- Norms matter: strong regulation is no substitute for good norms, both because of enforcement costs and the likelihood of regulatory capture and gaming.
- I am not saying that all - or even most - employees in financial services have no interest in the social value of their work: my claim is only that there appears to be a critical mass with a more cynical viewpoint who have effectively set the cultural tone.
- The issue not really a lack of altruism, but something less lofty: caring about the work itself as opposed to earnings alone.
- Financial services have, of course, considerable social value and I do not doubt that many entrants into the sector are motivated in this way. But I think that such people quickly find themselves in a culture where their views are not much heeded. Consider the position of a (hypothetical) young recruit into AIG's Financial Products division who may have been concerned about what was going on.
- I used a contrast between bankers and doctors to bring out some differences in norms. This contrast is probably much more extreme in the UK than the US: doctors here earn far less than their counterparts in the US*. In the UK at least, it is pretty clear to me that doctors care far more about the social impact of their work than bankers. There are of course many exceptions to any such statement about averages.
Willem Buiter's latest blog post makes many of the same points, but perhaps less politely. Some excerpts (but the whole post is worth reading, even if you find yourself in disagreement with him):
"I am, however, as more detailed evidence accumulates about the genesis of the financial collapse, becoming more and more impressed with the importance of misfeasance and malfeasance - of negligent, unethical and outright criminal behaviour, ranging from high crimes to misdemeanours."
"...to enrich themselves by robbing their shareholders blind. ... Where are the class actions suits by disgruntled shareholders? Where are the board members in handcuffs?"
"What we have seen and continue to see in much of the border-crossing financial sector, however, is a rather more literal form of moral hazard: a lack of morals in some key participants in the financial system dance causing major hazards to the financial well-being of millions of powerless victims. Corrupted morality putting at risk genuine, wealth-creating financial intermediation, innovation and risk-taking."
*A side note: US doctors are very well paid by international standards, and there is considerable evidence and mounting concern about the many conflicts of interest in the US medical establishment, see for example the book by Marcia Angell, or many recent examples, including the recent Harvard Medical School controversy or the JAMA case. To the extent that these issues are especially prominent in the US, this would support the general thesis that extremely high earnings can have a deleterious effect on norms.