Who’s responsible?

I’m a great believer in free trade, particularly the money markets. They’re a high-tech playground that gives those who are prepared to stick their necks out the chance to reap massive rewards. Think of it as a kind of modern Wild West, with be-suited cowboys bravely exploring the frontiers of finance. OK, perhaps I’m getting a little overexcited, but you see my point. The huge bonuses that some city workers pull down are justified by the pressure they operate under and the risks they take.

But the whole point of the risk/reward relationship is that there has to be a risk. You can’t strut about singing the praises of the Darwinist free market and then run off screaming for help when things go wrong. To an extent this is exactly what is happening. The UK Chancellor Alistair Darling recently announced a €63 billion cash float to stave off the effects of the credit crisis and US Federal Reserve earlier stumped up nearly €20 billion to stop the ill-starred Bear Stearns going entirely down the tubes. At the time of writing the European Central Bank has so far resisted calls to open its wallet, but don’t be too surprised if it too changes its tune.

There is the unmistakeable whiff of hypocrisy in an industry which generally resists any form of official intervention being happy to accept charity when its grand plans go awry. It’s like betting on a horse and then getting your stake back when it falls at the first fence. This type of ‘have your cake and eat it’ scenario is exactly the kind of thing that gives ammunition to the anti-capitalists out there. Let’s be honest, big finance isn’t generally one of the everyday public’s favourite things and situations like this certainly don’t help. If you want to convince people that your way is the right way, you need to have the courage of your convictions and put your hands up when you make a mistake.

Of course, when you’re dealing with events that have the potential to kick off a wholesale global meltdown, certain principles have to take a backseat. Governments are forced to step in because a collapse in the financial markets would have grave implications that extend far beyond the city. But is it too much to ask that those who are supposedly in control shoulder a little more responsibility for the events they have engineered? Take Charles Prince, former head of Citi. True, he was shown the door for overseeing the biggest losses in the bank’s history, but he walked away with a payoff of almost €19 million and shares worth about €34 million. Merril Lynch’s Stan O’Neal was also punished for losses of around €5 billion with a golden parachute worth about €100 million. If I let my employers down so spectacularly, I’d be lucky to make it out of the door with a single paperclip.

Now there are warnings that the current crisis is going to result in widespread job losses across the financial services industry. However, it’s not the bright sparks who have exacerbated the problems by enthusiastically trading of worthless instruments that will be walking the plank. The guillotine is far more likely to fall on those lower down the food chain.

I realise that all this might be making me sound a touch radical, perhaps even a little socialist. But the free market is built upon the idea that those who deserve success achieve it. If you are insulated from the consequences of your actions, on either a personal or enterprise level, then you aren’t that far removed from someone on welfare. If those who sowed the seeds of the crisis had been genuinely concerned that they might end up on the breadline if things went wrong, then perhaps we wouldn’t find ourselves in our current sticky situation.