Bank of Evil?

Michelle Harner

I took our kids to see Despicable Me yesterday.  Although they really enjoyed the little yellow minions in the movie, I was struck by a scene in which the lead character (a career villain) visits his local bank to request a loan.  The bank’s name is displayed as “Bank of Evil,” with the following notation underneath:  “formerly known as Lehman Brothers.”

I chuckled a little when I saw this reference, as did a few of the other adults in attendance.  I then spent most of my remaining time at the theater, however, reflecting on the demonization of those associated with the financial crisis.  Clearly, the financial crisis wreaked havoc not only on our financial system, but also on the lives of millions of people.  And people are still hurting, as evidenced by the unemployment and foreclosure numbers and talk of a double-dip recession.  So I understand the human need to vent frustration and point the finger at someone or something.

But are institutions or types of businesses—even investment banks—really evil?  (For examples of other “evil” references, see here and here.)  Or are they merely tools subject to abuse by the individuals in charge?  Consider the following excerpt from the Lehman Brothers’ examiner's report:

Lehman’s financial plight and the consequences to Lehman’s creditors and shareholders, was exacerbated by Lehman executives, whose conduct ranged from serious but non-culpable errors of business judgment to actionable balance sheet manipulation; by the investment bank business model, which rewarded excessive risk taking and leverage; and by Government agencies, who by their own admission might have anticipated or mitigated the outcome.

It certainly may be hard to feel sorry for the top executives and traders at Lehman Brothers who had a hand in the collapse, but many employees, retirees, stockholders and creditors had no role at all.

Now, I do not raise this issue to demonize further the individuals (as opposed to institutions) associated with the crisis.  Rather, I raise it to encourage reflection on whether we are reacting to the right problems in the pending financial reform legislation (which passed in the Senate today) and other initiatives being considered as responses to the financial crisis.  As I have suggested before, I think we need to recognize the human component to the multiple causes of the financial crisis and be honest about our ability to regulate that conduct.  As another commentator noted in the context of whether we need to redefine the notion of a sophisticated investor, “‘Clearly, even sophisticated people need to be protected’ . . . .  But will the regulators be able to protect them from themselves?”

Comments

[Binoy Rakesh]

Michelle, I did see the movie and the sign, I think in a way, is unnecessary. May be, the makers of the film wanted to lightheartedly make a reference to Lehman Brothers. But, i feel that no matter how crazy they have been, they should not be made fun of in a movie.

I Googled to see if anyone has posted something on that sign from the movie.. and here you are.. :)

The rise and fall of banks in my opinion is a the economy's Darwinian way of dealing with inefficient and corrupt banks.

[Michelle Harner]

Binoy:

Thank you for the comment. I agree that the reference to Lehman Brothers in the movie was unnecessary and some may view it as inappropriate. I also generally agree that the bank's failure was part of the economic cycle--a type of creative destruction. Lehman Brothers itself did not cause the severity of the most recession, and it will not be the last bank to fail or contribute to economic instability. Unfortunately, I do not think we can eliminate the human error and corruption that often accompany these types of failures. I do, however, continue to hope that we can find effective means to mitigate their impact.

Best regards, Michelle Harner.