Madam, - After weeks of turmoil, hysteria and near panic, governments around the world have mortgaged their future budgets to resolve the financial crisis.
It is now time to evaluate why the crisis happened and what has to be done to ensure that the funds put in place result in a stabilised market and do not reduce the ability of the government to respond to the next crisis.
It should be noted that:
1. If the perceived gain from ignoring or breaking a law or regulation is seen to be greater than the penalty (whether social, financial or criminal) then the law or regulation will be broken.
2. There is always a pressure to find a "way around" any law or regulation.
3. Traditionally the greatest deterrent to breaking or ignoring the law was social pressure; however social pressure no longer exists. Social status is now equated with cash in hand and celebrity status, not lawful behaviour. This new societal pressure has encouraged speculation, rule-bending and law-breaking in order to gain the cash to be a player.
The Barings Bank failure should have been a wake-up to regulators and governments everywhere. While the gambles were successful, everyone in the bank's administration received bonuses. When the gambles failed, Barings failed. Did the regulators and senior administrators within Barings suffer from their collective failure? The reality is that only Nick Leeson and the depositors really suffered.
The normal market response to the total collapse of share value would be a stockholder revolt. However as the major bank stockholders are institutional, government, pension and sovereign funds, more often than not administered through fund managers with strong ties to the banks, normal market mechanisms will not work.
The banks know this. If the Government does not take immediate action to hold senior banking officials responsible for serious breaches in their duty of care, confidence in the Government will erode to the point where it will not be trusted to intervene anywhere. - Yours, etc,