Banking Morals Update

In old world banking circles personal conduct was regulated by a moral code whereby honor and self-interest were joined at the hip. To put client capital at risk was a cardinal sin punishable by dishonor and disgrace and therefore unthinkable.

That was a century ago. Where Greenspan erred was when Wall Street hired physicists and mathematicians to construct financial instruments. These new guys were not steeped in the 100's year old "Bankers Codes of Conduct", nor was their family honor at stake. The financial instruments they designed were so complicated analysts were unable to evaluate them properly or assess their risk.

But when people are making money, and bankers are no exception, they don’t ask why. They just smile and bank the checks. Effectively the morals clause implicit in traditional banking constructs no longer applied to these side bets. Since the banks, their shareholders, traders and brokerage houses were all making “bank” everybody was winning and the future was blindingly bright. That was only 2 years ago.

So we have all learned a valuable lesson again (for the third time). The notion that anything to do with money, actually gigantic money, could be self-regulating and the people involved trusted to do the “right thing” is a concept which has outlived its usefulness. Money corrupts — big Money corrupts completely.