The normally heterogeneous members of the Bank of England's Monetary Policy Committee (MPC) now have one thing in common: a Y chromosome. For the first time in the institution's 13-year history, there are no women around the table. Martin Weale, the economist who is replacing Kate Barker on the MPC from this month, is by all accounts a brilliant man. But looking at the line-up of white, suited gentlemen in charge of steering the nation's finances through these stormy waters, it seems we have learned little from the past.
Sexism is rife within the City. While a few high-profile discrimination cases make the press each year, many more are settled before they reach the public eye. The banks nod to diversity in the sleek pages of their annual reports, but the truth is that the City remains a male club that women can join only if they agree to play by the rules. A leaked internal memo from Citigroup at the height of the boom showed that just 9 per cent of senior managers in one of the firm's most successful divisions were women. Research also suggests that women have been bearing the brunt of recent job losses within the industry.
Men have made a balls-up of the economy over the past decade. The herd mentality of the boom and bust speaks to a world where too many people thought the same way. Markets can be efficient only if there are rational investors prepared to take contrarian views. When market participants come from similar backgrounds and think in similar ways, those who try to swim against the tide usually drown.
His and Hermès
The abstract nonsense of the quantitative models used to package up sub-prime mortgages - created by all-male maths nerds in the research laboratories of the investment banks - was rooted in a peculiarly masculine way of thinking. When I worked at a hedge fund, analysts would talk about the complexity and beauty of their models: it reminded me of the way certain men obsess over cricket scores in Wisden or train timetables. That my boss was a woman seemed to confirm the prejudices of bankers who would leave our offices shaking their heads and their Hermès ties, unable to believe that we refused to invest in their sub-prime securitisations.
A fascinating study by Dr John Coates, a former derivatives trader for Goldman Sachs, reveals that there are specific biological reasons why women make better traders than men. Male hormones direct us towards boom and bust. Coates studied traders when they were either making or losing money and found that many of the cognitive errors responsible for poor investment decisions can be explained by an excess of two critical hormones: testosterone and cortisol.
Coates's 2008 study, for Cambridge University, claims that the release of testosterone when traders are winning can lead to the creation of market bubbles. Traders believe themselves invincible and repeatedly seek the rush of victory, even when reason and experience direct them otherwise. If enough traders indulge in this bullish behaviour, it pushes prices up beyond fair value, creating a bubble.
Coates also shows that hormones have a role to play in down cycles. In volatile markets, cortisol - a hormone that induces a reduced appetite for risk - is released. Excessive cortisol (from repeated down-days) can induce a state of "learned helplessness" where traders are trapped in a state of perpetual bearishness, unwilling to buy even if they know that prices have fallen too far. This latter phenomenon explains the dead-eyed traders I would see pacing the floors of investment banks during the crash, unable to believe that the markets would ever recover.
Female traders have generally lower testosterone levels than their male peers: the irrational gambling instinct that causes speculators to continue betting on a rising market even when fundamental analysis suggests that prices have risen too far is largely absent. Furthermore, oxytocin - the hormone whose synthesised form is employed to induce labour - is found in higher quantities in women than it is in men. One of its effects is
to neutralise the impact of cortisol, making women traders less liable to be caught in the downward spiral of the bear market. So if the trading floors had been populated by women rather than men over the past decade, it is entirely possible that the bubble and the crash might have been much less severe, if not avoided altogether.
Women have already taken a far greater role in the running of the financial system in Iceland. Whereas, before the crash, there was only one female senior executive with the country's three main banks (and she quit in mid-2006), women are now following in the footsteps of their outspoken prime minister, Jóhanna Sigurðardóttir, and creating new institutions from the rubble of the failed banks. Foremost among these is Auður Capital, which describes itself as "founded by women with a vision to incorporate feminine values into the world of finance".
In 2008, the business formed a private equity fund in a joint venture with Björk - a rather unlikely banker - to invest in eco-opportunities. Results have been impressive so far. Following the crash, many of Iceland's (male) bankers left the country in shame. Perhaps we, too, need to suffer a truly catastrophic breakdown of our financial system before we recognise the need for greater sexual diversity within our banks. It may take another Lehman Brothers before we are ready to embrace the possibility of a Lehman Sisters.
Alex Preston is a novelist who worked for a decade in the City. His column on finance will be published fortnightly.