Another Medical and Wall Street "Success Story"! The story of Subsys and Insys

Hannah Kuchler, Shaunagh Connaire, Nick Verbitsky, Annie Wong, Rebecca Blandon and Tom Jennings in The FT


Deborah Fuller had just heard the sentences that were the closest she would get to justice. 

In March 2016, her daughter Sarah died from an overdose of drugs that included Subsys: a tiny yet potent spray containing fentanyl, an opioid 50 to 100 times stronger than morphine. The day before her death, mother and daughter had chatted about her upcoming wedding. Sarah had already bought a garter. Deborah was planning to sew her veil. 

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The next morning, Sarah’s fiancé found her dead, keeled over on her face. “It was not a vision I would wish on anyone. We had to have her cremated because there was no way they could have made it so that she was recognisable,” Deborah recalls in an interview. 

The former nursing assistant had first become addicted to opioids when she was prescribed them for fibromyalgia and neck and back injuries. After she recovered from the addiction, she visited a new doctor. With an Insys sales representative in the room, she was put back on opioids including Subsys — and within 20 days, her dose of the spray was tripled. Admitted to hospital for hyper-sedation, physicians recommended she stop using the spray — but her doctor continued to prescribe it. 

Now, four years later, executives from Insys, the maker of Subsys, had become the first pharmaceutical bosses to be handed prison time for their role in America’s opioid epidemic. Clutching her speech, the 62-year-old mother from New Jersey stood outside the court in Boston this January and accused John Kapoor, the Insys founder, and his colleagues of a “greed and fraud” that took Sarah away when she was just 32. “They are no different from mobsters,” she said. 

Seven of the Insys executives and employees on trial were found guilty of masterminding and participating in a scheme to bribe doctors to prescribe the drug. Kapoor was sentenced to five and a half years on charges that included racketeering conspiracy. Michael Babich, Insys’ former chief executive, and Alec Burlakoff, former vice-president of sales, co-operated with prosecutors and received two and a half, and 26 months, respectively. 

Fuller calls the sentences “a disgrace”, believing they should have been far longer. But she hopes the sheer fact of people going to prison will deter other drugmakers, which may have previously accepted fines as a cost of doing business. “Normally, they just get a slap on the wrist and have to pay a penalty, which was easily made up by selling more opioids,” she says. “At least now, they’ll have to think, maybe they’ll go to jail for this.” 

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The opioid epidemic has shaped America. There have been 750,000 overdose deaths since the crisis began in 1999, according to the Centers for Disease Control and Prevention, and about two-thirds involved an opioid. Fuller’s family is one of many still suffering from losing a loved one. 

Many people hooked on illegal opioids start on painkillers prescribed by doctors. At first, marketers convinced some physicians that opioids were not as addictive as previously thought. But in some regions, the abuse became brazen. One town in West Virginia had 3,200 residents, but was receiving enough opioids for them to take 6,500 pills each over 10 years. 

In a joint investigation between the FT and the PBS series Frontline, we spoke to several former employees about life inside Insys, including Burlakoff, the former vice-president of sales, who we questioned under prosecutors’ supervision. We also interviewed prosecutors, short sellers and the reporters who exposed the scheme. 

Insys was a flagrant flouter of the rules. Founded in 2002, it started clinical trials for its under-the-tongue fentanyl spray in 2007. Subsys won regulatory approval in 2012, more than a decade into the opioid crisis, when overdose deaths were already rising and after other pharma companies had been fined for mismarketing opioids. 

The company used tactics familiar in the US pharmaceutical industry — but took them across the line into illegality. Many drugmakers pay speakers’ fees to doctors, with the understanding that they will recommend their product to peers at educational events — but Insys made it clear that they expected more prescriptions in return for their money. Sometimes it abandoned the pretence of such events completely. 

Subsys was approved for “breakthrough” bursts of pain in cancer patients already tolerant to opioids, yet the majority of prescriptions were for patients, like Fuller, who did not even have cancer. It is legal and common for doctors in the US to prescribe drugs “off label” or for uses they are not approved for. But it is illegal for pharmaceutical companies to market their medicines for these other uses. 

Jerry Avorn, who heads the division of pharmacoepidemiology at Brigham and Women’s Hospital in Boston, believes it was mostly the marketing to doctors that made Subsys “lethal”. “The Insys example is the extreme . . . ‘mass shooter’ version of what happens when you create a culture that does not pay enough attention to what’s true and what isn’t about drugs, and where you allow uncontrolled marketing,” he says. “What made it so dangerous was people getting behind it and seeing it as a ticket to riches.” 

The pharmaceutical industry has a history of paying settlements in the billions of dollars. But even as evidence of investigations began to emerge, analysts played down the risks, sometimes citing companies that had previously only received fines, and investors bid up the stock. 

Across the US, counties and states are now suing pharmaceutical companies, desperate to recoup the cost of treating and policing those hooked on their drugs. Many of the defendants have teamed up to offer $48bn to settle these suits — but so far, many states are holding out for more. After all, according to the Council of Economic Advisers, the crisis cost the country $2.5tn from 2015 to 2018. 

“Most people involved in making opioids, distributing them and financing the companies turned a blind eye as at first there were thousands of deaths, then tens of thousands, and then hundreds of thousands of deaths. These are the kind of numbers we usually associate with genocides and civil wars — in the richest country in the history of human civilisation,” says Anand Giridharadas, author of Winners Take All, a critique of how elites make their money. “There’s now a mountain of evidence about all the people who had warning signs who ignored them.” 

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At the end of 2013, Insys chief executive Michael Babich was lauded on CNBC. The stock was the best performing initial public offering of the year — up by more than 400 per cent at its peak — and sales had risen almost sevenfold year-on-year. The TV anchor served up a softball: “Tell us what it is about Insys that has investors so excited?” 

Wearing a tightly buttoned gingham shirt, Babich showed off the Subsys spray, smaller than an asthma inhaler. He blinked rapidly as he trotted out the official line: the product is designed for cancer patients suffering from “breakthrough” bursts of pain. 

Wall Street was captivated by the numbers coming out of the small Arizona-based company — and downplayed risks it could not quantify. The Wall Street Journal praised Babich that year as “the right kind of insider trader” for legally buying more stock to show his conviction in Insys. Insys founder, John Kapoor, originally from India, cast himself as an immigrant success story, telling Forbes: “This is the country you can do it in. Nowhere else.” 

David Amsellem, a softly spoken analyst at Piper Sandler with decades of experience covering pharmaceuticals, recommended buying Insys in 2014. Speaking in a conference room above New York’s Park Avenue, he described how he and fellow analysts were impressed that sales were taking off, when most small biotech companies spend years investing in R&D before selling anything. “Insys was a rare breed as a company that had a product that was on the market,” he says. “In other words, it wasn’t just a hope and a dream.”

For Stephanie Yon, however, Insys was a nightmare. That December when Babich was promoting the fentanyl spray on TV, the Michigan mother of three started seeing Dr Gavin Awerbuch, seeking treatment for pain from a car crash the month before. Yon did not have cancer. She had not taken opioids before. Subsys came with a “black-box warning” that it could cause respiratory depression and death. Yet Awerbuch prescribed her a plethora of opioids, including Subsys. Then, he increased her dose rapidly. The 38-year-old died on March 14 2014, just three months after the initial prescription, with lethal levels of fentanyl in her body. 

Brian McKeen, the lawyer for Yon’s family, says no one could have mistaken the drug as safe. “It doesn’t happen because of a lack of scientific knowledge, or a lack of warning. It happens because of doctors disregarding patient safety and putting their own financial interest first,” he says. 

Unbeknown to Yon, her doctor had such a close relationship to Insys that the company’s management would advise sales reps across the US to get their own Awerbuch. He was the top prescriber of Subsys in the country, helping fuel sales that rose 276 per cent year-on-year in the first quarter of 2014. In return, his pockets jangled with so-called “speakers’ fees”: in 18 months, he was paid $138,000, ostensibly for educating other medical professionals about the drug. The local press reported that much was spent on his vast collection of ancient coins. 

At the trial last year, Awerbuch described searching his files for new patients to write Subsys prescriptions for. “It got to the point — and this was a complete lack of judgment on my part, but I started prescribing Subsys to patients who really didn’t need such a potent medicine,” he said. “I probably went against my Hippocratic oath and did prescribe medicine that could potentially harm patients.” 

He liked the money and the Insys reps, who made him feel like they were his friends. Many were hired for their beauty — Burlakoff says he knew that “sex sells” — and few had deep experience in pharmaceuticals. “Honestly, they had beautiful sales reps, and I liked the attention I was getting,” Awerbuch testified. Two months after Yon died, he was arrested. He pled guilty and was sentenced to 32 months in prison and forced to pay restitution and fines of $4.1m. 

“When you have a prescriber who can say, ‘I was bribed,’ that’s an important moment,” says Nat Yeager, who prosecuted the Insys executives. But inside the company, Burlakoff claims, no one cared. In fact, the sales representative who courted Awerbuch was promoted. Asked about the case on an earnings call, Babich insisted: “In no way, shape or form was there any allegations against Insys” [sic]. 

Amsellem, the Piper Sandler analyst, says Insys leaders were “very, very clear” that the doctors who were arrested were just “bad actors”. “Basically, I had to take management’s word for it. And there’s always going to be that element of trust,” he says. “You want to believe that management teams are going to be honest.” 

The stock carried on rising. 

Giridharadas says Wall Street funded the opioid crisis, just like it speculated its way into causing the financial crisis. “The system is set up to tell corporations to make as much money as possible by cutting every possible societal corner,” he says. “It is a sector of our society that is consistently working in advocating against the life, liberty and pursuit of happiness of the American people.” 

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A year later, Insys sales representatives were revelling in their success. Sales in the first quarter of 2015 soared more than 70 per cent year-on-year, and the stock was climbing towards its peak that July, at almost six times the IPO price. At a national sales conference in Arizona, reps showed off a video that was later to become an exhibit at trial. Parodying a hit by hip-hop artist A$AP Rocky, the sales reps rapped: “I love titration. Yeah, that’s not a problem. I got new patients, and I got a lot of ’em.” 

The lines referred to the tactics used by sales reps of pressuring doctors to escalate patient doses of Subsys — known as titration. Higher doses fetched higher prices, and so the reps pocketed fatter commissions. In the video, a man in a giant Subsys costume dances with the rappers. At the end, Burlakoff comes out from under the costume. The audience laughed and clapped, one former sales representative told the FT and PBS Frontline. They had no idea that it would be “a piece of evidence in court in four or five years’ time,” he says. 

Our team interviewed Burlakoff last summer, before he was sentenced, under the supervision of the prosecutors at a studio in Boston. Wearing the smart suit of the salesman he once was, he was extremely talkative. Just as he had decided to “co-operate like nobody’s business” with the prosecutors, he was eager to recount how Insys devised its scheme. “I didn’t think about the patients, the people suffering, the addiction,” he admits. “I imagined that I was selling a widget.” 

He described how he was in awe of the billionaire Kapoor and set about creating a team that would recruit doctors who, nine times out of 10, were not oncologists. “It all comes down to targeting. You gotta find their hot button. Whatever makes them tick. And it sounds ruthless and it is ruthless that we would target someone that is in distress in an effort to take advantage of them,” he says. Sometimes the target was wooed more literally. “Sex with a doctor or chartering a private jet and taking a couple of doctors to, say, Cancún, Mexico. It’s been done,” he says. 

The criminal conspiracy went right to the top. While many pharmaceutical companies pay speakers’ fees to doctors, they don’t officially expect them to prescribe more of their drug. Kapoor insisted on a clear return on investment. “Dr Kapoor doesn’t lose. He made that very clear. He did not want to lose a penny,” Burlakoff recalls. Insys sales representatives were instructed to deliver at least a 2:1 return. “The only way that I knew how to do it, to get that guarantee, is to bribe doctors.” 

This clarity was to prove the company’s downfall. Prosecutors discovered a spreadsheet — which they dubbed a “smoking gun” — that showed calculations of the return Insys was getting from its investment in speakers’ fees. Insys also deceived insurers so they would pay for prescriptions. The company created an internal reimbursement centre, giving staff carefully worded scripts known as “The Spiel” that would convince insurers to pay up, often by implying — or even claiming — that a patient had cancer when they did not. 

Fred Wyshak, one of the prosecutors, said in an interview: “Kapoor decided that, ‘If I’m paying doctors to speak, I’m also paying them to write [prescriptions].’ And philosophically, that’s not supposed to be the way it works. I’m not saying that’s not the reality in the pharmaceutical industry, and as I think Burlakoff described it, that’s the dirty little secret in the pharmaceutical industry, but nobody ever discusses it.” 

Wyshak had built his career prosecuting the mafia. He used similar tactics to turn witnesses and unearth evidence to prosecute Insys leadership. Kapoor was the ultimate target. “The executives at Insys displayed an arrogance that you find in organised crime groups,” he says. “They thought that they were above the law.” 

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Short sellers, who search for stocks they think will fall and profit if they do, were also digging into Insys. They believed that Wall Street was missing warning signs. Jim Carruthers, who runs his firm Sophos Capital from Silicon Valley, became suspicious because there were so few doctors prescribing so much Subsys. Carruthers had shorted healthcare companies before and began to piece together public data including which doctors Insys was paying, available under transparency laws, and the numbers of overdoses related to the drug. He also hired a private investigator, who visited a top prescriber in Alabama, describing it as the “epitome of a pill mill”. 

“We thought this was all information that when it came out into the public market, that would change the investors’ perception of the value of the stock,” Carruthers says. His “aha moment” came when his firm approached someone who used to work for Insys competitor Cephalon. It turned out the employee also used to work for Insys. “When we asked him why he left that name off his résumé he told us, ‘Because these guys are all going to get arrested. They’re all going to go to prison,’” he says. 

Carruthers built his short position and sent tips to journalists. In April 2015, Roddy Boyd, a hedge-fund analyst-turned-investigative reporter in North Carolina, published an exposé, “Insys Therapeutics and the New ‘Killing It’” on his non-profit site, called The Southern Investigative Reporting Foundation at the time. The stock fell almost 10 per cent. Within weeks, though, it had recovered. Carruthers says the “greed” went beyond the top of Insys, down to its investors. “There were people on Wall Street who were intent on keeping this stock price up and, I believe, ignoring some of the more obvious indications that this was an unsustainable, potentially fraudulent business model,” he says. 

Amsellem says the first reports of investigations into Insys were met with a “collective shrug”. “There had been a whole host of investigations of other companies, companies that are industry leaders and big fines that were paid. And none of these companies were put into bankruptcy,” he says. 

When David Steinberg, an analyst at Jefferies, initiated coverage of the stock as a “buy” in late 2014, he acknowledged the investigations could bring “more negative headlines”. “As we are not privy to the facts, we are not in a position to render a conclusion. That said, we’re pretty sure that the worst case outcome for Insys is some sort of fine,” he wrote. The fact that investors assumed investigations could be settled for a fine was understandable. There was no precedent for pharmaceutical executives being sent to jail. Purdue Pharma, owned by certain members of the Sackler family, had settled a 2007 misbranding case of its opioid OxyContin for $600m. Cephalon, which also sold a fast-acting fentanyl product Actiq and had previously employed Burlakoff, settled investigations into its marketing practices in 2008 for $425m. 

“If Cephalon executives had gone to jail for the way they promoted Actiq, for actions they took that promoted a loss of life, then maybe we wouldn’t have had a Subsys,” says Andrew Kolodny, co-director of opioid policy research at the Heller School for Social Policy and Management. 

In late 2015, more heavy prescribers of Subsys were arrested and the company began to suspect federal agents were pursuing executives. And yet, in 2016, five out of the six analysts covering the stock still had “buy” or “outperform” ratings on it. Some analysts kept buy ratings on Insys until shortly before it went bankrupt in 2019, according to Sinan Gokkaya, an associate professor of finance at Ohio University. “Short sellers have an incentive to push down the price so they can get involved in negative investigations,” he says. “If I’m an analyst, I don’t have much to gain from a negative stock price.” 

In May 2017, Amsellem became the second to downgrade Insys, rating it “neutral”. He did not rate it as “underweight” until March 2018, five months after Kapoor had been arrested and charged. Amsellem says he wanted to keep his focus on “data and information”. By 2018, investigations had made doctors more cautious about prescribing any fast-acting fentanyl drug. Subsys sales were lower than they had been at the initial public offering in 2013. 

“I don’t regret not downgrading it earlier,” he explains. “I think that to make decisions on stocks you have to be methodical . . . You don’t want to be knee-jerk. Does that mean that sometimes you might get things wrong? Yes. I get things wrong all the time in terms of stockpicking.” 

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If you google “Subsys”, you will find, perhaps surprisingly, that the tiny fentanyl spray is still on the market in the US. After executives were convicted and Insys was ordered to pay $225m to the US government, the company filed for Chapter 11 bankruptcy in June 2019. Subsys was sold to Wyoming-based BTcP Pharma, in return for paying a proportion of sales to creditors. Several state attorney-generals objected. The Maryland attorney-general argued there were “ample red flags” about the new owner. “Patients became addicted to Subsys through Insys’ misconduct and their addiction has not been treated; the court should ensure, in approving any sale, that Subsys will not fall into the hands of those who would further exploit that addiction through intentional conduct or negligence,” the objection read. “Further harm should not emerge from this bankruptcy.” The sale was approved after BTcP promised to only market it for cancer patients. BTcP’s parent company did not respond to a request for comment. 

Insys was an extraordinary case of explicit bribery to prescribe a potent opioid — and an unusual example of government agencies rallying together to prosecute executives. But it also exposed flaws in how the US regulates drugs. The system makes it hard to catch bad actors — whether individuals or entire companies — before they devastate lives. 

Chris McGreal, author of American Overdose, says it took the FDA 20 years to improve its monitoring of whether a drug is addictive. “One of the strongest and most constant criticisms of the FDA during this epidemic is that it’s taken a very narrow view of the grounds on which it approves a drug,” he explains. “They don’t want to know the answer to the question, is this drug addictive and therefore dangerous? Will it kill patients?” 

Since Subsys came on the market in 2012, the regulator has put new warnings on the boxes of opioids and required companies to do studies into misuse and overdose after approval. It has requested that one opioid — Opana ER, made by Endo Pharmaceuticals — be removed from the market because of patterns of abuse, but also approved Dsuvia, by AcelRx Pharmaceuticals, another fast-acting opioid, despite strong criticism. 

Yet off-label prescription is still rife. Sometimes it makes sense to give doctors discretion, but it can also be dangerous: concerns have been raised about the effects of anti-psychotics prescribed for dementia, which ended up increasing death rates, and antidepressants that raise the risk of suicide in children and adolescents. 

Aaron Kesselheim, a professor at Harvard Medical School, believes the FDA needs to invest more in monitoring drugs after they have approved them. He fears recent court cases have given pharma companies more — not less — latitude in how they market drugs off-label. “Things are moving in the wrong direction,” he says. 

The Physician Payment Sunshine Act of 2010 put data on doctors taking dollars online. But it would take an enterprising patient to discover it — and decipher what it might mean for their care. And transparency has not stopped many doctors from taking the money. A 2019 paper in the journal Addiction analysed data from more than 800,000 physicians and found those who received money from opioid makers tend to prescribe substantially larger quantities of opioids. 

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The US is now consumed by another public health disaster. Yet the coronavirus pandemic could end up exacerbating the opioid epidemic. A report from the Well Being Trust, a foundation focused on mental health, predicted “deaths of despair” from suicide, drug and alcohol abuse, could rise because of Covid-19, leading to another 75,000 deaths. Lawsuits against other opioid makers have been delayed by lockdowns. There are civil suits against much larger companies including Johnson & Johnson and Teva, as well as distributors and pharmacies. Attorney-generals are pursuing certain members of the Sackler family in relation to Purdue Pharma, but those cases are on hold as part of the bankruptcy process. There are also signs of a criminal investigation, with opioid manufacturers being hit with subpoenas. The companies and members of the Sackler family all deny any wrongdoing. 

Wall Street analysts do now say that litigation risks are affecting their ratings. But they still view the potential fines as a financial calculation. As news has trickled out about possible settlements, they have tried to look for bright sides. One wrote that the deal would likely be less than the $248bn the tobacco industry settled for in 1998, because there have been fewer deaths from prescription opioids than there were from smoking. Another called possible fines “manageable” for J&J, which is the world’s largest healthcare company. 

Meanwhile families such as the Fullers live with their loss every day. Deborah says the end of the year is always a slog: Sarah is missing from Thanksgiving, then her birthday, then Christmas. “We haven’t decorated for Christmas in some time,” she says. “Within a very short period of time, there are all these family-oriented holidays, when one fourth of our family is not here any more.” She hopes the Insys case will be a warning to other drugmakers — but she also believes the broader system needs to change. It should be far harder to prescribe medications off-label, especially dangerous opioids, she says. Doctors should be cautious about taking money from pharmaceutical companies, and, if they do, they should be forced to declare it “in a frame in big letters in their office”. 

“They take an oath not to hurt anybody,” she says. “When your patients are dying . . . that goes beyond hurting.”

Instead of draining the swamp, Trump has become Wall Street’s best buddy

Will Hutton in The Guardian


President Trump was an accident waiting to happen. The US had entered a zone of fragility: there were too many inequalities, grievances and accompanying disillusion in a system felt not to work .

A chief reason for that economic and social fragility was the behaviour of the American financial system. It is still astounding how close to disaster high finance brought the US and global economy in 2008. It provoked a vast bailout, and the recovery that followed has been one of the most anaemic sort, during which the wages of average Americans have scarcely grown.

The hangover of debt and legacy of banks trying to rebuild their shattered balance sheets has held the economy back. Meanwhile, some of the weak links in the system, like the sheer scale and opacity of the derivative markets, plus business models riddled with conflicts of interest, have remained unaddressed. Fortunes are still being made and very few have paid the price for cataclysmic mistakes.

On the campaign trail, Trump unfailingly tarred Clinton as compromised by, and enmeshed with, Wall Street and its mega banks. Goldman Sachs had “total control” of her; she was in thrall to a “global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities”.

Trump would drain the swamp, he claimed, and reinstate a “21st-century” version of the law separating main street banking from Wall Street – Roosevelt’s Glass-Steagall Act – which was scrapped by President Bill Clinton, in one of his worst decisions. Trump would throw the money men out of the temple, he said. He would reshape finance for the “little guy”. His audiences roared him on.

But, in office, Trump has proved to be a great deal friendlier to the titans of Wall Street and their interests than he suggested he would be as a candidate, although a close reading of his speeches foretells some of what is now happening. Far from draining the swamp, he is opening the sluicegates; the money men are not so much being hurled out as in full occupation of the economic citadel.

Goldman Sachs’ number two, Gary Cohn, is to be Trump’s chief economic adviser; his Treasury secretary, Steve Mnuchin, was 20 years at Goldman Sachs before running OneWest Bank, which made a fortune by improperly foreclosing on mortgages in ethnic minority communities after the financial crisis. These are not men on the side of the little guy: Cohn has promised to attack “all aspects of Dodd-Frank”, the partially effective regulatory framework that Obama laboriously passed into law in 2010, in the teeth of Republican and Wall Street opposition.

What we know from the financial crisis is that the banking system has become a highly interdependent network in which contagion spreads in hours – it is only as strong as its weakest link. Yet Trump, in thrall to some of the most demonic figures in American finance, last week demanded a 120-day review of all the US’s financial regulations to tame their alleged excesses.

His intent is clear. He has Dodd-Frank in his sights, a “disaster” on which he aims to do “a big number”. There is only one end: to regulate the links in the financial network so they have even less oversight than they do now. And, if things go wrong, Trump will have no hesitation in writing whatever cheques that have to be written to bail out the banks again, just as he backed the bailouts in 2008/9. It is careless, don’t-give-a-damn insouciance on an epic scale.

It seems that a 21st-century version of Glass-Steagall, the core building block in the wholesale reconstruction of the US financial system in the wake of the Depression, was code for doing the exact opposite. Dodd-Frank certainly has weaknesses – in many respects, it does not go far enough and many of its recommendations are yet to be enacted – but it has made US banking immeasurably safer.

Former Goldman Sachs banker Gary Cohn, left, now Trump’s senior economic adviser, flanks the president during a meeting with business leaders in the White House. Photograph: Chip Somodevilla/Getty Images

The banks now hold a third more capital than they did 10 years ago. They are forbidden from trading in securities on their own account. Thirty-four of them, described as “systemically important financial institutions”, are kept under especially close watch, as key elements in the network. The newly established Consumer Financial Protection Bureau tries to ensure customers are dealt with honestly.

You might think after the extraordinary fraud at Wells Fargo last autumn – bank employees opening millions of phantom accounts and credit cards in customers’ names – that a president on the side of the little guy would at the very least not want to weaken American financial regulation. Rather, Trump is in sympathy with the bankers, horrified at the scale of fines they are now paying – Wells Fargo paid a cool $185m. He is also scandalised that holding so much buffer capital and not being able to trade in securities is damaging the bankers’ personal remuneration.

Dodd-Frank has been under fire since its inception, but then Republicans hated the New Deal too. Roosevelt, like Obama, was a hate figure whose every work had to be undone. Both men represented challenges to an idea of America as offering limitless freedom, not least to billionaires. The accompanying social distress is a price worth paying for such freedom – or so the thinking goes.

Billionaire Trump was right in one respect: Hillary Clinton was profoundly compromised by her relationship with Goldman Sachs, pocketing $675,000 for a mere three private speeches, in which she did voice sympathetic concerns about Dodd-Frank for allegedly making banks more cautious in their lending. She was, and is, indisputably a member of a global elite that cannot escape responsibility for the emergence of so many blighted lives.

But, beyond that, Trump is a phony. His economic programme is no more than Reaganomics on speed run by a group of opportunists and self-interested chancers. In the short run, there will be a Trump upswing triggered by the prospect of careless deregulation, unaffordable cuts in corporate tax and lots of infrastructure spending.

How long it will last, and whether it will be a trade war or a financial crisis that will bring it to an end, is anybody’s guess. But we have now had a glimpse of a darker Trump, the hypocrite for whom the little guy is but a pawn to serve his own delusional ambitions. Pity the US. And pity Brexit Britain, forced to bend the knee to such a man and such a president.

The Herbalife saga is practically a made-for-Hollywood script

Herbalife is a diet company that excels at drama. It has Wall Street titans sparring, KPMG resigning and investors confused

• 
• • Heidi Moore
  • guardian.co.uk, Tuesday 9 April 2013 20.45 BST

Bill Ackman (right) traded insults with fellow hedge funder Carl Icahn on television over Herbalife. Photograph: Reuters

There is something about diet company Herbalife that makes very rich men act very strangely. The weight-loss company should be relatively unremarkable. Instead it's been in the center of a dramatic story that should have Hollywood calling.

It has everything – intense, dashing hedge-fund titans embroiled in a public war, allegations of pyramid schemes, billions of dollars riding on on the outcome and now, as of today, a rogue auditor who risked his entire career by allegedly squirreling away inside information to make himself a profit. The Herbalife scandal even features Carl Icahn, one of the 1980s corporate raiders who reportedly inspired the timeless capitalist character of Gordon Gekko. If Wall Street wars got Oscars, Herbalife would be a top contender.

With so much heady money and power surrounding Herbalife, it's no surprise that the wafting scent of greed would envelop one of the people whose virtue should have been above reproach: the company's auditor, the prestigious accounting firm KPMG.

Auditors are not glamorous people. If investment bankers are the popular, fratty jocks of the financial world, and traders are the kids who love to hang out with their Camaros, auditors are more like the bespectacled stars of the math team. They are accountants – precise and cautious by nature – and, as a result, they have all the usual attendant social insecurities that nerds do: they're so happy just to be invited to the party that they may not judge too carefully the underage drinking and drugs that are going on. When auditors get into trouble – as they did with companies like Enron and WorldCom – it's usually because they were too eager to please their clients that they kept quiet when they saw something wrong. They didn't want to lose their place at the party.

So the "rogue auditor" is a rare character to cast. Auditors are often guilty of neglect, or looking the other way; rarely do they do something really bold and reckless like trade on inside information. Yet, apparently prompted by the drama around Herbalife, this is what a partner with the company's auditor, KPMG, did, according to Herbalife.

KPMG fired the rogue auditor on 5 April and told Herbalife about the whole debacle yesterday. This morning, Herbalife's stock was halted for an unusually long time – two hours – as the company tried to decide how to tell investors.

During that time, traders and journalists took to Twitter to speculate on what could possibly be so horrible that it would require the company to completely stop trading its stock for most of the morning.

The answer, it turns out, was pretty bad.

The partner at KPMG was entrusted with combing Herbalife's financial statements for errors. Unfortunately, according to Herbalife's version of the story, he also shared the company's confidential information with someone else, presumably so they could make a profit of their own. That would give him an incentive to mess with the company's results to help his own financial interests. As a result, KPMG's entire opinion on the company is reduced to worthless chaos; the auditor said it had to withdraw its reports on Herbalife for the last three fiscal years.

Herbalife, already embroiled in months of wars between its investors, hastened to assure everyone that the company was still sound. It stressed that KPMG had resigned as its auditor purely because of the possible insider trading and "not for any reason related to Herbalife's financial statements, its accounting practices, the integrity of Herbalife's management or for any other reason".

Herbalife managed to contain the damage: by halting the stock for two hours, it had raised expectations that the news would be far worse. The stock fell only 1% on the news when it finally came out. However, there was still evidence of chaos. In the same statement, Herbalife said that KPMG had said the three years of financial statements could both be "continued to be relied upon" and "should no longer be relied upon".

So that clears things up.

This only adds another twist for the Herbalife saga that's been playing out on the larger Wall Street stage. It was only three months ago that the distinguished Carl Icahn was publicly trading insults on television with Bill Ackman, the silver-haired, baby-faced boy wonder of investing. Ackman has argued that Herbalife is a pyramid scheme and has bet against the company; Icahn took the other side of the bet. Daniel Loeb, who was previously a friend of Ackman's, shocked the investing world by switching allegiances and taking Icahn's side.

There's a lot more information that has yet to come out about the problem with KPMG and Herbalife. That's good if you're in Hollywood. It means there's enough time to run through the casting. What do you think of Alan Alda, Elliott Gould, or Frank Langella to play Carl Icahn? John Slattery to play Bill Ackman? Michael Sheen as Dan Loeb? Philip Seymour Hoffman as the rogue auditor?

Now who's going to call John Grisham and tell him about all this?

Wall Street thanks you for your service, Tim Geithner

First the treasury secretary propped up the big banks with public spending. Then he backed their agenda: cuts to public spending

• 
• • Dean Baker
  • guardian.co.uk, Friday 11 January 2013 20.08 GMT

Departing Treasury Secretary Timothy Geithner is congratulated by President Barack Obama and his next nominee, Jack Lew. Photograph: Mark Wilson/Getty Images

Treasury Secretary Timothy Geithner's departure from the Obama administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon.

This was an impressive diplomatic feat – given the widespread popular contempt for Europe's monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.

During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed.

The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Of the six banks that dominate the US banking system, only Wells Fargo and JP Morgan could conceivably have survived without hoards of cash rained down on them by the federal government. Even these two are questionmarks, since both helped themselves to trillions of dollars of below market-rate loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets.

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross.

Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction. Even though the economy is still down more than 9 million jobs from its full employment level, none of the important people in Washington is talking about measures that would hasten job creation.

Instead, the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.
These projections are hugely inaccurate. Furthermore, the actual budget for 2022 is largely out of the control of any politicians currently in power, since the Congresses elected in 2016, 2016, 2018, and 2022, along with the presidents elected in 2016 and 2020, may have some different ideas.
Nonetheless, the path laid out by Geithner's team virtually ensures that these distant budget targets will serve as a distraction from doing anything to help the economy now.

There are two important points that should be quashed quickly in order to destroy any possible defense of Timothy Geithner.

It is often asserted that we were lucky to escape a second Great Depression. This is nonsense.
The first Great Depression was not simply the result of bad decisions made in the initial financial crisis. It was the result of ten years of failed policy. There is zero, nothing, nada that would have prevented the sort of massive stimulus that was eventually provided by the second world war from occurring in 1931, instead of 1941. We know how to recover from a financial collapse: the issue of whether we do so simply boils down to political will.

This is demonstrated clearly by the case of Argentina, which had a full-fledged collapse in December of 2001. After three months of freefall, its economy stabilized in the second quarter of 2002. It came roaring back in the second half of the year and had made up all of the lost ground by the middle of 2003. Its economy continued to grow strongly until the 2009, when the world economic crisis brought it to a standstill. There is no reason to believe that our policymakers are less competent than those in Argentina: the threat of a second Great Depression was nonsense.

Finally, the claim that we made money on the bailouts is equally absurd. We lent money at interest rates that were far below what the market would have demanded. Most of this money, plus interest, was paid back. But claiming that we thus made a profit would be like saying the government could make a profit by issuing 30-year mortgages at 1% interest. Sure, most of the loans would be repaid, with interest, but everyone would understand that this was an enormous subsidy to homeowners.

In short, the Geithner agenda was to allow the Wall Street banks to feed at the public trough until they were returned to their prior strength. Like Metternich, he largely succeeded.

Of course, democracy did eventually triumph in Europe. Let's hope that it doesn't take quite as long for that to happen here.

Testosterone and high finance do not mix: so bring on the women

Gender inequality has been an issue in the City for years, but now the new science of 'neuroeconomics' is proving the point beyond doubt: hormonally-driven young men should not be left alone in charge of our finances…

Tim Adams
Tim Adams
The Observer, Sunday 19 June 2011


Brokers Continue To Trade During Financial Turmoil
Panic hits the trading floor in October 2008. Photograph: Peter Macdiarmid/Getty Images

For the past few weeks I've had two books by my bed, both of which offer a first draft of what history may well judge the most significant event of our times: the 2008 financial crash. Read together, they are about as close as we might come to a closing chapter of The Rise and Fall of the American Empire. As literature, one of them – the final report of the Financial Crisis Inquiry Commission of the US Treasury – doesn't always make for easy reading: there are far too many nameless villains for a start. And, quite pointedly, there is not a heroine in sight. Reading the report I became preoccupied by, among other things – the fairy steps from millions to billions to trillions, say – the overwhelming maleness of the world described. The words "she", "woman" or "her" do not appear once in its 662 pages. It is a book, like most historical tragedies, written about the follies and hubris of men.

The other book, an entirely compulsive companion volume, is Michael Lewis's best-selling The Big Short, which Google Earths you into the crisis. Rather than looking at a global picture, it lets you into the bedrooms and boardrooms of the individual corporate men who catastrophically lost billions of dollars and, on the other side of those bets, the extraordinary ragtag of obsessive individuals who saw what was coming and made eye-watering fortunes. It gives the crash a human face, and once again that face is universally male.

The books are linked by more than subject matter, though. Lewis, a one-time bond trader himself – he left, 20-odd years ago, in incredulity and disgust to write his insider's account, Liar's Poker – gave evidence to the Crisis Inquiry Commission over the course of its 18-month sitting. In the end, however, he refused to sign off the report; and not only did he refuse to sign it, he also refused to put his name to the dissenters' addenda to the report, which three of the committee insisted upon. And not only that, he did not add his name to that of the single individual who insisted on a further addendum stating that he dissented from the dissenters' view. Lewis was not a fan of the report.

The reason for this was simple, he suggested. He felt that the committee, for all its considered judgment, had not understood, from the outset, a single, pivotal word. That word was "unprecedented". Though the inquiry had set out in the belief that the crash was an event different in kind to anything that had gone before, it nevertheless proceeded to judge it in the terms of previous crashes. What it failed to do, in Lewis's eyes, was this: it neglected to look for the things that might have changed in Wall Street or the City, the things that might have made individuals on the trading floors act in ways that were seen to be entirely, unprecedentedly, reckless. When he came to consider these things himself, Lewis felt that perhaps chief among the unprecedented novelties was this one: women.

"Of course," he observed, with tongue firmly in cheek, "the women who flooded into Wall Street firms before the crisis weren't typically permitted to take big financial risks. As a rule they remained in the background, as 'helpmates'. But their presence clearly distorted the judgment of male bond traders – though the mechanics of their influence remains unexplored by the commission. They may have compelled the male risk-takers to 'show off for the ladies', for instance, or perhaps they merely asked annoying questions and undermined the risk-takers' confidence. At any rate, one sure sign of the importance of women in the crisis is the market's subsequent response: to purge women from senior Wall Street roles…"

When I first read those remarks it was not clear how much in earnest Lewis had been when he made them. Subsequently, though, I heard him speak at the London School of Economics, and he took this idea in a slightly different direction. When asked what single thing he would do to reform the markets and prevent such a catastrophe happening again, he said: "I would take steps to have 50% of women in risk positions in banks." Pressed on this, he went on to suggest how science reveals that women in general make smarter decisions regarding investment than men, that when it comes to money, women in couples are demonstrably better at evaluating risk than their partners, and single women much better still.

Though those of us males who have an uncanny sense of money always slipping through our fingers might anecdotally believe this to be true, I was surprised to hear it stated as a fact. It seemed to beg a number of questions. First, if women really are better at making these judgments, why is it always men, still, without exception, who troop out before select committees to explain where it all went wrong, and how they weren't really to blame. And second, would it really be different if women were in charge?

You don't have to look too far into the science to realise that Lewis's claim, in broad terms, stands up. The first definitive study in this area appeared in 2001 in a celebrated paper that broke down the investment decisions made with a brokerage firm by 35,000 households in America. The study, called, inevitably, "Boys will be Boys" found that while men were confident in making multiple changes to investments, their annual returns were, on average, a full percentage point below those of women who invested the family finances, and nearly half as much again inferior to single women.

A more recent study of 2.7 million personal investors found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell any shares they owned at stock market lows. Male investors, as a group, appeared to be overconfident, the author of this study suggested. "There's been a lot of academic research suggesting that men think they know what they're doing, even when they really don't know what they're doing." A fact that will come as a surprise to few of us. Men, it seemed, typically believed they could make sense of every piece of short-term financial news. Women, never embarrassed to ask directions, were on the whole far more likely to acknowledge when they didn't know something. As a consequence, women shifted their positions far less frequently, and made significantly more money as a result.

Naturally, if these findings were widely applicable, then it would be hard not to agree with Lewis's suggestion for reforming the sharpest end of capitalism. Rather than ring-fencing casino investment banks or demanding that high street banks hold vastly greater capital, as we heard at the Mansion House last week, wouldn't a safer model just be to hire more women?

To argue this case, you would probably need more than just behavioural evidence; you might need to understand some of the mechanisms which produced the trillion-dollar bad decision-making that led to what happened in 2008. In recent years, and particularly since the crash, a new science of such decision-making – neuroeconomics – has become fashionable in universities and beyond. It proposes the idea that you will create a better understanding of how people make economic choices if you bring to bear advances in neurobiology and brain chemistry and behavioural psychology alongside traditional economic maths models. Not surprisingly, neuroeconomics has plenty to say about the question of whether decision-making, in high-pressure situations, divides on gender lines.

The problem is that most of the scenarios used to investigate this divide are artificial. It is one thing attaching someone to an MRI scanner and telling him or her that a million pounds rests on their decision in a game; it is another when that person actually stands to lose a million pounds. Only one study, as far as I could discover, has had access to the brain chemistry, the neural biology, of young men actually working on trading floors. But the results it produced were nonetheless startling.

The study was led by a pair of Cambridge researchers. One, Joe Herbert, is a professor of endocrinology, and the other, John Coates, a research fellow in neuroscience and finance. Herbert, a specialist in the effect of hormones on depression, was fascinated to put some of his theories about the role of chemicals on decision making into practice. The curious thing about banks, he told me, "was that they know all about computers and systems and markets but they know next to nothing about the human machine sitting in the chair in front of screens making decisions. Nothing. We aimed to correct that just slightly."

It was Coates, though, who made the experiment possible. Having met Herbert at his lab in Cambridge, I met Coates in a pub in west London. He had a special advantage in gaining access to bond traders' brains, he explained: he used to possess one himself. Sharp-eyed and fit-looking, Coates retains the intensity of a man who used to run a trading desk on Wall Street during the dotcom bubble. He started off at Goldman Sachs and went on to Deutsche Bank. After some years trading, and making a lot of money out of a lot of money, he became increasingly fascinated by the way, during the dotcom years, the traders he worked alongside radically changed behaviour. They became, he says, "euphoric and delusional. They were taking far more risks, and were putting up trades with terrible risk-reward profiles". The dotcom was fun, in a way, he suggests; it was like the roaring 20s. "But I don't think anyone looks back on the housing bubble and laughs."

Coates was a relatively cautious trader himself, but there had been times when he too felt this surge, this euphoria: "When I had been making a lot of money myself, I felt unbelievably powerful," he recalls. "You carry yourself like a strutting rooster, and you can't help it. Michael Lewis talked about 'Big Swinging Dicks', Tom Wolfe talked about 'Masters of the Universe' – they were right. A trader on a winning streak acts exactly that way."

The second thing that Coates noticed was even more revelatory to him. "I noticed that women did not buy into the dotcom bubble at all," he says. "You couldn't find one who did, hardly. And that seemed like a pretty cool fact to me."

With this cool fact in mind, Coates began splitting his time between his trading desk and the Rockefeller University in Manhattan, which is perhaps the world's leading institute for the study of brain chemicals. There he started to become interested in steroids, and in particular something called "the winner effect". This occurs when two males enter a competition and their testosterone levels rise, increasing their muscle mass and the ability of the blood to carry oxygen. It also enhances their appetite for risk. Much of this testosterone stays in the system of the winner of a competition, while the loser's testosterone melts away fast; in evolutionary terms, the loser retires to the woods to lick his wounds. In the next round of competition, though, the winner already has high levels of testosterone, so he starts with an advantage, and this continues to reinforce itself.

"Steroids," Coates explains, "like most chemicals in your body, display what is called an inverted U-shaped response curve." That is to say, when you have low levels of them you lack vitality, and do very poorly at mental and physical tasks. But as the levels rise you get sharper and more focused until you reach an optimum. The key thing is this, however: "If you keep winning, your testosterone level goes past that peak and sliding down the other side. You start doing stupid things. When that happens to animals, they go out in the open too much. They pick too many fights. They neglect parenting duties. And they patrol areas that are too large." In short, they behave like traders on a roll; they get cocky.

Coates became convinced that this winner effect was what he observed in bullish trading markets, and what ended up dramatically distorting them. It also explained why women were mostly immune to the euphoria, because they had only 10% of the testosterone of men. What struck him most, though, was that, for all the literature about financial instability, economics, psychology, game theory, no one had ever clinically looked at a trader who was caught up in a bubble.

Coates wrote a research proposal. He came back to Cambridge where he had done his first degree, and because of his background eventually gained access, with Herbert, to a major City bond-dealing floor in London. They tested the traders for two hormones in particular, testosterone and cortisol (the anxiety induced, depressive "stress hormone"), and mapped their levels over a period of weeks against the success or failure of trades, individual profit and loss. Coates had imagined the experiment to be a preliminary study but the correlations he found – for evidence of irrationality produced by the winner effect and its converse – was "an absolute dream". They not only discovered that a trader's morning testosterone level could be used to predict his day's profitability. They also found that a trader's cortisol rose with both the variance of his trading results and the volatility of the market. The results pointed to a further possibility: as volatility increased, the hormones seemed to shift risk preferences and even affect a trader's ability to engage in rational choice.

Though the sample was limited, and suitable caution was needed in claiming too much, the correlations suggested that over a certain peak, testosterone impaired the risk assessment of traders. "And cortisol," he suggests, "was in some ways even more interesting than testosterone. We thought cortisol would rise when traders lost money," Coates says, making individuals more than usually cautious, "but actually it was going up incredibly when they were faced with just uncertainty. The stress hormones were switching over to emergency states all the time. There was an optimal level but these stress hormones can linger for months. Then you get all sorts of really pathological behaviours. If you are constantly prepared for high tension it affects your brain, and it causes you to recall stressful memories and become exaggeratedly risk-averse and kind of helpless."

Unfortunately this particular study ended in June 2007, before the full effect of the crisis, but its implications account, Coates believes, for some of what he subsequently heard from the trading floor. "If cortisol goes beyond a certain point, then it may become very difficult for traders to assess any risk at all. These guys are not built to handle adversity that well. There is an observable condition called 'learned helplessness', which if you are submitting to great stress over a long period of time makes you give up suddenly. Lab animals develop it: you open the cage and they won't escape. Traders have it too. They just slump in their chairs. In the crisis there were classic arbitrage opportunities as the markets were falling. Free money. But traders would sit there staring at the numbers and not touching it."

Since then, Coates has partly been working on the other strand of his original hypothesis, looking at the brain chemistry of women working in the markets. Because of the small sample sizes he has to work with – there were only three women out of 250 traders on the floor he first tested – the detail of that is far from complete, and he is properly reluctant to draw conclusions. What he will go so far as to say, though, is this. "Central bankers, often brilliant people, spend their life trying to stop a bubble or prevent a crash, and they are spectacularly unsuccessful at it. And I think it is because, at the centre of the market, you have these guys either ripped on testosterone or overwhelmed by cortisol so that they become completely price insensitive." Coates wrote a couple of articles after that research was published, suggesting that, if the winner effect was right, it was possible that bubbles were an entirely young male phenomenon. And if that were the case, then the best way of preventing boom and bust was to have more women and more older men – less in thrall to hormones – in the markets. "We know that opinion diversity is crucial to stable markets. What no one talks about is endocrine diversity, a diversity of hormones. The billion-dollar question is how to achieve it."

To most experienced, male, investment bankers, of course, this sounds like fighting talk. An old friend of mine, who traded his Cambridge English degree for an extremely lucrative life as a bond dealer, offered this, when I presented Coates's evidence to him. "It would be nice to think that having more female traders on the floor would make for less volatility," he said, "but that's wishful thinking. Financial markets are now global, so while we in the west might decide not to chase trends or react instinctively to breaking news because there are mature mothering types in boardrooms and sitting on risk committees, the rest of the world will, and our banks would lose out." And that's not all. "Many of the women I know who have managed money or have put capital at risk for banks have tended to be even more aggressive with risk than their male counterparts, as if perhaps to compensate for their supposed diffidence. Fighting their way through a male-dominated environment to a position in which they can invest/punt/ risk-manage, many women develop an ultra-masculine persona so as to be thought of as ballsy…"

Just a cursory glance through some of the recent spate of books and blogs written by young women who have worked in the City and lived to tell the tale would certainly seem to support this observation. Melanie Berliet, who worked as one of the only female traders in Wall Street, set the tone in her confessional blog: "If anything," she observed, "my token status gave me an extra thrill. I enjoyed being called a 'fucking dullard' or being instructed, patronisingly, to 'remove head from ass', because my reaction – to grin rather than cry – impressed the guys. I loved their attention and the daily opportunities to prove that I fitted in. What separated me from my colleagues was physical: my 5ft 9in, 120lb frame, my long, blondish hair – and my vagina. I had two options with my boss: trade sexual banter or resist. Typically, I chose the former. Like most traders, my base salary wasn't terribly high—$75,000 at the start of my third year. The bonus was all, and getting the right number rested on one thing, as I saw it: my willingness to promote my boss's fantasy of fucking me…"

John Coates doesn't believe the caricature, or at least he believes that in the upper reaches of banks, things have moved on. "A lot of my former colleagues are running divisions, or whole banks," he says. "I don't buy the sexist macho argument. The big investment banks desperately want women traders. But when they interview women who are qualified, the women don't want to do it…"

Neuroeconomics also starts to provide the answers to some of the reasons for that. Muriel Niederle is a professor at Stanford University, looking at gender differences in risk decisions. Over a period of years Niederle has developed clear evidence for the theory that though in non-competitive situations women demonstrate an advantage over men in making investment decisions, they either shy away completely from making those decisions in intensely competitive environments, or they respond less well than men to competition with very short-term high intensity and results-driven focus. This pattern is set, Niederle proves, from a very young age (and no doubt has a good deal to do with the differential presence of troublesome testosterone). Joe Herbert told me at his lab in Cambridge: "What is clear is that there are neurological differences between the sexes. Women, in very general terms, are less competitive, and less concerned with the status of being successful. If you want to make women more present, you have to remember two things: the world they are coming into is a man-made world. The financial world. So, either they become surrogate men… or you change the world."

Ah, changing the world. In the wake of 2008, there was a good deal of talk about that heady idea. Much of this talk concerned the creation of more gender balance in the city. The Economist coined the phrase "Womenomics" and argued that excluding nearly 50% of talent from crucial positions in business and finance was not only discriminatory but caused serious harm to stability and growth. Iceland's banks brought in women to clear up the mess that men had left. A good deal was made of the fact that the extraordinary success of microfinance in the developing world was because 97% of the loans were granted to women (men were – biologically? culturally? – not to be trusted). Science, neuroeconomics, was harnessed to develop some of those themes. And then, well, nothing. The commissions and the select committees decided that a return to something like the status quo, with all its implicit risks and inequalities, was the only option.

Womenomics still persists in a few places, however. The 30% Club was an initiative set up last November by executive women, and some senior men in FTSE 100 companies and accountancy and legal practices, to increase the number of women in decision-making and boardroom positions to that figure. It goes a little further than Lord Davies's recent report on the subject. But 30% is not an arbitrary number; it is thought – by neuroeconomists again, and through observation – to be the minimum proportion of women at the top of an organisation required to begin to change the culture; below that number, women tend to behave "like surrogate men"; above it, the subtle differences produced by gender might begin to influence the way decisions are made. In Britain there is still a good way to go: only 5.5% of executive directors in FTSE 100 companies are women (yet evidence shows that companies with women leaders have a 35% higher return on equity, and companies with more than three women on their corporate board have an 80% higher return on equity). On city trading floors, the percentage remains, for some of the reasons outlined above, at around 3% or 4%. Testosterone rules.

The country that has attempted most radically to change this balance is Norway, where a Conservative minister imposed a quota of 40% female directors in every boardroom. Most of the data suggests the initiative has been a great success, both culturally and commercially (though some, male, commentators argue that the turnaround is better explained by the spike in oil prices).

It would be hard to find many people in the city, even among women, who would favour quotas, though that argument can be made. John Coates, wearing his dealmaker's hat, suggests a practical solution. "The question is not whether men are risk takers and women are risk-averse. It is more what kind of risk do they want to take? My hunch is that women don't like high-frequency trading, so what you have to do is change the accounting period over which they are judged."

He then gives me a potted description of how things remain: "Say you have two traders. One trader makes $20m a year for five years, of which she might typically pocket a couple of million a year herself. At the end of five years she has made the bank the best part of $90m. Another trader makes $100m a year for four years. They don't want that guy to go off to a hedge fund so they let him take home $20m a year. But then in the fifth year – because of the winner effect – he loses $500m. That is essentially what happened in the financial crash. The bank has lost $100m and the trader has gained $80m. If you were judging these things over a five-year period, then you can see which person you would hire."

But, of course, that would require a very different idea of markets, and of money, to the one that is currently desperately being defended and remade. It would certainly require a greater degree of "endocrinal diversity". Still, the next time you hear someone suggest that things are getting back to "normal" in the city, and that we should at all costs start believing in exponential growth again, at least you can look him in the eye and state that you think his hormones might be playing up.
Neuroeconomics: Six things that the science of decision-making reveals

■ If groups of young men are shown pornographic pictures of women and then asked to choose between safe and risky investments, compared with men shown non-pornographic pictures they choose far riskier portfolios.

■ Our brains are designed to seek out novelty, but too much information can overwhelm them; we are generally better at assessing risk when listening to Bach than with the chatter of TV news.

■ Men's brains tend to shut down after they have proposed a deal, waiting for the response. Scans show that women brains continue to be active, analysing whether they have done the right thing.

■ Humans are the only animals that can delay gratification, a function of the prefrontal cortex. However, the prefrontal cortex only matures after the age of 30, and later in men than women. Before that, we are more likely to seek immediate gratification.

■ Our brains reward social interaction with the release of a chemical called oxytocin. It makes us feel good when we follow the herd. Stock market bubbles are one likely result of this.

■ Our brains are wired for human oxytocin-mediated empathy (or HOME). We are biologically stimulated to love (or hate) what is most familiar to us. We are built to form attachments, to value what we own more than what we do not own. This fact skews the rationality of all our investment decisions