Anat Admati: The Economist Who Said “The Bankers Have No Clothes”
Recently named to Time magazine’s list of the 100 most influential people, the Stanford professor discusses her impact on global finance.
Anat Admati (Photo by Jake Stangel)
Has the banking system been made sufficiently safe and healthy in the years since Lehman Brothers collapsed? To Stanford finance professor Anat Admati, the answer is an unequivocal no.
She started scrutinizing the question four years ago, dismayed by what she and colleagues referred in a paper to as “fallacies, irrelevant facts, and myths” in the discussion of banking, and specifically capital regulation.
Since then, she has published op-eds in The New York Times and many other publications and spoken widely on the safety of the international financial system. She also published a book, The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It, with Martin Hellwig, director at the Max Planck Institute for Research on Collective Goods. Their underlying argument is that the big banks remain far too leveraged and should fund their operations much more through equity than current and proposed regulations allow.
This sounds like a relatively simple policy change, but, as she and her co-author explain in the preface to the recently released paperback edition, there is “willful blindness” among policymakers and bankers that helps them to “overlook and ignore risks they take and to deflect criticism.”
For her work putting this issue so starkly in the spotlight over the last four years, Time magazine recently named her one of the world’s 100 Most Influential People. “Thanks to Admati, central bankers, global policymakers and economists are starting to wonder” along with her if “this complicated, risky system” is the best we can do.
In May, she is scheduled to discuss her views at Stanford’s TEDx conference. We caught up with Admati between her visits to Amsterdam (for a conference at the Dutch central bank) and Zurich (to receive an honorary doctorate), and we asked her about the impact she believes she’s having.
It was almost exactly four years ago when you wrote your first op-ed for the Palo Alto Weekly about suicide prevention. You later said you believed any entrenched problem could be tackled through the involvement of a greater number of people. Now that you’ve taken on the issues in banking, do you still believe that?
I am a bit less sure because I discovered that the politics can be extremely challenging. It is difficult to tackle entrenched problems when people with significant power have strong interest in preserving the status quo. They may refuse to engage, find and stick to convenient narratives, ignore or dismiss inconvenient parts of reality, and actively fight change that is not in their self-interest. The harm from excessive financial risk is more abstract than harm from food or drugs, shoddy construction, or unsafe cars or airplanes. So it is often easier for those who take or tolerate financial risks to escape personal accountability.
One of your goals for the book was to educate people and empower them to push for changes in the system. Do you think that’s started to happen? To what effect?
It is gratifying that more people have become aware of the issues and that some were moved to speak up or take action. But the forces on the other side are strong. I hope it does not take a major crisis for people to pay more attention to these issues, but I fear the public is not sufficiently aware of the situation. As things stand, we are perversely allowing, and even supporting, a fragile system that subjects us to booms, busts and crises in which the choices are grim. Despite repeated scandals and recognition, also by some policymakers, that something remains wrong, there is still insufficient political will to diagnose the key distortions and take the steps to address them.
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