[FoRK] Did cocaine use by bankers cause the global financial crisis?

Stephen Williams sdw at lig.net
Thu Apr 18 16:10:04 PDT 2013



Did cocaine use by bankers cause the global financial crisis?

Coked-up bankers caused the credit crunch, according to the former drug tsar David Nutt. One former City worker can well believe it

Cocaine usage
Cocaine: usage among bankers has been said to be commonplace in the City and Wall Street. Photograph: Rex Features/Simon Webster

"Wall Street got drunk" was George W Bush's typically incisive take on the main cause of the emerging financial crisis in July 
2008. Two years later the governor of the Bank of England, Mervyn King, explained in his Mansion House speech that "the role of 
a central bank in monetary policy is to take the punch bowl away just as the party gets going" (something that he admitted had 
not occurred). But perhaps the wrong intoxicant was being blamed. The controversial former drug tsar David Nutt told the Sunday 
Times this weekend that cocaine-using bankers with their "culture of excitement and drive and more and more and more ... got us 
into this terrible mess".

     Payback Time
     by Geraint Anderson

I'm inclined to agree. Cocaine is (I'm reliably informed) a drug that results in intense bouts of over-exuberance as well as a 
tendency to talk extremely convincingly about stuff you know nothing about. Everyone accepts that a credit bubble occurred in 
the mid-noughties and that it was a direct result of what the former US Federal Reserve chief Alan Greenspan has referred to as 
"irrational exuberance". It could also be argued that traders would be better able to sell absurdly complicated financial 
weapons of mass destruction after taking a confidence-boosting narcotic such as cocaine. Furthermore, surely only 
cocaine-ravaged buffoons would actually buy billions of dollars worth of mortgage-backed securities when they were so clearly 
doomed to explode the minute the property boom stalled.

I certainly saw my fair share of sniffly noses and gurning jaws at City bars every Thursday night. I also heard overconfident 
gibberish being spouted by brash wide-boys throughout my 12-year banking career. There were also lots of stories about some of 
the big swingers in New York enjoying a line or 10 of an evening. Bernie Madoff's office was apparently known as "the North 
Pole" such were the gargantuan quantities of "snow" to be found there and most bankers are aware of the published allegations 
that Jimmy Cayne (former CEO of Bear Stearns) had an anti-acid medication bottle that was filled with cocaine.

Dr Chris Luke, an A&E specialist based at Cork University Hospital, Ireland, who has studied the effects of cocaine on bankers, 
has stated that "prominent figures in financial and political circles made irrational decisions as a result of megalomania 
brought on by cocaine usage". He concludes that "people were making insane decisions and thinking they were 110% right … which 
led to the current chaos."

Greed, selfishness, ignorance and ruthlessness also played their part, of course, but I think it would be foolish not to see the 
role that the drug played in creating the bubble. Herd mentality, which thrives during times of uncertainty, is certainly much 
more explicable when you factor in the trembling insecurity and depleted discernment that go hand in hand with a coke habit.

There is, I'm pleased to say, a happy ending to this sorry tale: my ex-colleagues and clients who still work in the Square Mile 
tell me that many City boys are now too scared to keep snorting the Bolivian marching powder. This may mean bankers are having 
less fun but, surely, it can only lead to a more restrained and sensible financial system.


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