It’s easy to diagnose greed and assorted wickedness from the Select Committee hearings – for example, the whole outrageous Paul Moore / James Crosby saga that, as CU says, will rightly run and run. (CU UPDATE: Crosby has resigned from the FSA this morning)
But I want to highlight another aspect – the circle-jerk phenomenon where everyone is, err … drinking each other’s whisky and gets completely carried away. Hornby says he invested his bonus ££ in HBOS shares (and has thereby lost a packet), and Goodwin avers he never sold an RBS share.
This exactly mirrors the behaviour of almost all the senior Enron execs, most of whose personal wealth was in Enron stock, and similarly sank with the ship. The notable exceptions were head trader Lou Pai, who (uniquely) insisted on being paid cash bonuses: and the actual criminal mastermind Andy Fastow, whose ill-gotten gains were invested in … municipal bonds (well, he knew the score better than anyone). Which kinda suggests that the rest were not calculating crooks, but were swept along in the excitement of the whole adventure. Ditto Hornby and Goodwin, by the same token.
This is doubly remarkable, because as any banker (and Enron exec) should know, the first paradigm of risk management is Diversification (the other two are Hedging and Insurance, BTW): indeed, in RM circles diversification is known as the only free lunch. These guys were so caught up in what they were doing, they ignored first principles, even in their own personal decision-making. They weren't just being reckless with shareholders' wealth, but with their own as well. That’s how intoxicating the game becomes.
And this is why we need regulators that are permanently ready to intervene. And this is why politicians who instruct regulators to turn a blind eye (Brown, Blair, this means you) are utterly, utterly culpable.
Footnote: a couple of interesting comments from the Grauniad’s Dan Roberts in their live coverage, one perceptive, the other unbelievably crass:
“McKillop and Goodwin have so much gravitas about them that you can almost see how they managed to con us all out of billions of pounds”
“They've now wasted best part of half an hour on an arcane row about a supposed whistleblower at HBOS. I wish we could get back to the meat”
new footnote: Alex (comments) points to an alternative account of how Lou Pai made off with his Enron dosh