We need to pamper our bankers

We need to pamper our bankers, not punish them. Gratifying the urge to punish the bankers will only mean hurting ourselves

Bankers have been bad boys, no doubt. They have been greedy and reckless, driving their businesses into the dirt even while amassing huge bonuses and payoffs. And they have not merely bankrupted their own banks but, worse, they have wrecked the global financial system and thereby the global economy, hurting tens, if not hundreds of millions of innocent, ordinary people. Bankers have been very bad boys (and a few girls) and they deserve to be punished.

Cries can be heard from around the world, from Congress to the Carolinas, from Russian ministers to Chilean cardinals; the demand is unanimous: Punish the bankers! Put them in jail. Claw back their bonuses. Make them suffer.

We know from our scientists that the urge to punish, the need to see retribution meted out is a primitive urge, perhaps even hard-wired into our human brains. But I wonder whether this urge to punish is wise, let alone mature.

Let me take you through a little fairy tale of an analogy to see where the urge to punish, if indulged, might take us.

So, sit on my lap while I take you back to a few days before the invasion of Iraq in March, 2003. One evening, an emissary of Saddam Hussein came knocking at the door to the White House. He had a personal message from Saddam to a certain George W outlining an offer to resolve the standoff between the parties. For the price of $2 billion and safe conduct guarantees from each of the members of the U.N. Security Council, Saddam, his family and a few selected cronies from the Tikrit clan (Chemical Ali and the like) were prepared to evacuate Iraq and go into permanent exile in a safe country like Egypt. Saddam & Co. proposed to live quietly in luxury on an estate by the Nile and though they knew they could never venture out into the “civilized” world, like Paris or London, they demanded assurances that they would never have to fear facing justice or the International Criminal Court or punishment or retribution of any kind.

What would the U.S. get in exchange according to Saddam’s offer? They could choose an Iraqi general – whichever they fancied - to take control of the Baath party and government, a puppet leader to be sure, but a puppet that would maintain the apparatus of civil order; the U.S, military could establish a couple of bases in Iraq to ensure the security of (control over) the country; American companies could do business and help the Iraqi economy recover from the years of sanctions; oil would flow and quickly; and, best of all, the American government could search freely and to its heart’s content for W.M.D. The urge to punish? The torturers of the Saddam regime would face punishment; maybe trials for some lower-echelon thugs but more probably quiet “disappearances”. Saddam had no concern for the welfare of his underlings. If the U.S. wanted, the Baath Party could be purged of the worst elements, slowly leaving a core of capable functionaries who had joined the Party only as a means to a living and a way to get ahead in life. And who knows but some of them might leave the Party to establish new parties to compete in elections held in security thanks to the continuing vigilance of the Iraqi police and military?

Of course, George W. rejected Saddam’s offer out of hand. It was intolerable that these criminals escape punishment or retribution of any kind, let alone live in peace with a couple of billion. However, if George W. had restrained his primitive urges and sat back for a few minutes, he might have figured out that sending the Saddam clan off into exile would not necessarily leave them happy and relaxed, basking in the Nile sun, on a bed of roses. Not with a psychopath in tow like Saddam’s son, Uday, a rapist and torturer who had been spoiled his entire life and allowed every criminal excess that he pleased. Mr. Mubarak in Egypt would not look kindly on his citizens being raped and tortured by the gang up at the Saddam estate. In all probability the Saddam family would have ended up killing each other like some scene out of a B horror movie (or perhaps from Hamlet). Anyway, we will never know what might have happened because George W. wasn’t thinking straight, or wisely that evening. Mr. Bush wanted punishment, revenge, retribution and surely that would also have been the cry heard from around the world if anyone had even dared float the suggestion that Saddam might get away scot-free and with $2 billion in loot.

Well, we know what happened. We did get to punish Saddam and his sons but just think how much more we have hurt the Iraqi people and ourselves. $2 billion is petty change compared to the treasure expended in our military efforts. And would any family member of a slain soldier, or, indeed, would any soldier who had lost a limb declare that the sacrifice of life or limb was a price worth paying just for the gratification knowing that a dozen or so senior members of the Saddam regime had been punished?

So it is with the bankers. Whether we like it or not, the banking system constitutes an essential element of the global economy. If the banking system ceases to function, the economy will collapse and we will all be hurt. There are some on the extreme left and others on the extreme right who have found concordance in some kind of demonic scheme: they advocate allowing the banks to fail with a view to reconstituting a new set of banking institutions that will be more stringently regulated and stable. Others advocate nationalizing the banks and then reconstituting the banking system. What all agree upon is that the old guard of bankers should play no role within the new.

These schemes for re-creating the banking system differ not in one iota from the brilliant idea of one US functionary to not merely outlaw the entire Baath party in Iraq but also to disband the police and the army with a view to reconstituting new political and security forces that would bear no taint of the Saddam regime. Well, we know how that worked out. The plan simply created a massive vacuum of power and destabilized the entire country of Iraq. There was no mechanism of transition from the old structures of power to the new ones as imagined by Mr. Bremer or Mr. Rumsfeld.

So it would be if we gratify the urge to punish the old bankers and set out to create a new banking system. What would fill the vacuum of finance during the transition period? And who would run it? You think you could run a bank? Or Paul Krugman (with or without a Nobel)? Or, for that matter, do you think Nouriel Roubini could run a bank? However smart Mr. Roubini might be, it would take a long time before he could get up to speed. Can we afford to pay the price for novices to make their way along the learning curve? The global economy would experience in financial terms the same kind of chaos that the Iraqis experienced politically and in terms of violence after the Iraqi police and army were dissolved. And in the wake of financial collapse, who can say that there wouldn’t be similar political anarchy in certain European and developing countries?

I am afraid that there is no practical alternative to continuing with the banking system we have which means banks being run by the same set of characters that got us into this mess in the first place. Instead of punishing the bankers, we should be cosseting, pampering, even mollycoddling our financial leaders, indulging their each and every whim (including private jets) because, however repugnant it may be, however indignant we might feel, however strong our revulsion, any alternative is far, far worse.