This provoked a twinge of guilt in me. At my own Book Festival session with Ian Fraser I was asked how much securitisation was to blame for the financial crash. I agreed with the questioner’s obvious presumption that securitisation was a big part of the problem, but I did not dwell too long because time was getting short, many more hands were up to ask questions and it can be a complex technical issue and I was afraid of getting into detail in case I lost the audience.
At the book signing afterwards the same questioner took me to task: it was an important technical issue, but also a moral one because by securitising mortgages – packaging them up by the thousands or even millions and selling them on the international money markets – banks were breaking the bond between borrower and lender.
He was right, securitisation is not that difficult to explain (I spend a chapter in Hubris doing so). Readers and listeners want and need to understand it, not only so they can know about the mechanisms which helped to bring about the global crash, but because already securitisation is starting to raise its head again.
Civil servants in London, for example, after five years of describing it as “the S word” which they weren’t allowed to say out loud, are now examining it as a means of persuading the banks to lend to small businesses.
Does morality have a place in discussions of banking and economics? It should. Ian Goldin, once vice-president of the World Bank and now an Oxford professor, claimed at the discussion with Esler and Islam that Adam Smith would be appalled to see moral sentiment banished in favour of econometrics and the economists’ wish, like the physicists, to reduce the world to an equation.
Old style bankers would have agreed. But there was no morality in selling PPI to people who didn’t need it or in fixing LIBOR interest rates for personal gain.