Rock Heads Rule!

What a joy it must be to be a banker these days. The phrase "laughing all the way to the bank" comes to mind. Following the actions of cowardly governments on both sides of the Atlantic this year, bankers have been relieved of responsibility for their actions. Moral hazard? You must be joking. In France, Societe Generale lost $7 billion; no one resigned.

By Roger Crombie

In Britain, the hapless Gordon Brown has recreated the market conditions of the early '30s.

Before the credit crunch hit, Brown had dismantled the system of controls that had kept the British banking industry on a relatively even keel since the '80s. At its first real stress test, the credit crunch, Brown's new mechanism failed. The management of Northern Rock, a bank of sorts, proved wholly incapable of doing its job.

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Far from being punished, everyone who had a hand in the catastrophe was rewarded. Brown became prime minister, the worst one in almost 300 years, and he may or may not be gone inside a year. Management of Northern Wreck walked away with salaries and bonuses intact. The directors presumably had D&O coverage, and avoided punishment or much more than existential pain. The ratings agencies, which had said that the Rock was as safe as a rock, suffered not one jot either.

Brown then poured tens of billions of public money down the drain to save the necks of customers too dim to have noticed that the bank's management was too stupid to have analyzed its investments. Brown's irresponsible actions made the errant bankers look like heroes. Brown has established that in the future, no matter how badly bankers perform, they will not suffer the consequences. The public will take the caning.

Then came Bear Stearns. Same nonsense, essentially the same outcome, except that the federal government didn't pour the money down the drain. Bear Stearns shareholders suffered, but they were largely institutional, which means that the net result was the same as in the British case: The public took it on the nose.

And why not? The public, after all, is the only group involved in these fiascos that has no voice.

Why would people work in insurance, when they could be absolved of all their sins by being bankers? Oh, wait. It's the same in insurance. If you look at all the major insurance company failures in the past 20 years, the same executives crop up repeatedly. The guy who bankrupted Company A goes on to bankrupt Company B and, later, Company C. Why did companies B or C hire him in the first place? Answer: He had experience!

We live in an age when no man is asked to take responsibility for his actions. You want to live on the Florida coast, exactly where we know hurricanes are going to strike? Go ahead. The governor of Florida will make sure you obtain cheap insurance. You want to drive a gas-guzzling vehicle? Sure. Senators Hillary Clinton and John McCain suggest you deserve a tax break this summer. You slay your parents in a Hannibal Lecter-style gore fest? Aw, you're an orphan and a victim of bad parenting.

It's not your fault; it's no one's fault. For as long as we choose to believe that, we cannot be said to live in just or reasonable societies.

You'll have to excuse me now. I'm off to see if I can get a job running a bank or an insurance company. Having no qualifications in either field, I'm likely to do a pretty good job of destroying shareholder value. The worse I do, the likelier I'll be to land another job in the same industry later. Then I can sit back in my luxury penthouse and watch politicians send you the bill.

What a world we live in.

ROGER CROMBIE is a Bermuda-based columnist for Risk & Insurance®.

July 1, 2008

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