I am not Scrooge

Everyone loves to hate bankers. Even before WE* ruined the economy and took down a third of our own institutions, bankers were well known as miserly, humorless, unfeeling “covetous, grasping old sinners.” When someone mentions bankers, most people think of Scrooge.

But even before Scrooge, bankers had been treated with disdain or outright prejudice. Jesus threw the money changers out of the temple. In many parts of Europe, Jews were limited to acting as moneylenders, and the discrimination against the job and the religion became intermingled. Edward I (in coordination with the Catholic Church) compelled English the Jewish bankers to lend the crown and church significant sums, and then simply declared the debts to be gifts or else taxed heavily. As the Jews protested, rumors were spread of the faithful performing bloodthirsty rituals and eating babies, and in 1290, the Edict of Expulsion forced all Jews out of England.

Prejudice against the religion has since diminished (though not completely), but prejudice against the function has not. Yet it is a function that plays a key role in society – people do have a need to borrow money and to house it somewhere other than under their mattress. But when bankers are mentioned, everyone thinks Old Man Potter of It’s a Wonderful Life, forgetting that George Bailey (Jimmy Stewart’s character) was a banker, too.

I thought of this often watching the Oscar-nominated movie The Big Short, which is an excellent depiction of the causes and events leading up to the Great Recession and financial meltdown. The movie has a superb cast including Christian Bale and Steve Carrell as fund managers who suspect the housing bubble is irrationally based and set out to sell short against it, i.e. to profit if the bubble bursts and the mortgage-backed investments lose value. The script does very clever things to help explain what was deemed as a complex investment market, such as having a gorgeous blonde in a bubble bath discuss Collateralized Debt Obligations or celebrity chef Anthony Bourdain compare investment tranches to three-day old fish. It succeeds as entertainment. But it does paint all bankers with the same brush.

Bankers as a term can encompass a lot of different functions. *WE bankers is typically a composite of roles that includes Wall Street investment bankers, stockbrokers, and mortgage lenders but also covers tellers, phone agents, checking account designers, cash vault processors, online web designers, and all the technology coders, accountants, auditors, HR, legal, and generic support roles that accompany an industry.

In thirty years with Bank of America, I worked for the consumer and backroom operations of the company, supporting the branches, customer service (phone/chat/email), and cash and check processing machinery. I never came close to those who would design or define Collateral Debt Obligations or investment tranches or even those who sold mortgages. I did have an opportunity – after the meltdown – to work in the rapidly growing foreclosure division to help add speedier or more transparent processes handling the increasing volumes of requests for loan modification. What struck me in observing those cubicles of former Countrywide foreclosure reviewers (staffing up to handle foreclosures on loans that their upstream predecessors had blithely sold) was that they were the same income strata of people whose delinquent loans they were handling. These were comparatively low wage jobs in banking, with the workers themselves subject to delinquency, foreclosures, loan modification. Their managers had 401Ks full of Countrywide stock, now worthless. So many of these employees suffered serious damage as well, but would be unable to even mention it, for fear of being associated with the handful that had already left town, off to the South of France or parts unknown.

The Big Short makes the point implicitly, but it’s worth emphasizing. The companies that supported divisions which created these investments themselves completely or nearly collapsed. Lehman Brothers, Washington Mutual, Wachovia, and Merrill Lynch went under. Deals were brokered to pull them into the remaining banks, but the overall health of Wells Fargo, Bank of America and Citigroup still hasn’t recovered. CEOs were fired; jobs were decimated. No one will feel sorry for the predatory subprime lenders, for the mortgage brokers who convinced people to buy a mortgage that far outstripped their income. No one weeps for the investment bankers who pulled the CDOs from their own portfolios before telling their clients to get out. But thousands of people in the financial industry lost their livelihood based on the decisions of those creating those complicated and dangerously risky products. (Full disclosure: myself included, as the technology group I supported in February 2009 cut 10% of the workforce in response to the crisis at the company.)

And the protagonists of the movie weren’t exactly heroes nor were they winners. Several movie critics pointed out that it was ironic to root for them to succeed when the industry went under. But they didn’t succeed; their bets were made with the investment banks themselves. When those divisions started crashing, our “heroes” didn’t get a full payout. (If your bet is that the person on the other side of the bet is going to go bankrupt, you might want to rethink the bet). Moreover, was betting that the financial industry had a massive bubble on its hands about to burst a gamble that anyone should take? If I bet $5 million that thousands of people are going to be poisoned by a chemical spill which then occurs, would anyone be happy that I won the bet? Wouldn’t someone suggest that my resources be better put towards lobbying to pollution, working with environmental agencies, or publicizing the dangers of a potential spill? Bale and Carrell’s “heroes” took a key action that few apparently took – they actually did the due diligence to review and identify that the portfolios were full of garbage loans. But they didn’t exactly make their findings available to the general public or investment owners outside the banks they negotiated with.

The one appreciable note – other than the pure entertainment value of the script– is the case it makes for due diligence. And that is something WE bankers should remember must be maintained. Bankers do need to be serious about supporting a strong risk culture. It helps prevent the kind of shaky and potentially fraudulent choices that can occur; it protects all clients and customers; and it’s in the bank’s best interests.

At the end of the day, the negative image of Wall Street bankers will probably not change. But it would be great if some distinction can be made between the investment side and the other side of WE bankers. At the same time, everyone in the industry should take some lesson from the experience to understand the consequence of cutting corners, while the history is still fresh in memory. Despite my quibbles with the movie, The Big Short does present that history overall in a clear and compelling way and makes a case for being presented to all future high school history and economics classes. They just might need to edit the scene with the stripper talking about her five mortgages.

0 Replies to “I am not Scrooge”

  1. Wow. I really had/have no clue of the complexities. As your “average” consumers, we were caught in the bubble and, well…still trying to work free.

    This was fascinating. Thanks.

  2. I’m curious what your thoughts are about the oft-repeated statement that “nobody went to jail” for the banking crisis. Is that true, or just a simplistic statement made by the people mad at “bankers” you mentioned? DID anyone go to jail?

    1. Time Magazine has a good retrospective on it, 25 people to blame: http://content.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877339,00.html.
      If you read up on Angelo Mozilo, head of Countrywide, and Dick Fuld, head of Lehman, it’s clear that the SEC decided to cut deals — in part because the head of the SEC was lax or too close to the people involved or what have you. They came close to prosecuting a few who knew and committed blatant fraud, but no individual criminal charges filed. There have been numerous other criminal cases on other topics since that time (interest rate fixing, securities fraud) which may suggest regulators and prosecutors may be more aggressive going forward. One can only hope; it’s in everybody’s interest.

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