Why the City takes stupid risks

by Ed Bowsher on 04 November 2011  |  10 comments
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It's arguably better to have women in charge of banks because they'll be more rational. Trouble is, most women are too rational to take on such a crazy job.

I suspect that academics will still be arguing about the causes of the current financial crisis in 100 years’ time. But, regardless of the arguments, I’m sure that one of the main causes was excessive risk-taking by men in the City and on Wall Street. 

I’ve used the word ‘men’ intentionally. There’s quite a bit of evidence that suggests that women tend to be less aggressive risk-takers than men and are more successful investors as a result. 

Indeed as Christine Lagarde, the IMF boss once said: “If Lehman Brothers had been Lehman Sisters, today’s economic crisis clearly would look different.” 

There’s an article on the Guardian website that looks at this issue and it makes a point that I hadn’t thought of. Basically most women aren’t drawn to work in the City because it’s such an unpleasant place to work. You have to work long hours, there’s ruthless competition, and if you want to succeed, it’s best to participate in masculine bonding rituals such as playing golf. Or going to dodgy bars. 

In many ways, most women are too rational to work in the City, and that means there is less rationality in the City. 

Here’s how the author of the article, Joris Luyendijk, sums it up: 

 “You want more women in finance because on average they are more rational. But many women opt out of such a career for exactly the same reason: they are too rational to sacrifice their life to work.” 

Women are too rational to work in the City and that means there’s less rationality in the financial world. Too many big risks are taken. 

It’s hard to see how to solve this problem....which is rather depressing. If you have any ideas, let me know in the comments box at the bottom of this blog post.