Conference 2012: Gillian Tett – Puppetmasters or umpires: the perils of modern bank regulation
The rules to which central bankers worked enabled them to be very confident (Alan Greenspan brushed his critics away) and to ignore the wider context (of system stability)
Ms Gillian Tett
US Managing Editor and Assistant Editor, The Financial Times
Read Ms Tett’s notes (and the Discussion of the session in which they appeared) below, or download them here: Puppetmasters or umpires
In 2006-7 Paul Tucker (responsible for market analysis at the Bank of England) was examining the financial products being sold in 2005-6 in order to explain why the cost of raising money, for even risky firms, was falling when central banks were raising interest rates. His warnings about what was later called ‘shadow banking’ went unheeded by central bankers because no intellectual framework linked ‘macro-economic analysis’ and ‘financial innovation’. Paul Tucker’s attempts to link these ‘mental silos’ were doomed: he didn’t have the right words to convey his convictions (his own terms ‘vehicular finance’ and ‘Russian doll finance’ failed to do so). The rules to which central bankers worked enabled them to be very confident (Alan Greenspan brushed his critics away) and to ignore the wider context (of system stability). Central bankers’ policy-making offers a powerful Illustration of the effect of the way our need to divide the world up (leading to silos and fragmentation) can result in policy-making tragedy.
It is unrealistic to abolish silos because we cannot operate without cognitive maps and systems of classification. Although almost all societies believe their own classification system is the only one possible, anthropologists have observed they actually vary across time and place. By thinking about the space between the silos (the gaps and social silences which are taboo, boring or just unfashionable) social anthropologists try to understand how the reproduction of these silences enable power structures to function.
Paul Tucker challenged perceived wisdom. He explored boundaries and the white space on the map but the silos remained ingrained. Although economists now recognise the need to put economics in a much wider context (making much play of reaching out to other disciplines) in practice obstacles remain, including
- The intrinsic association between silos and power structures: peoples’ careers depend on their ability to control (restrict) the flow of information vertically and horizontally
- People don’t have time to understand each other’s fields
- Products and regulatory reforms are unbelievably complex. Most people need to simplify them to understand them leading back to the recreation of mental buckets and silos in which mental processes become isolated.
The key priority for financial regulation should be ensuring that regulators and bankers stay humble: seeing the world as simple as joined up (avoiding tunnel vision by looking out of their silo to put what they’re doing into wider context) and injecting ‘common sense’ (looking at those white spaces).
Outside the financial sector the key question is: Are we mastered, shaped, limited by our silos? (Only by mastering our silos can we guard against excesses and unleash innovation).
Discussion of Session 1
In response to being asked if the Bank of England’s focus on moral hazard to the detriment of the financial crisis was a classic case of hubristic leadership, Ms Tett felt that hubris existed in every Western [central] bank and amongst policy-makers and the media. Even within the FT she had experienced silos: there had been little interaction between the physically and symbolically segregated markets team and the more prestigious Lex Column team.
Professor Ikkos raised the point that bankers had told him people didn’t want to hear about corruption in their own industry and wondered whether it was different in healthcare. Sir Michael Rawlins felt that there may be silos with terrible spaces between, together with a regulatory system too complicated to be effective.
In response to the idea that the press also has the power to puncture balloons Ms Tett felt that when the media does a good job it achieves a joined-up view and (‘like an anthropologist on steroids’) explores how the dominant discourse supports the structures of power (focussing on what isn’t said). Too often it falls short because it is seduced by power. Journalists’ training also leads them to tap into [rather than challenge] popular culture. People are taught to write a story, to write about people (not abstract ideas) and the consequent ‘Hollywoodisation’ of how we communicate leads to a cycle of lionising people and then knocking them down. Such schizophrenic information patterns inhibit grown-up public debate.
Dr Blaug referred to the ‘re-feudalisation’ (Habermas) of a siloed press in which public debate doesn’t go beyond the chattering classes and in which celebrities inhabit a ‘false’ public space. The press can be a shining light but is limited by [the small size of] its own public space.
In response to a comment about the inherently cyclical nature of capitalist economics Ms Tett accepted the near-impossibility of politicians who have given a realistic, but downbeat, economic prognosis to get re-elected. J.K. Galbraith (possibly a manic depressive) used to be able to say such things but it is no longer part of the public discourse.