Silos and silences. Why so few people spotted the problems in complex credit and what that implies for the future

Why did so few people inside or outside the banking world spot the risks that were developing in the world of complex credit and credit derivatives before 2007? What does that failure imply for regulators and policy makers in the future? These questions have provoked a welter of debate since the banking crisis erupted – and a host of different answers. Some observers have blamed the issue on fl awed regulatory and economic thinking among policy makers and central bankers, or a “cover-up”, in the sense that bankers were deliberately hiding their riskiest behaviour from regulators. The issue of “regulatory capture” has also been blamed. However, this paper argues that two other problems need to be recognised too. Firstly, the fi nancial world was a pattern of «social silence», to coin a phrase used by Pierre Bourdieu, the French sociologist, which ensured that the operations of complex credit were deemed too dull, irrelevant or technical to attract interest from outsiders, such as journalists or politicians. Secondly, there was a problem of silos, or fragmentation,both in a structural and cognitive sense, which made it hard for both insiders and outsiders alike to take a holistic vision of how credit was developing. Taken together, that made it hard to “join up the dots” about the dangers in the credit world, until it was too late. And, as such, this raises policy questions and challenges for the future.