a comparable threat to our lives? You admitted in the book that you did not know the answer to this question before. And when you finally learnt it, you were concerned?

It differs per sector. Pharma, the food industry, gas and oil, big tech… What unites these sectors is that their leaders do not feel an obligation towards the general interest. They feel an obligation towards their shareholders – which, incidentally, are often pension funds. So if we want to change these corporations’ behavior, we need to tell our pension funds to put pressure on them. But that does mean that those corporation make less profit, meaning your pension fund will pay you a smaller pension… That is the sacrifice nobody wants to talk about: a healthier financial sector costs money.

On September 15, 2008, Lehman Brothers, an American investment bank, declared bankruptcy. When you asked your colleague Peter, who works at a UBS bank, about that day, he replied: „That day, when I was going home, I was really scared. I realized that tis is what the threat of war tastes like.” Were we all really on the verge of war? Your interlocutors from the City talk about buying weapons, preparing to evacuate to the countryside, stocking up food, withdrawing money from ATMs and buying gold.  In 2008, was our world really on the brink of collapse?

According to politicians and central bankers in their memoirs: yes.

Were the citizens aware of all this?

No and this was a good thing because they would have panicked. But because nobody really realized what was at stake, there was almost no political capital in taking on the banks.

Can you tell us more about the riots in London, which made you think, what could have happened if we had fallen into the abyss in 2008?

If all financial transactions become impossible the system has imploded, the delivery of food, petrol and medicine stops. Then what happens?

Why do you think Herman van Rompuy, former President of the European Council, waited until 2014 to say that we were 'a few millimetres away from the total implosion’?

Because after the Lehman crash there was the Greek Euro crash. It took a long time for financial markets to calm down.

Your book reminded me of a film about the financial crisis, a movie called „Greed.” In your opinion, it is a mistake for citizens to think that greed is primarily responsible for financial scams in the financial world. Please could you explain? If not greed, then what?

Greed is fine, I’m greedy for readers as a writer, and you are greedy for clicks for this article. The problem arises when greed is not checked by liabilty: if in your greed you take risks and they go badly, who pays the price? In banking it’s someone else’s money that goes down the drain.

Same with risk: risk is what we need, that is how change happens. But risk without liability is not risk but recklessness. That is something we really don’t need.

In your opinion, what are the three most important systemic changes that should be introduced so that the crisis of 2008 does not happen again?

Banks should be so small that they can fail safely. Activities between which there are fundamental conflicts of interest cannot be carried out by the same bank. Complexity must be reduced and personal liability introduced.

Why don’t politicians want to make these changes? Or, why can’t politicians make these changes?

Because voters don’t care, or don’t care enough.

You mention in your book that people are so eager to rush to blame the bankers because it allows them to shift responsibility from themselves. Please could you explain this passage to our readers?

Only a small percentage of citizens bank at an ethical bank. Because there costs are higher en interest rates even lower. Because ethics are expensive. Samen with insurers, and also in the supermarket when you must choose between fair trade/ organic or unfair trade/ mass produced. Ninety percent of people go for their own short term interest and look for the best deal. Just like bankers.

You learnt more about ancient Egypt than about banks and the financial system at school. I have a similar experience and reflection about myself and the education system. Why do you think schools don’t talk about finance?

Well, there’s so much that schools must teach… I believe financial education and transparency are extremely important, but they not the full answer. Most voters simply can’t be arsed, no matter how much education you force down their throat. Political elites must decide among themselves that it is in their own interest to have a manageable financial sector.

It does help to educate non-financial members of the elites as well as concerned citizens in order to put pressure on the political elites.

Ordinary citizens may think that the media and journalists are closely watching bankers and what they’re doing. Unfortunately, however, this is an illusion because, as you notice in your book – a lot of British journalists have a partner, family members or friends working in the City. What does that result in and lead to?

The deeper problem is numbers. A quarter of a million people work in the City and the Guardian has one banking editor. Same with most other newspapers. It doesn’t really matter whether that one editor has family members in the City. The idea that one person could possibly oversee 250,000 people, that is the problem. And again the question is: are citizens prepared to pay more for their news so the Guardian can free up 10 banking editors? The answer: no, citizens are not prepared to do that. They want to complain and blame others.

Banks have their lobbies, insurance companies have theirs, rating agencies have theirs. You ask in the book, where is the lobby of ordinary citizens? Could you please tell us?

That is why we have democracy. I really, really don’t understand how people who see the problem with finance are cynical about politics. That only helps cynical politicians. We have to get politically active, not sit back and complain.

I remember watching the documentary „Inside Job” many years ago about the 2008 crisis. I felt stupid that I didn’t understand the gibberish that bankers used in the film to explain how the finance world operates. I was reminded of this when I read a passage in your book about the crash of five planes belonging to KLM airlines. I felt both relieved and angry with myself that then I let myself be cornered, recognizing that I could not speak because I did not understand the language and problems of the finance sector. Please would you mind explaining this fragment of your book a bit further to the readers? What questions should we be asking decision-makers, as citizens and journalists?

Ahm… I don’t remember that passage about 5 planes, :). Question to politicians: 1) do you guarantee that you’ll never go work for the financial sector in your 'second career’. 2) what is necessary in your view to make finance safe and constructive again.

The of Institute of Civil Affairs runs the „Protect your money” campaign – we make Polish people more aware of the need to preserve cash, we point out the risks associated with its liquidation, we mobilize politicians to act for the benefit of systemic changes. Unfortunately, we are the only such social organization in Poland. Can you point to examples of civic action for systemic changes in the financial system? This is really good work you’re doing, and I’m honoured that you think my book might be useful. One step everyone can take is switch to an ethical bank. Also, many environmental organizations are also lobbying the financial sector because they know how important finance is. The Greens in the European Parliament have a very good MEP, Philippe Lamberts, who is both feared and respected by the financial lobby. I’d say to everyone fighting this battle: don’t give up. Eventually we will get there because the financial sector in its current form will blow itself up, sooner or later. When the crash happened in 2008 there were no alternatives available, so we fell back on restarting the old system. The key now is to be ready when the thing comes down again. Then we strike.

Marta Kozielska, Rafał Górski