When almost every media mention of your institution is accompanied by the nickname vampire squid, you might think it prudent to learn a little humility. Not, it seems, if your name is Lloyd Blankfein. The Goldman Sachs CEO may regret not saying sorry if President Barack Obama makes good on his threat to geld the banking industry by imposing new regulations on proprietary trading, private-equity investments and future balance-sheet growth. The furious White House reaction to the seeming indifference of finance chiefs to the economic chaos they created threatens to inspire a patch work of unilateral rule changes around the world.
Without coordination, financial reform wont work. A piecemeal approach to new rules may result in the regulatory equivalent of an arms race. Bashing bonus-hunting bankers has never been more popular, and no politician will want to miss this opportunity to play to the gallery. Finance chiefs still dont seem to comprehend just how much anger they have aroused among ordinary folk, or how appalled most of the world is at the lack of either an apology or an acknowledgment that even the strongest players only survived the credit crunch because of the transfusion of billions of dollars of taxpayers money.
If different administrations around the world reckon they can win more popular support by retaliating more fiercely than the country next door, those desired improvements in banking oversight could become too tough. The UK, for example, has been championing the introduction of a so-called Tobin tax, designed to pinch a sliver of revenue every time a security is traded anywhere in the world. The proceeds would be set aside to build a rainy-day fund to protect us from future financial crises. On the surface, the idea is seductive. The authorities could sell it to the public as killing two birds with one stone, raising some much-needed revenue at the same time as deterring those pesky speculators.
UK PM Gordon Brown has to face an election in the first half of this year, and is behind in the opinion polls. Theres a non- negligible risk that he might seek salvation for his government by putting Britain at the forefront of financial regime change with the solo introduction of a transaction taxa surefire vote-winner, albeit spelling commercial suicide for the City of London as a financial centre. Public wrath will filter into government policies designed to lash safety air bags around the banking community.