The dogs that haven't barked
Sir David Walker's report, published today, is the third in a series of reports to the British government into the banking crisis that literally brought financial capitalism crashing down in the Autumn of 2008. Walker is a City grandee, a former Treasury and International Monetary Fund official, a former regulator and director of the Bank of England, and a former chairman of the investment bank Morgan Stanley. In other words, the epitome of what the British like to call "a safe pair of hands" [Brit-speak for someone who can be counted on to avoid doing anything that might alter the status quo].
Try as you might, you will find no trace of Walker having at any stage in the years building up to the crash raised an alarm about the structural deficiencies in the financial architecture. He is not alone in this: Walker's lack of insight was shared by almost the entire community of "talent" that is the financial services industry, including the majority of board directors, risk managers, credit rating agencies, financial journalists, fund managers, regulators, auditors, and last but not least politicians like London Mayor Boris Johnson who continue to fail to see that what is good for bankers is not necessarily good for the public interest.
David Walker's lack of prescience in foreseeing the financial crisis is reflected in his report, which can only be described as weak, weak, weak. Commissioned by British Chancellor of the Exchequer Alistair Darling, the Walker report follows earlier reports by Sir Win Bischoff - former chair of failed Citigroup - and by Robert Wigley, chair of the European division of Merrill Lynch. The former report was commissioned by Alistair Darling, the latter by Boris Johnson. All of these reports can be characterised as distractions, the latter in particular being nothing more than a public relations exercise for and on behalf of banking interests.
Boris Johnson's agenda was to retain the "competitiveness" of the City of London. Readers familiar with financial Newspeak will know that the word "competitiveness" used in the context financial services, has no relation to the word "competitiveness" as applied to the world of microeconomics. Bankers do not compete by charging lower fees or providing better service to their customers: instead they compete by pushing governments for lax regulation and tax breaks. Decades of regulatory degradation and market distorting tax subsidies, have led to a situation which encourages excessive debt leveraging, regulatory arbitrage and tax avoidance. Don't take our word for it: here is what the IMF reported in a little explored report they issued in June 2009. Needless to say, none of the banking grandees asked to report on the crisis have so much as even referred to the IMF's concerns, let alone called for a broader investigation into the issues raised by the IMF.
The Walker report is merely a distraction and a wasted opportunity. It epitomises so much of what is wrong with contemporary politics: rather than address the fundamentals -look out guys, there's another iceberg ahead - an insider is appointed to check the layout of the deck furniture. In our opinion, this failure of political will to properly investigate the roots of the crisis, addressing amongst other issues the conclusions of the IMF report on debt bias and other fiscal distortions, makes another crisis almost inevitable.
Readers looking for a more incisive explanation of the crisis, and some trenchant recommendations for the way forward, are advised to ignore the Walker / Wigley / Bischoff reports and head straight for the dog which has barked, which you will find here.