Cullen Roche of Pragmatic Capitalism and Modern Monetary Realism argues against Warren Mosler's claim that banking and finance serve public purpose, holding that the purpose of all firms is increasing shareholder value.
John G. Taft contests that view.
...the financial system has become disconnected from its larger social role and purpose, which is to serve as a means to greater ends, helping bridge the gap between the needs of savers (investors) and the needs of users of capital (businesses, governments, not-for-profit agencies) and efficiently allocating capital and promoting economic growth.
It has forgotten, as economist Robert Shiller writes in Finance and the Good Society, that "financing is really creating the architecture for reaching a goal. The goals served by finance originate with us. Finance is not about making money per se. It exists to support other goals — those of society."CFA Institute President John Rogers is concerned that the present state of the financial sector is affecting not only it but also society. Accordingly, he has suggested addressing the issue through a formal commitment to ethical behavior.
Restoring trust and confidence requires commitment to and investment in professional and business ethics. Much of the focus of the financial services industry leaders since 2008-2009 has been on responding to and working through regulatory reform, in the form of hundreds of new laws, thousands of new regulations and millions of pages of new rules. Clearly, that is not enough.
Under Rogers' leadership, the CFA Institute — the global association of investment professionals — is taking the lead in being "a bolder voice for professional ethics." The organization has developed an Asset Manager Code of Professional Conduct, which more than 700 firms have adopted. More recently, it published an Integrity List, "a collection of more than 50 tangible steps that investment professionals can take to restore public trust and confidence." The list includes "real world ideas" submitted by CFA charter holders. Here are a few examples:
• Commit to a gold standard code of ethics and professional conduct.This can be read both as an appeal to instituting higher standards voluntarily and also as an implicit warning to get ahead of the curve before lawmakers feel it necessary to intervene in the interest of society.
• Require training on ethical decision-making for yourself and your firm.
• Place the client's interests before your own.
• Name and shame unethical behavior.
• Strive for a conflict-free business model.
• Act with integrity 24/7 — not just at the office.
• Write articles and speak publicly about ethics.
Read it at Harvard Business Review | HBR Blog Network
How to Fix Financial Capitalism? Focus on Ethics
by John G. Taft
18 comments:
Business ethics are strong within a TSTB (to small to bail) environment. That rapidly changes once you become TBTF. Can anyone guess why? ;)
Ethics aside (and the scandals), as key executives resign from Barclays, the growing concern is that there isn't anyone qualified to run the joint. It's a blackhole. And I hope they change the name from Diamond to Dimon, just to see if anyone notices.
That's really MMR exists. Cullen doesn't agree with the idea of Economics for the public purpose. He disagrees with that normative proposition, which leads him instead to emphasize that economics is about prosperity and growth, and also to oppose the Job Guarantee.
The Bloomberg and main stream media are white washing this pig. If its a pig call it a pig, and Barclay committed crimminal acts not attempted to manipulate, this LIBOR is the cornerstone of the scums buckets system, and now the ceptic sludge is rising to the top of the pool Please , please somebody stomp the livn &&*& out of these pukes.
MMR's primer (which I believe has now been rewritten by them all) says you're wrong Joe:
"One role of the government is to help maintain the money supply at a level that does not impose hardship on the private sector. The goal is always to maximize living standards of the currency users in accordance with public purpose."
I just don't think they're interested in prescribing fixes for the system. Rather, they're interested in getting the accounting and operational stuff right. That's why JKH supports their cause. He's never written about policy, but sorely wants to get the operations right.
I don't support their views, but I think you're wrong to say MMR exists to squash MMT's ideas or promote an anti public purpose agenda.
Our Hidden History of Corporations in the United States
Quote:
When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country's founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.
Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end.
The states also imposed conditions (some of which remain on the books, though unused) like these:
* Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.
* Corporations could engage only in activities necessary to fulfill their chartered purpose.
* Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.
* Corporations were often terminated if they exceeded their authority or caused public harm.
* Owners and managers were responsible for criminal acts committed on the job.
* Corporations could not make any political or charitable contributions nor spend money to influence law-making.
For 100 years after the American Revolution, legislators maintained tight controll of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.
States also limited corporate charters to a set number of years. Unless a legislature renewed an expiring charter, the corporation was dissolved and its assets were divided among shareholders. Citizen authority clauses limited capitalization, debts, land holdings, and sometimes, even profits. They required a company's accounting books to be turned over to a legislature upon request. The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking directorates were outlawed. Shareholders had the right to remove directors at will.
Bahh, humbug. Voluntarily self-regulation may not be the last refuse of scoundrels but its definitely a trench line in their defense in depth.
Remember Justice Holmes's "bad man theory of law"...
"If you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences which such knowledge enables him to predict, not as a good one, who finds his reasons for conduct, whether inside the law or outside of it, in the vaguer sanctions of conscience."
http://constitution.org/lrev/owh/path_law.htm
Adding more "sanctions of conscience" does nothing more than put honest people at a competitive disadvantage.
Interestingly (if perhaps not coincidentally) the term legal scholars use for Holmes's approach is "Legal Realism".
http://en.wikipedia.org/wiki/Legal_realism#Oliver_Wendell_Holmes.2C_Jr.
"That's really MMR exists. Cullen doesn't agree with the idea of Economics for the public purpose"
Joe, I'd disagree with that, Economics for the public purpose is about govt policy (regulation, taxation, spending), Cullen isn't ojecting to that. His beef it seems is to the idea of"banking for the public purpose". For-profit banks have a public duty to obey the law, beyond that their duty is to their shareholders (the same could be said for any for-profit business).
I think Cullen agrees with me that a Job Guarantee might very well be a decent govt endeavor but I'd really like to see some pilot programs set up and run successfully before making it the gearbox of the entire US economy.
beowulf: "For-profit banks have a public duty to obey the law, beyond that their duty is to their shareholders."
And that is exactly the defense. "We did not break any laws."
Meanwhile the economy lies in smoldering ruins, client money has "disappeared," the financial sector is doing very well (other than shareholders, who really have no actual leverage due to institutional factors), trust in the US and UK financial sectors has plummeted, and many large financial institutions continue to function only due to regulatory forbearance and public largesse, but "no laws have been broken" (naturally, the lobbyists wrote the laws).
"I just don't think they're interested in prescribing fixes for the system. "
The MMR folks have a have a strong political bias in the laissez faire/ small Government camp.
A small part of the difference between MMR and MMT on the subject of banking for public purpose, is difference in the way people abstract concepts and define the terms. The rest is a mismatch in intellect and maturity.
Banks (especially TBTF banks) are in a completely different ballpark to say a corporation making shoes. The ubiquity of banking, Government assurances for depositors, strict licensing, complex regulation, cooperation in the clearing system and currency issuance makes that obvious.
If banks are not tightly controlled by our democratically elected Governments the banks will become the de-facto Government. Well hey...looky here...they already are.
I don't think that is about MMR-MMT, but rather the very specific instance I cited at the outset of the post. CR put forward a position in opposition to WM and asserted that WM is wrong. The link shows how WM is not the only one that thinks that banks serve public purpose. The HBR posts goes even beyond that qualification to include the entire financial sector. That doesn't mean that one or the other side is "right." It indicates that there is wider support for WM's viewpoint about serving public purpose.
I suggested that this may have been veiled warning to the financial industry to get its house in order through self-regulation to get ahead of the curve of govt regulation. I suspect that after the crisis and then MF Global, JPM, and Liborgate, the hammer may come down hard. There is no indication that the run of "embarrassments" is ending and it is turning out rather that Enron, Worldcom, and Bear were just the beginning and tip of the iceberg.
Andrew, that sounds like another misrepresentation to me. Mike Sankowski is in favor of more public banking and Cullen Roche has been pretty vocal about more bank regulation. These are not "laissez faire/ small Government camp" positions. I don't know Brett Fiebiger, Carlos Mucha's or JKH's politics.
To be fair I'm not that familiar with the any of the MMR folks other than Cullen.
Have you not read some of Cullen's early diatribes on the JG in his comments section? He was close to falling off his rocking horse.
I would give him the credit if his perspective has matured, I stopped visiting his site months ago.
Who are we kidding Andrew? If you're going to get mad at people for their level of maturity some of the MMT leaders might want to take a long hard look in the mirror. Randall Wray has written some of the least scholarly and immature commentary I have ever seen from an academic. The MMRists can be nasty and Roche is a young fellow, but no one holds a candle to MMTers on the immaturity front. This has even been noted in academic papers.
Keep your wig on Anon....I'm not here to bat on behalf of the MMT leaders.
I'm giving a point of view. i'll say what the bull crap is when I see it. If I agree with the bull crap it's a different matter.
"And that is exactly the defense. "We did not break any laws".
Every criminal who's ever pled "not guilty" has used that defense, but prosecutors and juries are disconcertingly prone to believe otherwise.
What we have here is a failure of law enforcement. Bill Black has been all over this issue for years, the laws are in place but the bank regulators aren't making the referrals, the FBI brick agents aren't out investigating, US Attorneys aren't prosecuting.
To point out something both pathetic and funny, as you may recall from the show The Wire, when the FBI wants to pop a white collar criminal, the easiest way to get leverage on him (to induce a plea bargain) is to check his bank records. If they can find any false data on a mortgage application, they can indict him with the so-called "head shot"-- bank fraud is punishable by up to 30 years in prison and a $1 million fine FOR EACH COUNT. Short of actually shooting someone in the head in front of witnesses, there are damn few crimes that carry so much weight and are so easy to prove. That the Obama Administration hasn't gone after bankers hammer and tongs, frankly, would be a legitimate reason for the House to hold AG Eric Holder in contempt.
@ beowulf,
Right, both parties are beholden to the same special interests that fund campaigns, putting them above the law.
So does the public just roll over? After all, Obama was just voted in on the promise of doing things differently and the difference is he has upped the amps. So we vote out O and elected Bain Capital? Sounds to me like a recipe for disaster, but those apparently are going to be the choices.
Looks to me like the US heading for some massive civil unrest before this show is over.
"So does the public just roll over? After all, Obama was just voted in on the promise of doing things differently and the difference is he has upped the amps. So we vote out O and elected Bain Capital?"
Right now the Democratic party has to go along with whatever Obama wants to do-- if Romney is elected, we may just see Democratic wing of the Democratic party make a comeback and oppose him, if necessary.
I say, "if necessary" because Romney was distrusted by the GOP base for a reason, its not just he wasn't a true believer ("until 2005 Mitt Romney was a liberal Republican cryogenically preserved from the pre-Reagan era"*) but he's so damn rich he's independent in a way few candidates can ever be-- he could have self-funded his presidential campaign if he wished (that he didn't was simply to lock down GOP fundraisers who would have otherwise gone to work for other candidates).
A man with that much F-you money is a wild card. After all Joe Kennedy did a great job at the SEC. Sometimes it takes a thief to catch a thief.
* http://www.newyorker.com/arts/critics/atlarge/2012/03/19/120319crat_atlarge_menand
Looks to me like the US heading for some massive civil unrest before this show is over.
I'm with you Tom. It's hard to see any normal way forward right now. I don't see how any democratic country's political system can function when the leadership of both parties and the entire national legislature is held in such profound contempt.
Unfortunately, I see the strongest potential for significant political disorder coming from the far right.
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