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Editor’s take: Playing the blame game

If you receive a healthy bonus this year, keep it quiet. Joe Public is baying for blood, and bankers are on the hit list.

Last week, Germany’s finance minister blamed ‘snooty’ bankers for creating the credit crisis. According to Peer Steinbrueck, the current predicament is all down to bankers who thought they were cleverer than everyone else, but have turned out not to be.

British parliamentarians appear to share Steinbrueck’s convictions, if not his choice of language. Reuters reports that when senior bankers assembled to explain the credit crunch and the Northern Rock debacle the lawmakers accused them of ‘losing sight of risks, of failing to do enough to explain complex products to investors and of acting recklessly…’

It’s a view that’s already widely shared by the average non-banking type (or at least several I’ve spoken to), and it’s liable to become more pervasive if the credit crunch becomes a recessionary splat. According to the website Gawker.com, there have already been protests outside Goldman Sachs in NY (although it’s not immediately clear whether these had anything to do with the credit crunch).

What can be done to sidestep the coming missiles? Now may be the time to hone a few counterarguments of your own. Michael Lewis, the ex-Salomon banker and author of Liar’s Poker, wrote a tongue in cheek column for Bloomberg back in September, in which he argued the sub-prime crisis was all down to ‘poor people’.

Alternatively, one US banking analyst I spoke to recently argues that the current situation is the fault of lazy Europeans who want to retire early: “They were the ones who went after the high returns offered by sub-prime backed CDOs so that they could fund their retirements,” he claims.

Neither of these arguments is likely to make you many friends, particularly if you happen to be touting the latest in 10k watches while you make them. Unless and until you can think of a more palatable alternative, the best bet might therefore be to keep a low profile – and pretend your bonus really is as small as some are predicting it will be.

Comments (4)

  1. Once again a stupid quote from one US bank analyst; look at the AUM of European pension plan (quite low due to Welfare State system outside UK) and their low exposure to US RMBS, even through CDO

  2. Really stupid quote…

    Risk Capital , GCC Reply
  3. Unfortunately, and I am afraid to dissapoint you, I also share Peer’s view. His statement sounds too simple but it isn’t and hits the nail on the head. NOBODY can seriously price MBSs and CDOs, these products are simply too complex and the repayment structure cannot be properly forecasted. Why do German Savings Bank run a massive prop book, although their actual job is to grant middle sized corporations access to the capital marktet????

  4. I do think that they can be priced properly, if one does take into account uncertainty properly. The problem is that people keep looking for a SINGLE price, instead of a probability distribution. If you do a proper statistical analysis, and clearly define your loss function, you can price things properly and define what level of exposure you want. If we keep looking for an “expected” price based on today’s parameters, we are bound to make mistakes in an ever-changing world. This is perhaps the difference between CDO pricing (static in many senses) and CDO forecasting (more related to risk management and trading).

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