Fortune
 Fortune Europe editor
January 25 2008: 1:45 PM EST
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Financiers never say 'sorry'

There's lots of sober talk at Davos this year, but very little actual contrition. Why can't the people who created the global credit mess confess their sins?

By Peter Gumbel, European editor

DAVOS, SWITZERLAND (Fortune) -- A significant number of the bankers, regulators, credit agencies and other key players whose errors, omissions and greed contributed to the current financial crisis are at the World Economic Forum in Davos - and they all seem to be singing from the same hymn sheet.

They have learned some important lessons, they insist. They use the phrase "in hindsight" constantly. They talk about the need to restore confidence. They sometimes point fingers at one another, while at the same time warning about the risk of heavy-handed regulation.

It's about the closest we'll probably get to a collective "mea culpa" for the huge subprime-related losses, which range anywhere from $150 billion to $600 billion, depending on who's counting, and which have cast a serious pall over the world economy.

But there's one important word that you won't hear in Davos this year, unless you happen to have extremely sensitive ears. It's this: "Sorry."

The closest anyone has come so far is Raymond McDaniel Jr., the chairman and chief executive of Moody's Corp., (MCO) the credit-rating agency. "Are there things we need to change? Yes. It would be completely disingenuous of me to sit here and try to tell everyone that everything worked perfectly," he said Friday. "We and others have to retool our processes," he said. "In hindsight, it's clear to us that there were fundamental failures in key assumptions supporting our analytical models."

That's probably a little too mealy-mouthed and much too late to console people who bought the mortgage-backed commercial paper to which Moody's and its rival Standard & Poor's gave a top-notch AAA rating - only to discover it was actually junk. But at least he's being relatively blunt about his industry's faults.

More typical is Marcus Agius, chairman of the British bank Barclays, who says "all financial institutions are having a deep and hard look at their inner workings to see if their systems are adequate." Or Walter Kielholz, chairman of the Swiss bank Credit Suisse, who generously acknowledged that "there had been discussion at financial institutions for four to five years that there was too much of an appetite for risk in the market" - but that numerous financial institutions had simply ignored the talk because they were scared of not delivering returns as stellar as their peers.

In other words, that they behaved like lemmings piling off the cliff. Several of those who made the biggest messes, including the CEOs of Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500) and Merrill Lynch (MER, Fortune 500), have already lost their jobs, of course. But some critics here say that a lot more contrition and self-criticism from those still around would be welcome. John Evans, an international labor official who is a Davos regular, remembers the triumphant talk of previous years about the forward march of risk-free prosperity and the efficacy of the regulatory system."Everyone used to talk about 25% rates of return as sustainable," he shrugs.

Apologies or not, what's clear is that potentially significant regulatory changes are in the air. "We need a better early warning system," said British Prime Minister Gordon Brown, who advocates the International Monetary Fund taking on that role for the world economy. He also called for much greater financial market transparency, including an end to the proliferation of off balance-sheet items such as the structured investment vehicles that were often used for asset-backed securities - and which went disastrously wrong at places including Citigroup, HSBC and a couple of German banks. Jean-Claude Trichet, the European Central Bank president, says the banks need to do more.

Charles McCreevy, the European Union's top official for financial markets, says he's focusing on credit rating agencies. Malcolm Knight, the CEO of the Bank for International Settlements in Basel, Switzerland - a sort of central bank for central banks - says that one big problem "is the Balkanization of ( securities and insurance) regulation in the U.S."

The fingerpointing is bound to go on for quite some time. This week's revelation of how a single trader at French bank Societe Generale was responsible for $7.2 billion in losses hasn't helped to restore confidence. Howard Davies, a former British financial regulator who is now dean of the London School of Economics, says that "people are very chastened."

But if they really wanted to restore public confidence in financial markets, perhaps they should say so a lot louder. Maybe even with a tearful sob or two on prime time TV to really draw people's attention.  To top of page

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