It had to happen. Every crisis invariably gives rise to finger pointing. This one is no exception. Sooner or later, the scapegoating had to break out in the open. It didn’t take long. At a dinner I attended on the first night of the World Economic Forum, the blame game erupted with full force.
The event had a provocative billing – “36 Hours in September: What Went Wrong?” It was one of the hottest tickets in Davos this year. The assembled cast – including Nobel prize winners, historians, central bankers, behavioural scientists, and, yes, economists – recited the litany of a world torn asunder in the days immediately after the Lehman failure. Yet most in attendance actually concluded that the crisis would have unfolded in any case – irrespective of how the US government handled or mishandled the collapse of a major investment banking firm. There was some sympathy to the notion that Lehman’s Chapter 11 filing was a catalyst to a crisis long in the making – that it accelerated an end game that would have transpired in any case. But virtually no one in the room believed that this crisis could have been avoided had Lehman somehow been kept on life support.
The sparks started flying when the focus shifted away from the events of four months ago to a debate over the how’s and why’s of this horrific crisis. That quickly turned what had been an objective discussion into the inevitable witch hunt. A pointed question posed by one of the experts did the trick: “How could the bankers have been so stupid?”
Up until then, I had been uncharacteristically silent – perfectly content and curious to hear the story from the outside looking in. But that question did it. I felt compelled to jump in – not to defend my industry but to put its role in context. If bankers were so stupid, I asked, what about the others – regulators, rating agencies, yield-hungry investors, and an ideologically-driven central bank? What about an American body politic – the Congress and a succession of White Houses – who turned rising homeownership for those at the low end of the income distribution into a conscious objective of public policy?
My point was not to deflect blame nor deny responsibility. We on Wall Street certainly deserve our fair share of both. My intent, instead, was to underscore the collective roles played by all the major actors in this sad story – mistakes of an entire system that led itself into crisis and recession. Aren’t we all responsible for that? And don’t we all share great regret over this tragic outcome? No easy answers – just more tough questions. The blame game is one of the ugliest aspects of any crisis. That was more than evident at Davos 2009.
Stephen Roach is chairman of Morgan Stanley Asia and former chief economist at the bank