Three Monkeys Online

A Curious, Alternative Magazine

Interview with a failed investment banker – A personal insight in the impersonal financial world

The governments of all the major countries have stepped in to solve the worst financial crisis experienced since 1929. The capital markets at the very heart of the financial system have failed, exposing all the limits and contradictions of the present system in which the terms freedom, greed and abuse are too often mixed up.

The Governments – we hear – did not have much choice. The collapse of the financial system would have caused huge costs in terms of economic growth, purchasing power and possibly social unrest. But after the banks, the primary cause of the collapse of the system, have been rescued using taxpayer’s money and imposing a big burden on future generation, some difficult questions must be addressed.

Would the system have collapsed without the present remuneration schemes and the greed which seems to be the only credo in all investment banks? The focus given to the pay of the top 3-5 executives and their golden parachutes is understandable, but this is only the tip of the iceberg. Thousands of young fellows in their twenties and early thirties make an outrageous amount of money every year by selling aggressively structured products to clients who can not fully understand the risk they are undertaking, fostered by the contagious positivism we were living in just a few months ago. These young millionaires, says Mario Rancini, an investment banker that has lost a large amount of his earnings, created mathematical models designed to outsmart the ones used by rating agencies and Government agencies to be classified as risk free investments. Moreover many were specialised in intra state financial legal systems and constantly tried to find the gap, the hole in which to put themselves to make the most money possible. Hobbes says that we should, as citizens, feel entitled to exploit to our advantage every legal gap that the state offers us. Is what investors bankers were doing wrong? Some would argue that it is morally, but from a legal point of view most actions were consented.

The complexity to which the most recent financial products have developed is not easily explicable if not in the light of the recent events. It seems quite clear now that such structured products were the result of a search for large profits easily hidden in the depths of algorithms and functions.

Assisting to the creation of these financial products, continues Mario Rancini “ it clearly emerges that issues they promised to solve could be unriddled with much simpler and standardized solutions. The only problem”, Mario Rancini says regrettably is that “they have the problem of being more transparent, hence they can not justify a large fee for the bank and do not require such a big number of lawyers and consultants justified by the need to analyze and advise on the whole structure.”

Similarly in the structured product market the best brains are used to arbitrage different credit, legal or regulatory systems as well as different pricing models. Money has to keep moving around in order to generate additional money even if there is no real substance to the transaction.

The adoption of such a business model has certainly produced large profits but at the same time has inevitably contributed to a more flexible and somehow subjective interpretation of the rules and regulations as well as the required business standards. Under the tolerant supervision of most regulators around the world, the past few years have seen a dramatic increase in the numbers of financial scandals. The recent meltdown is the logical consequence of the lack of clarity that surrounds a world too complex for many people to understand.

Mario Rancini admits that he himself was taken and grasped by the optimism which the financial operators have embraced in the past few years. “ it seemed just unstoppable, people were just continuously making money. If one investment went wrong five others were to go positively.”

“After the failure I have lost faith in people but not in the system itself”. Mario continues explaining his view. According to him it is not capitalism in itself that has failed but the joint greediness of some bankers, the fake blindness of most governments, scared to raise their voices against such a powerful lobby and the faith of people in general that never see, to learn from history. Ready to criticise now when things are going badly but at the same time ready to enjoy all the benefits of such system when working efficiently.

Mario leaves me with a message he wishes to give to future generations or in other words we students. “ The burden created by increased government spending is necessary to save what until now, was the sanctuary of the private initiative and free enterprise. Now we can only hope for a re birth of a new market which, as Sarkozy said, embodies some ethical values. But “most of all I address you, the future generation to be the guardians of the guardians and not allow this to happen again.”

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