The only thing worse than making a mistake is failing to own up to it and suffer the consequences. The entire Western world, not just Ireland, is a victim of this.
It is naive to apply this to the current situation. Financial institutions aren't people and most importantly they aren't normal businesses. They make up the core infrastructure that every business and consumer needs just like power, water, electricity etc.
Every time someone says "just let them fail" ask if they would they say the same thing if it was a water company that needed bailing out.
I never said let them fail, I said that we are all victims of moral hazard. I don't profess to be able to solve all the world's problems in a HN thread, but the controllers of these companies were never held accountable for their failings and no message was ever sent to financiers that they have the same level of public responsibility that a water company does.
I don't necessarily think that straight failure is a great answer but I think that the culture needs to be changed and I know for a fact that the internal culture of the banks has not changed one iota from pre-GFC to now.
>I know for a fact that the internal culture of the banks has not changed one iota from pre-GFC to now.
Do you work at one? I work at a Canadian bank and the culture has shifted enormously here, but I'm entirely unfamiliar with how things are in the United States.
I'm curious, in what ways do you feel the culture has changed in your organization? Are there concrete changes to investment strategy/policy? Or a more general zeitgeist-type shift and people at the company have come to the general conclusion that some risks are too severe to take no matter the possible reward? Both/Else?
For starters, they've cut back on proprietary trading considerably. Before we had quite a few prop traders who would invest the bank's funds in equities and I believe only five of them remain. So the bank as a whole is less willing to risk its own funds through traders and prefers to make its money facilitating access to various markets or offering retail trading services.
Management has shifted their focus and puts a lot more emphasis put on generating small and steady profits as opposed to massive bonuses for large profits.
But to be bluntly honest I feel like all it will take is some time to pass and the next boom cycle to come and the same gunslinger-types will regain the management reigns with the same old outcome.
Edit: Just want to add I don't have any particular idea how to solve this type of problem, so I'm not trying to condemn you or those in your profession.
Isn't the point of the article that Iceland "let them fail" and things got better instead of worse?
If an individual goes bankrupt through poor decisions, we castigate them. When a financial institution does the same, there are often little or no consequences.
What's the incentive for them to improve their behavior?
> ask if they would they say the same thing if it was a water company that needed bailing out
The difference between water companies and financial institutions is that if the San Francisco water utility goes under, you have to move to a new city. But if the bank that offers you credit goes under, you just send your checks to a different address.
The water company is based on a real, tangible resource. Stock markets and financial instruments are tools of imagination based on speculation and 'confidence.'
No. Financial institutions do a LOT more than just speculate and invest.
They also handle and manage capital for everyone from consumers, businesses, enterprise to other banks. And capital is every bit a tangible resource as something like electricity is.
I personally was outside the Northern Rock branch in the UK when it went under. Over 3/4 of the people in line were scared and worried senior citizens. People forget that financial institutions affect EVERYONE.
There is institution and institution. The problem with Northern Rock and friends was exactly that they were playing recklessly with "senior citizens' money"; in a better world, that sort of reserve would be handled by a different entity with stricter, more conservative policies than you'll find in a "grow at all costs", ambitious little company.
The only thing worse than making a mistake is failing to own up to it and suffer the consequences. The entire Western world, not just Ireland, is a victim of this.