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“The financial crisis is due to the lack of controls on the financial and banking markets by those who should have watched on it and the failure by analysts to foresee what was coming”. Words by Jean-Claude Trichet at his speech in Milan, at an event organized by Università Bocconi and Corriere della Sera to debate about the new governance in the financial market at the light of the current crisis.
Mr. Trichet called for a new set of rules and a new globally agreed governance for governments and Institutions to enhance controls over what bank, insurances, investors and all actors on the financial market do. Needless to say Mr. Trichet, who has been President of the European Central Bank since 2003, claims a major role in this process for himself and the institution he runs.
The question is, if he, and his fellow Central Banks’ Presidents, and all those in charge of watching over the financial markets, and the analysts they leaned and lean on for scenarios, were not able to understand the events just a few months further on – “In March 2008 nobody could expect a crisis as deep as the one that broke out in September 2008” – and keep some kind of control and lead on the market, why should we trust them now and let them fix the new rules?
After all, Mr. Trichet has had all his professional career within the financial establishment, climbing all steps in the ladder of a top level financial manager in the governmental sector. He has been for years head of the French central bank, before joining the European central Bank, where he still holds the top spot. It would be reasonable to expect an experienced financial manager and banker like him has the skills to detect a storm well in advance it really comes in, and takes all necessary actions either to avoid it or get out of it with the least damages. Yet, neither him or his fellow central bankers and alikes did understand what was about to happen.
Are they all not as good as they claim to be? Hard to believe. What is most likely, the system is not fit to let these top managers recognize the signs and needs a complete rebuilding. Who should take care of this rebuilding? Mr. Trichet and the other managers? They are the ones who actually designed and built the current system, that very system that has proved to be completely unfit for the tasks: hard to believe they could do anything better. We need a full reshuffling of the top positions in the banking management system, with new managers taking control in place for those who have shown so clearly they cannot keep up with the tasks. We cannot let those who failed clean up the debris and start it all over again.