Expect more bezzles
Just when you thought that banks’ reputations couldn’t get any more stained, one of the previously cleanest names in the sector has found itself covered in mud. Standard Chartered was attacked in quite extraordinarily vehement terms by a New York regulator this week, slamming the share price and forcing the bank to deny the allegations (that it had hidden $250bn of transactions with Iran) just as vehemently. But regardless of the eventual outcome, this is bad news for the City, and by extension, for London.
JK Galbraith, in his book, The Great Crash, 1929, said it’s only in the aftermath of a financial boom that you uncover the ‘bezzle’: the “inventory of undiscovered embezzlement” that piled up when times were good. The way I see it, there are two types of ‘bezzle’. There’s the Bernie Madoff or Allen Stanford-type frauds: your out-and-out con merchants, who use the cover of the boom to take as many people for a ride as they possibly can before the bubble bursts and they get caught.
Then there’s the more insidious bezzle – the institutional bezzle. This falls into the category of “everyone else is doing it, so why shouldn’t I?” This is the mix of bad habits, corner cutting and widely accepted rule-bending and breaking that builds up during the boom.
• Read the full editor’s letter here: Expect more bezzles.