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Luyendijk: Don't Blame the Bankers, It's the System That Must Change

When trying to interview bankers and other City of London insiders for his Guardian banking blog three years ago - material which later formed the basis of his recently published book, Swimming with Sharks: My Journey Into The Word of Bankers - Joris Luyendijk came across exactly the same sort of resistance as I did when researching my own book, Shredded: Inside RBS, The Bank That Broke Britain.

A great many possible interview subjects were too nervous to speak, and some that agreed to be interviewed got cold feet at the last minute. Current bank insiders that did agree to be interviewed and turned up were often nervous and twitchy during interviews, seemingly paranoid that conversations might be overheard (and in Joris's case, he faced the added impediment that the financial regulator, the FSA, had reportedly sent a note round to all the London banks urging them to dissuade staff from speaking to him).

Why are banks and bankers like this? For perhaps understandable reasons given the need for client confidentiality, the sector has long cloaked itself in a culture of secrecy. Banks have sought to silence whistleblowers and other troublemakers through draconian "gagging clauses" or non-disclosure agreements - which are often linked to generous pay-offs. In my case, I even found that even long-departed staff of a bank that went spectacularly bust in 2008 were fearful of being stripped of their (usually extremely generous) pensions if they were found to have spoken to me.

Fortunately, through a mixture of persistence, guile, disarming charm (also known as "playing the daft laddie") and good fortune, Luyendijk was able to pierce this wall of secrecy sector and return to tell a fascinating tale.

Luyendijk got the City's shrinking violets to open up about their profession on the strict understanding all the interviews would be "anonymised" and that their identities would never be known. He also found that, once he had few in the bag, more interview candidates out of the woodwork, which pretty much mirrored my own experience when researching and writing Shredded.

Luyendijk, a former foreign correspondent for Dutch newspapers Volkskrant and NRC Handelsblad, set himself a simple task when embarked on his banking project for the Guardian in late 2011. How could individuals who are collectively blamed for causing the worst financial crisis since the 1930s "live with themselves?" The answer was simple. They didn't even think they had done anything wrong. Each worked within a tightly defined area of the bank, which had not lost enough money to bring down the whole. Some could see that some of what they did was unethical but they lacked the will to try and push for change. In Luyendijk's parlance there are three main groups - the "teeth-grinders" who hate their jobs but need the money, the "neutrals" accept that some of what they do is wrong but can see little point in making a stand, and the "cold fish" who seem to revel in what they are doing.

He explains that the sector's anomie is buttressed by the silo-like structures inside banks. The structures actually preclude good management, as they encourage fiefdoms and discourage information flow, and they also promote buck passing.

Luyendijk, who studied anthropology at Cairo University before becoming a foreign correspondent, explains the devil-may-care attitude of most investment bankers by pointing to their five-minute horizons. The hire and fire culture inside their institutions means they could be out the door in five minutes, with their possessions bundled in black b6in liner and access to their institution's systems cut off. He suggests that fear of being thrown out the door at a moment's notice means they feel no loyalty to their institution and will therefore milk it for all its worth while they can. The banks give them no reason to care whether their actions will jeopardise the institution's long term future, so why should they?

Overall, Luyendijk argues that large banks have become effectively ungovernable. "Look beyond the façade at the perverse incentives, at the silos and climate of fear, at how zero job security breeds zero loyalty and their unmanageable size and complexity and you do not see a rationally organised command structure, you see a cluster of islands in the fog, staffed by mercenaries."

Luyendijk's section on the inability of financial journalists to hold the sector to account is spot on - most of the journalists covering the sector are effectively "embedded" and simply go through the motions of delving into what's really going on at carefully stage-managed events like annual results presentations. He attended those of HSBC, RBS and Lloyds in March 2013, and was taken aback by what he saw.

"The CEOs addressed most of the journalists by their first names, and then gave long and meaningless answers.... After a weekend of turning those spectacles over in my mind, it finally dawned on me: I had witnessed a ritual. The flood of numbers and PR phrases, the focus among journalists on bonuses or relatively innocent details ... Consciously or unconsciously, the press, together with those CEOs, had been staging a performance that sent the subliminal message: it is back to business as usual".

In similar vein, Luyendijk exposes absurdities that these mainstream financial journalists take for granted - such as why it's seen as acceptable for bond issuers to pay for credit rating agencies to rate their bonds? He compares this to "Michelin guide inspectors being paid by the chef whose food they have come to taste". He is also scathing about external auditors, saying "You could argue that, on an individual basis, accountants are incentivised not to find something."

Luyendijk also berates regulators and politicians, especially for their half-cocked response to the global financial crisis. He writes: "The regulatory response to the crash of 2008 has been to fight the symptoms instead of the cause"

However he is fair and balanced towards individual bankers, saying it is unfair and just wrong to stereotype them as villains hell-bent on enriching themselves at society's expense. "Many outsiders are deeply reluctant to accept that, to an important degree, the financial world isn't populated by people wilfully doing evil but by conformists who have simply stopped asking questions about right and wrong."

He believes the problem is systemic not personal, and the only way to build better banking system, is to reconfigure the system and remove the perverse incentives that promote roguery. "All the signs are pointing to the need for a complete overhaul of our financial system - not repairs or a major clean up but a completely new DNA."

He concludes on an optimistic note hoping that politicians will force through such a change, rather than just rearrange the deckchairs on the Titanic which is what's been going on since 2008. "It is not rocket science, and you would expect all major political parties in all the western democracies to have come out by now with their vision of a stable and productive financial sector. Either by a coherent argument why they believe the status quo is safe and fair, or a point on the horizon: this is what we believe the financial sector should look like and this is our roadmap to get there..."

The sentiments are admirable but I fear Luyendijk is being slightly naive and over-optimistic. It ignores the fact that most western countries handed over a fair amount of power to the financial markets from the 1980s on and the possibility that, in countries such as the US and UK, bankers have already subverted the democratic process through powerful lobbying, political donations and the "revolving door".

However this is a minor niggle. Overall I would strongly recommend reading Swimming with Sharks. It gets under the skin of individual bankers like no other book I have read.

Swimming with Sharks: My Journey into the World of the Bankers, by Joris Luyendijk, Guardian Faber, RRP£14.99, 288 pages

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