Swimming with Sharks
My Journey into the World of the Bankers
Reviewed by Erin B. Taylor on
In 2011, anthropologist and journalist Joris Luyendijk embarked upon a quest to find out why people were so apathetic about the 2008 global financial crisis. Was it that people were indifferent? Or was the financial system simply too complicated for people to understand?
Over the course of a few years, Luyendijk spoke with around 200 people working in London's financial district, a society insiders call "The City," to find out why "business as usual" had been reinstated so quickly. He recorded his quest as it unfolded in The Banking Blog on The Guardian website, the precursor to this book.
Luyendijk's research benefitted from asking basic questions. Many books have been published about the global financial crisis, but most of them focus on rather technical issues (such as derivatives) and / or banking culture (for example, Gillian Tett's Fool's Gold, or Daniel Souleles's more recent work on finance and inequality). Moreover, most of them focus solely on finance in the U.S.A.
In contrast, Luyendijk's book is set in the United Kingdom, where we follow the naive author on his own "learning curve" of finance. He begins by knowing nothing, but he ends by having a very good grasp of the diversity of professions in finance (very few employees are actually "banker"), how professionals think, and—most importantly—just how close we came to a complete, and catastrophic, financial meltdown.
In the author's words,
"very few people outside finance are even aware that in 2008, life as we know it had a near-death experience."
Some readers may think that a person who knows nothing about banking is not in the least qualified to write about it. However, as any anthropologist will tell you, familiarity tends to breed blindness. We become so familiar with our environments that we fail to recognize the obvious.
Luyendijk's neophytic approach makes the book suitable for both novice and advanced readers. Beginners can learn alongside the author, and advanced readers will be fasinated by interviewees' stories and may also find a new perspective through his "eagle eye" view of the industry. )
The book has two strong points in particular. The first is that it explains just how many different professions make up the financial industry. The second is that it describes in a very practical way why such a catastrophe could come to pass, and why it could easily happen again.
First, the diversity in banking. We tend to think of "finance" as something that "bankers" do. In fact, around 300,000 people are employed in London's financial industries and most of their work lies in an array of sub-fields, such as law, administration, accounting, human resources, risk compliance, marketing, and a whole host of other occupations.
The author interviewed finance professionals working in a wide range of occupations. Many took pains to point out that they had nothing remotely to do with the financial crisis. But these interviewees nevertheless revealed a great deal about systemic problems that led to the 2008 crisis. They did so at the risk of losing their jobs if their firms discovered that they had talked to a journalist.
Luyendijk explains that, after a slow start, the blog started attracting a greater range of readers who felt the need to tell their stories. He eventually got to speak with some of the people we think of as "bankers." Even they largely claimed innocence.
Many worked in areas that are far removed from mortgages and derivatives (such as corporate banking or hedge funds).
Others pointed out the inherent value of derivative products, including their use as a natural risk reducer.
Moreover, they argued, it is impossible to get rid of risk completely in the financial system, adding that the global financial crisis was a highly unlikely event.
Bankers' accounts of how they reacted in real time as the global financial crisis unfolded shed a somewhat different light on things. The crisis may have been unlikely, but the possible consequences of things going wrong were, apparently, much worse than we can possibly imagine.
Various interviewees spoke of how they went into a state of shock as they watched the crisis unfold. They called family members to tell them to evacuate their children to the countryside, to take as much money out of the bank as possible, to stock up on food. They fully feared a total global economic collapse.
Since the GFC, regulators have put various measures in place to keep this from happening again. But Luyendijk, and his interviewees, do not seem to think that these changes really reduce the risks.
As things stand, a few individual bankers sustaining enormous losses can potentially bring the financial system crashing down. High-level managers often do not understand the products or their inherent risks. Internal risk compliance officers work to reduce this risk, but there is pressure to innovate fast. In large banks there is often conflict of interest between departments. External regulators and ratings agencies essentially rely on firms to self-report.
If finance professionals know that the problem has not been solved, why are they back to "business as usual"?
Luyendijk puts forth a few suggestions. One is a lack of job security. In most firms, the worst-performing staff are regularly culled. Financial institutions award bonuses for bringing in money, not for avoiding risk. There is little oversight by management, and responsibility falls upon individuals to raise revenue. These factors encourage employees to think short-term and take risks to make profit.
So, is the problem the bankers or the banks? Luyendijk argues strongly for the latter. Yes, banking institutions have their share of unsavory bankers, but the problem is in fact systemic. To reduce the risk, the banks need to be transformed—and post-crisis changes to regulation have not gone nearly far enough. He says,
"All the signs are pointing to the need for a complete overhaul of our financial and monetary system—not repairs or a major clean-up but a completely new DNA."
The problem is, though, that even a near-catastrophe failed to motivate people to act. Nobody is paying any attention, because "the sector has become immune to exposure." Even the crisis didn't really tell us anything we didn't already know. The problems inherent in the industry have been known for decades.
But nobody is ready to take action. The public expects banks to behave badly, but don't understand what they actually do, and so they don't hold them to account. Regulators are not prepared to take the drastic measures that the author feels are required.
In Luyendijk's words, the global world of finance is an "empty cockpit:" the passengers are on board, and the vehicle is airborne, but nobody is actually flying the plane.
So, is the problem the bankers or the banks? Luyendijk argues strongly for the latter.