After making Whittle – The Jet Pioneer we were keen at Quanta to explore further British success in science. So we went to the City of London, to find how it uses the best mathematicians and physicists to develop the complex structured financial products that enable the UK and Wall Street to dominate finance. Indeed, we hoped to find some brilliant ‘quantitative specialists’ – the folks who develop mathematical theories to solve financial problems.
And then the credit crunch emerged. It adds a new dimension to our planned City documentary, titled Called To Account, and gives us a more interesting story – namely, how bankers, regulators and accountants let sophisticated financial instruments get out of control. The result is devastation to shareholders, taxpayers, businesses and banks. While we admired the financial innovation created through maths and physics tools, we also focussed on how its financial instruments created a City on the verge of self-destruction.
Crucially, our research has uncovered a dark dimension to the credit crisis that the media have missed, namely that many of those who caused the recession have used the complexity of financial instruments to get around regulation. To do so, they were aided by very weak accounting standards – and by credit rating agencies who exploited a position of trust. The recession is thus a lot deeper than it should be and it’s likely the job losses we have seen so far are only the tip of a very nasty iceberg.
Called To Account will focus on how weaknesses in the financial reporting system allowed titans of finance to award themselves huge bonuses, by misleading shareholders and keeping regulators in the dark about how much they were in effect gambling - as opposed to investing professionally.
In the meantime, you can get a flavour of the topics we will be looking at by reading Accounting for Financial Instruments. This new book from Cormac Butler on the financial crisis will reveal how the accounting standards broke down and a few financial professionals concealed risk and leverage through complex financial structures. We will live with the consequences for years.
