How the financial crisis screwed fairness, and what to do about it

The former Financial Times journalist Ben Fenton on how bankers got away with the crash

From the deregulation of the City of London and Reaganomics in the mid-1980s, western governments focused on releasing the creativity of people working in financial services.

It turns out that there are some professions where invention is not necessarily a good thing. News reporting is one; banking is another. What began as the search for greater efficiency became, when combined with the elixir of computerisation and digital networks, a search for alchemy. Rather than turn lead into gold, the later 20th- and early 21st-century alchemists were trying to turn money into more money.

Like alchemists, bankers chose to disguise the essential purpose of their schemes by using impenetrable language. Where alchemists used Latin, bankers used phrases that appeared to be – almost – English, such as “collateralised debt obligations”. Please remember that phrase.

For our ancestors, whenever people started to speak Latin, it was usually a sign of something dodgy. Medieval priests spoke and wrote in Latin, so stopping ordinary people understanding the holy texts of their own religion in their own language

For our ancestors, whenever people started to speak Latin, it was usually a sign something dodgy was going on. Medieval priests spoke and wrote in Latin, conveniently preventing ordinary people understanding the holy texts of their own religion in their own language. That in turn allowed them to be fleeced for money to shorten their term in Purgatory – any mention of which is, oddly, missing from the Bible: that priests did not want to be understood by their flock.

After the Reformation, and deep into the 19th century, doctors spoke to each other in Latin to hide from their patients either that they did not know what was wrong, or that they did know but couldn’t do anything about it, or that they weren’t quite sure how much they could reasonably charge the patient for the diagnosis they were about to invent.

In any case, it was bad news for the person footing the bill, so it was important that they didn’t understand. Most of all, it was important that they didn’t understand that what passed for medicine in the 17th and 18th centuries was probably less effective than folk remedies handed down from prehistoric ancestors and based on using plants.

In more recent times, ordinary people only come across people speaking Latin in law courts; not a lot of Latin, just enough to make non-lawyers lose their way in the course of tortuous argument. This could be the most dangerous form of all these obfuscations, more than religious charlatanism and medical trickery, because if you cannot understand the law, and those paid to explain it are speaking in a language designed to stop you understanding it, who is there left to help?

It’s just basically not fair.

Disguising the truth in order to coerce obedience is unfair on a number of grounds: it prevents restraint of the powerful, it dissolves pretences to equal opportunity for all citizens and it undermines cooperative behaviour by privileging one group (those able to afford to avoid Purgatory, painful death and prison) over another.

And mention of being rich enough to avoid the bad things in life – and indeed the afterlife – brings us back to bankers and collateralised debt obligations (CDO).

You don’t need to know what a CDO is. In fact, the people who invented CDOs were rather hoping that you wouldn’t ask. Nor do you need to know what a “credit default swap” (CDS) is, nor the difference between an AAA credit rating and a BBB credit rating, nor a whole host of other bits of cant that, though written in vernacular language, might as well be inscribed on parchment in an unreadable scribble and then buried under several tonnes of rock.

All you need to know about all these derivatives and financial instruments (at least this is what the architects of the global financial crisis hope that you still believe) is that other, better trained, better educated and certainly better paid people than you do understand them.

These godly bankers knew why derivatives were so overwhelmingly profitable for some and overwhelmingly loss-making for everyone else. They knew why they all went so disastrously wrong in 2007-08 and, of course, they probably know when it will be safe to start doing the same things all over again*.

I’m proud to say I used to be a reporter for the Financial Times, surrounded by incredibly clever people who did know what CDOs and CDSs were. My colleagues actually tried to warn governments and regulators about the inherent danger of bundling bad debts together and pretending that made them good debts (CDOs); to warn them about building an insurance market based on taking premiums worth 20 to 30 times the face value of debts they were insuring (CDSs); to warn that the credit-ratings agencies supposed to investigate these complex contracts were making so much money from “rating” CDOs and the rest that they were the last people who were likely to voice their growing suspicion that the whole castle was built on fine-grained sand.

I’m not proud that I was baffled by those things myself, but I’m prouder than I would be if I had been the very senior banking executive who told my colleague Gillian Tett, in late 2007, that he did not understand half the derivatives contracts that were passed before him to be signed off.

The pope had forgotten how to read Latin.

In the pursuit of ever more wealth, financial-services firms across the world played with the idea of money as it had never been played with before. They became increasingly creative and nobody stopped them.

Fortunately, as we all know, when the global financial crisis hit us in 2008, when governments and central banks banded together to bail out the banks and mortgage lenders and insurance companies that had been blinded by greed, then the bankers who authorised all this were sent to prison and systems were introduced that would prevent it ever happening again.

The banks were made to fill the financial black holes that they’d created all over the planet and ordinary people did not have both to pay more tax and also to lose public services because of the cuts needed to bail out the financial-services industry.

Oh. Hang on. Is that right? If there were one thing I would like you to remember if you read all 336 pages of my book To Be Fair: the Ultimate Guide to Fairness in the 21st Century, then it is this: those last two paragraphs are simply not true.

The single most unfair event to happen in most of our lifetimes was that the people who caused the global financial crisis of 2007-08 got away pretty much scot-free. The rest of us paid for their sins. We are still paying for them. The sense of unfairness, exacerbated by Covid, vaccine nationalism, Brexit, Donald Trump, Facebook and Twitter, has been driving us all wild ever since.

But we can stop that wildness. We can reverse ourselves before we disappear down a rabbit hole of polarisation and anger. We can turn away from all the blame and resentment turn back to our deep natural instinct to co-operate, to understand, to share proportionately, to respect each other’s rights.

In short, we can neutralise unfairness and anger by unleashing our powerful and innate capacity to be fair.