The Financial Reader Part 1

The FT came good this week, after a rather protracted period of below par commentary, it ran three excellent pieces, which can help us to pinpoint our current status in this prolonged chapter of post-industrialist adjustment.

Part 1: Ethics of Finance

The awesomely named Lex van Dam, who – unbeknown to me – has become something of a post-crisis media star, beautifully summed up the persistent problem of big-bank capitalism (Adoboli should not take all the blame).

His defence of Kweku Adoboli is a stretch (“Adoboli comes across as a decent, hard-working person”), whether his superiors new or not, Adoboli drifted from ambitious to outright criminal.

But his own old-school motives in finance “Money did not interest me as much as the daily fight to be smarter than the market,” are too rare and would even spark incredulity from many in the city. Until such drivers return, finance will continue to walk the wrong side of the ethical line.

Sadly, as much as I desire it, I also doubt Lex’s conclusion: “(Adoboli‘s) actions could produce a positive side-effect that the credit crisis did not, and that is to force investment banks to become serious about how they risk their capital – or, perhaps I should say, their shareholders’ capital.”

For now, banks are staffed by survivors. It is wrong to assume that large capitalist entities are efficient meritocracies. All too often the survivors are the players, skilled at manoeuvring carefully, driven by self-interest and disdainful of honest value creation unless it directly (and excessively) lines their own pockets.

Whilst the regulatory framework is still in flux, banks can alternately blame the environment for their failings and disguise beta as alpha when it goes right. Once the regulatory environment has settled, assuming that the global debt overhang doesn’t pull us into depression, then we might get a shot at really cleaning up finance.