The financial services industry has never exactly basked in a reputation for saintliness. But its behaviour over the last few weeks suggests that, in this financial crisis, it is taking arrogance, cynicism and breathtaking selfishness to new, and previously unimaginable, levels.
The banking system may still just about be financially solvent. But on recent evidence, it is morally and intellectually bankrupt. Unless the City and Wall Street wake up to the growing public revulsion at their response to the calamity they have unleashed, they should prepare themselves for an almighty backlash that will sweep away many of the freedoms that they have abused for so long.
In the last week, we have had the bosses of the top British banks gang up on Mervyn King, the Governor of the Bank of England, in a well-orchestrated campaign to force him to bail out the banks by agreeing to accept their dodgy mortgage securities as collateral for loans regardless of the risk to taxpayers. We have seen short-sellers try to bring down HBoS by spreading false rumours. Meanwhile, in the US, we have seen aggressive hedge funds threaten to derail JP Morgan's takeover of Bear Stearns and thereby intensify the financial crisis in a successful attempt to squeeze extra dollars in compensation for a bank that was effectively bust.
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What we have not seen is any act of contrition on the part of the financial elite, no recognition of their complicity in causing this mayhem. With the exception of Adam Applegarth, no UK bank boss has lost his job over the financial crisis, despite billions of pounds of collective write-offs. No major bank in the UK or US has seen fit to cut or better still scrap their dividend to shore up their capital position. And no bank on either side of the Atlantic balked at paying out obscenely large bonuses to staff this year, even as they were extending their begging bowls to central banks for funds.
The City and Wall Street have been able to get away with this behaviour because they have the regulators over a barrel. Policymakers are rightly terrified of a systemic crisis in which they are faced with multiple bank collapses, leading to a depression. Mervyn King's estimable concern to ensure that bankers are forced to accept some pain in return for the financial support they are demanding has had to take a backseat to the urgency of doing whatever is necessary to keep the banking system afloat.
The bankers have also been helped by the fact that as the Financial Services Authority's own analysis of its failings in supervising Northern Rock showed the regulators are over-stretched, under-staffed and lacking in relevant expertise.
But the bankers shouldn't kid themselves they will continue to be indulged this way. The longer this crisis continues and I don't believe it is anywhere near over yet political pressure to reform the financial system is going to grow. The wider public is only just beginning to wake up to the scale of the crisis. People who are suddenly faced with massive increases in their mortgage payments will want to know how we got into this mess. And they will want to know why they, as taxpayers, are being asked to shoulder the risks in the financial system, when the bankers themselves seem to be prepared to do nothing to shore up their balance sheets, by, for example, slashing bonuses or raising new capital, for fear of offending their staff or their shareholders.
Ideally, regulators and central banks would demand their pound of flesh in return for the support they are being asked to provide, in the form of senior heads delivered on platters and promises to raise fresh capital. At the same time, the City and Wall Street should be actively proposing ways to reform the financial system, starting with their own incentive structures, to the qualifications of their senior executives, right through to the size and scope of financial institutions.
Why was an industry that claims to recruit the brightest and best able to get itself into such a mess? How could so many bank bosses know so little about their own businesses? Are modern financial institutions just too big, too complex and too riddled with conflicts of interest to manage?
Sadly, it is asking too much to expect the City and Wall Street to reform themselves out of concern for the general good. The days are long gone when UK banks lived in fear of the "Governor's eyebrows". And two decades of financial deregulation has handed the financial elite such power and wealth that they no longer feel beholden to politicians, but expect them to bow to their own demands.
But perhaps they might be persuaded to do so as a matter of self-preservation. After all, deregulation assumed that financiers could be trusted to behave responsibly. That assumption is starting to look like a big mistake. Enlightened bankers will realise they do not have long to change that perception. Otherwise they can expect to suffer the consequences.
Simon Nixon is executive editor of Breakingviews.com
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