The global financial crisis (GFC) was perhaps a male crisis that could have had a softer landing if there were more women in the banking and finance sector, according to Italian economist and journalist, Loretta Napoleoni.
Napoleoni was a key note speaker at the Women in Banking and Finance annual forum, hosted in Sydney last night by Deutsche Bank, which also included panel speakers NSW Premier Kristina Keneally, Carnival Australia chief executive, Ann Sherry, and journalist and author, Mia Freedman.
Napoleoni said the cause of the GFC has been attributed to the banks and to greed, which she felt was a simplistic interpretation of what happened that does not explain irrational market behaviour.
“Irrational behaviour played a very big role in this crisis and so did the presence of men in finance,” she asserted.
Napoleoni said this sector has the greatest imbalance between men and women of any other sector in the economy, but it was a play she watched in London that led her to ask the question, ‘Could we say that this crisis is actually a male crisis?’ She found the answer in a study conducted by the Cambridge Judge Business School, which analysed the relationship between the credit crunch and male preponderance in the financial sector.
The study analysed hormonal production in men and women traders when the markets were open and found men produced more testosterone when markets went up, which pushed them into an ‘invincible’ psychological position called ‘The Zone’.
“What is interesting about this study is that in this zone, you lose rationality in judging risk,” said Napoleoni. “So that actually would explain why people were continuing to believe, even when it was clear it was going to be a major crisis, that it was not going to happen.”
She added when the markets turned down and bets were going wrong, male traders produced cortisone, which inhibits reaction.
“In other words, they were paralysed by fear and they didn’t know exactly what to do,” she said, adding it would explain why those on the male-dominated Wall Street took over a week to decide what to do in order to prevent a major meltdown in the financial system.
Napoleoni said because they did not produce testosterone, the women traders tended to be more risk averse and were also better able to take control of the situation.
“They give a certain kind of stability in the relationship between trading and the market,” she said, adding a greater presence of women during the credit crunch would have given a softer landing than we actually experienced.
“Giving the opportunity to women to come into finance, to have a better career, and to break those glass ceilings, will probably give us the possibility of having a more balanced financial world to prevent these wide swings of the crisis. We will still have the crises because the root cause is a systemic problem, but we may not have crises so big and unmanageable as we have today.”
