Paul Volcker talks about financial engineers and the “Nuremberg” excuse
February 21, 2009
Recently we published an article titled “Economic Holocaust and the Nuremberg Trials for Bankers”. A few bankers wrote back saying that it was totally inappropriate to write such things and runs contrary to the principles of free market and innovation. Some of them were indeed very angry and told us that we were simply throwing stones at the vast community of innocent bankers who have suffered as much as anyone else from the actions of a few
Why did we write that piece? Was it really inappropriate? Is it really fair to compare, metaphorically, of course, the Nuremberg trials for the Nazi war criminals and say, the House Financial Services Committee hearing in the U.S. on banking malpractices? Now there is a debate for all of us to get involved in.
"Nuremberg" is not a dirty word. On the contrary it signifies a sort of divide that separates "good" from "evil". And the word - surprise, surprise! - was mentioned again two days after the publication of our article by none other than Paul Volcker, the past Chairman of Federal Reserve Bank and President Obama's pick for the Head of the Economic Recovery Advisory Board*.
In a recent speech last week he talks about what had transpired between him and his grandson in the in the not too distant past. Some years ago when he had asked his grandson, a college student at that time, and one who excelled in mathematics, what he wanted to choose as his career his grandson had replied that he wanted to become a financial engineer. Volcker says that day was one of his saddest days of his life. Anyway, the grandson had indeed become a financial engineer working for a financial institution. A year back when Volcker had said something rather disparaging about these financial engineers in the paper the grandson had vehemently protested to him.
The grandson had said, “Grandpa, don’t blame it on us! We were just following the orders we were getting from our bosses.”
In response, Volcker sent an email back to his grandson saying, “I will not accept the Nuremberg excuse.”
In the greater scheme of things, it is possible that the financial engineers and the vast army of quants that these banks and financial institutions employed were simply foot soldiers. History does not judge the foot soldiers. That honour - or dishonour - is reserved for the leaders, the Generals of the war.
We can easily pass judgments on Dick Fuld, John Thain and all those other bigwigs, the CEOs and the Managing Directors who ran Lehman Brothers, Merrill Lynch, AIG and the plethora of other banks and unethically and, maybe sometimes, illegally pocketed hundreds of millions of dollars in bonuses. These are the guys who were directly responsible for fostering this era of greed and irresponsibility which brought about this great calamity on humankind.
However, what about the foot soldiers? What about the quants and financial engineers who designed and manufactured the CDS, the CDOs, and all those toxic products which were peddled to all and sundry by the bankers?
Are they guilty as well or should they all come up with the "Nuremberg" excuse, i.e. they were simply taking orders?
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