Performance Management Solutions

There is something horribly fascinating about watching normally intelligent people submitting to the ‘herd instinct’ and engaging in actions that are self-evidently wrong. Irrational behaviour builds on irrational thinking that is itself based on incorrectly drawn conclusions. And once the cycle is started, it becomes a destructive vicious spiral. Such behavioural patterns occur in a large number of situations but never more so when driven by politicians who feel, just because they are politicians, that they have superior intellects and are so much better informed that the ‘common man’ and so much more able to make decisions that are best for everyone. This delusional attitude is supported by some journalists who have equally unfounded self-delusions.

And this is exactly what is happening with governmental reaction to the financial institutions and the mess they have made of their economic value and the economy as a whole. The extraordinary thing is that the UK government is not alone in its idiocy – other governments around the world are going down the same path in the sublime, but ridiculous, belief that if all governments agree then they must be right.

Let’s put the issue firmly on the table: governmental response to the financial disasters of the last 18 months is to (a) attack the individual bankers as greedy and dishonest people, and (b) to try and avoid risky behaviour by penalising the individuals through restricting their pay. The idiocy is the belief that risk taking of the type that crashed the financial system is A RESULT of the way the bankers are remunerated. It is not, it is the other way round: the way bankers are remunerated is a result of the risks that they are encouraged to take.

If the government genuinely wanted to reduce risk in the financial system then they must regulate what the banks are allowed to do in terms of their trading and investment activities and the amount of financial cover they have in their reserves. With proper control of risk in place, then the bankers will not be able to take uncovered risks and thus the system will not fail. The problem is, governments are made up of politicians who have no understanding of the situation, who –in the case of the British politicians – are venal and arrogant, and they have NO IDEA how to regulate to minimise the risks in the financial system. And they are certainly not willing to put serious money and legislation into place to allow those who do know how to do it to get on with the job.

The current governmental attitude towards bankers and their bonuses has nothing whatsoever to do with making the financial system less risky, but it does have everything to do with the fact that, having flooded the economy and the banks with money to stave off further disaster, the governments now have no idea what to do next and are watching helplessly and ineffectively as the bankers continue to operate on a ‘business as usual basis’.

The real problem is that those at the top of the banks and of the governments are, essentially, useless and have little idea what they are doing and would rather be seen to be doing something, no matter how wrongly based, than to admit they do not have a clue.