Can financial greed be contained?

November 9, 2011

“Our culture must be one where the interests of customers and clients are at the very heart of every decision we make; where we all act with trust and integrity.” The words are from a recent speech by Bob Diamond, chief executive of British bank Barclays. In a way, this is just the usual corporate guff. No boss will tell the world about untrustworthy workers who try to harm customers. But Diamond’s aspirations are a particular challenge for the financial industry.

Not that finance itself is an ignoble activity like drug dealing or contract killing. On the contrary, finance has a noble goal, the support of a just and effective economic community. Banks, fund managers and the like collect funds that is surplus to the owners’ current requirements. The funds are then made available to organizations and individuals which can make good use of them. The gains from that good use are justly shared between provider and user, with the intermediary taking a small fee for its valuable services.

That is a pretty picture, but in the pre-crisis finance world, the intermediaries often lost sight of their economic purpose. Customers came third, after employees and shareholders. Bankers, banks and other institutions were misled by a particular form of greed, the belief that finance is more about gaining than sharing.

These days bankers are often called greedy. The opprobrium is basically merited, but financiers are not that different from other players in the financial game. Investors are greedy whenever they try too hard to outperform the economy, especially when they don’t invest in new projects but only trade financial instruments. Homeowners are greedy when they expect to become richer by doing nothing more useful than borrowing money. Governments, and the voters they try to please, are greedy when they borrow to offer more services than taxpayers are willing to pay for. And shareholders are greedy when they ask for profits which cannot be earned without taking advantage of customers.

Financial greed permeated the economy before the crisis – and it has hardly diminished since. Of course, like lust or pride, greed lurks wherever people are found. But in most parts of the economy, higher aims keep greed in check. Yes, airlines are run to maximize profits and passengers try to minimize fares, but the planes would not stay in the air if safety were not everyone’s first priority. Yes, workers rarely say, “I don’t deserve or need that raise,” but the economy would grind to a halt if workers did not mostly try to do a good job, whatever the level of pay.

Finance really is different. Financial greed is not merely tolerated; it is lauded. Star investors are treated as heroes. Politicians, fund managers and homeowners all welcome sharp increases in the prices of stocks or houses, even though the gains are unearned and asset price inflation benefits the rich and leaves the poor behind. Financial regulation provides little help. It generally aims at making the game fair, not encouraging moderation among the players.

Barclays’ Diamond is on the right track; financial institutions should promote a new attitude. But bank employees do not work in a vacuum. Unless most of their clients also accept that greed is really not good – and regulators stand ready to take a firm moral stance – memories of the last debacle will fade and regulations will be circumvented. The lure of excessive financial gain will soon lead to excess in the markets – followed by collapse and new calls for moral introspection.

There is a better way, and it does not require the exercise of superhuman virtues. Ethical finance demands no more trust, integrity or respect for clients than is already found among airlines. What it does require is a clear understanding of the purpose of the trade: the mutual benefit of all.

That understanding is hardly new. It was accepted by most local banks (think of the community support offered by Bailey Savings and Loan in It’s a Wonderful Life) and it inspired mutually owned financial institutions, which were common – and mostly successful – until a generation or two ago. The mutual structure (banks owned by their customers) makes economic sense, since bank depositors and borrowers are basically the same people and institutions, just in different phases of their economic life.

Demutualization, which turned careful depositors into greedy shareholders, was a theme during the decades of financial excess. A return to the practice and culture of mutuality should be at the top of an anti-greed financial agenda. The rest of the agenda is a topic for future columns, but Diamond does not go far enough. Nothing will work unless all of us – not just bankers – are committed to trust and integrity. In the words of George Bailey: “We can get through this thing all right. We’ve got to stick together, though.”


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Bring back the full Glass-Steagall structure with draconian penalties with no statute of limitations.

Banks, like all institutions with power, can be hijacked by pirates. Ours have been. If all bankers in the USA were put in prison for 5 years we would be well on the way to fixing our economy. We could import German bankers.

Let speculators hang. No more bailouts for any financial firms. Reduce all Federal deposit insurance to 1.5x the median wage earners taxable income subject to FICA tax. Do it at once and get it over with. Prosecute all high ranking financial executives whose organizations have violated law — e.g. “robo signing” foreclosure documents.

Our Government is run by speculators and foreigners who pay off our politicians. And no one sees it as an issue! Just as no one sees any possible choosing of Americans over Israelis as a possibility! Crooked, crooked, crooked. Banks are a good place to start locking them up.

Posted by txgadfly | Report as abusive

This is not a matter of a few bad apples that may cause a problem someday. The actions of a relative few were copied by an industry that has lost it’s way and it’s purpose. The ultimate virtual absence of ethics and fiduciary duty in the banking community fed the inflation of the real estate bubble over a period of years.

By the time this bubble could no longer even sustain itself, the construction industry had become so focused on chopping up the suburban landscape into mini-estates or clusters of McMansions that few can afford or even maintain. Many now sit empty, unwanted and unneeded as monuments to the myopic greed and stupidity that created them.

Yet the banks have been “saved” with taxpayer money, no one has been fired, no one is indicted, no one is on trial, and no one is in jail. Bankers seem overly reluctant to make the loans that qualified people of today need for their businesses or to finance a home purchase. Why? Why? Why?

We have been so meek that banks floated a silly debit card fee of $5/month. That raised enough furor that they rescinded it, promising to get back to us with another way to make more money. American banks employ more people than those overseas to deliver the same services, so maybe they need to look in their own nest and way they do things than the pockets of consumers?

Clearly regulators, who seem to do nothing, should go?

Posted by OneOfTheSheep | Report as abusive

“Bring back the full Glass-Steagall structure with draconian penalties with no statute of limitations.”


The instant Glass-Steagall was repealed was the instant our financial institutions went off the rails. Removing separations between investment and commercial banking was possibly the worst move our regulators have ever made. And they don’t even talk about bringing it back because there is vast money to be made without it.

Kumbaya moments and trust and integrity speeches do nothing. They sing along (see Diamond) while they filch you. Big sticks are the only solution.

Posted by Araes | Report as abusive

This article is spot on; regulations should favor small community banks and credit unions that have close ties to the community, rather than big multinational banking conglomerates.

Posted by stevedebi | Report as abusive

This is the most insightful article I’ve read since the start of the financial crisis.

As Warren Buffett has proven, a steadily growing economy consists of “boring” companies that just do the honest thing, fulfil an unmet need in society, concentrate at what they’re good at, and ensure repeat business by keeping their promises and by maintaining high quality.

> “Politicians, fund managers and homeowners all welcome sharp increases in the prices of stocks or houses, even though the gains are unearned and asset price inflation benefits the rich and leaves the poor behind.”

Very true. I’ve always wondered why politicians appeared to perceive it as a key economic objective, to manipulate property prices upward through any means at their disposal (even at the expense of people who aren’t property owners!) Perhaps on balance it buys them votes in some countries with ageing demographics, but what about young couples trying to get a start in life? Why should they be made slaves for over a generation, just to put a roof over their heads?

Perhaps we should be hearing more about the Gini index and home/ vehicle affordability ratios, and less about the NASDAQ/ NYSE/ FTSE etc.; on the news reports & government accountability speeches in future.

Posted by matthewslyman | Report as abusive

Somehow we have equated making money to being a good person, and have rewarded and lauded the money makers for making money, and have left out the people who have been and continue to clean up the messed up lives of people who got lost in greed. Now we are stuck looking to the Government to fix the mess, when in prior times we sought our friends and with the help of God we pulled together and fixed up the messes that greedy companies and greedy politicians created. How far we have fallen, and how lame our ambitions have become.

Posted by fred5407 | Report as abusive

It is refreshing to see the recent well balance, thought provoking and good quality posts by Reuters Columnists. Please keep up the good work.

Posted by Mott | Report as abusive

This is a very unequal fight. No one can really threaten the banks, because we are so utterly dependent on them. The answer lies in doing what is necessary, and rather unpalatable, for stability now, but waging a long, steady, non-violent, good humoured campaign to turn things around over future years. This means cheering for the good banks that give fair service to ordinary people and businesses. It means mocking and boycotting those that don’t pay their debts to society. People and companies can drag down the brand value of bad banks by taking their business elsewhere and making public the rationale for their decisions. We can refuse their sponsorship and boycott events that foolishly accept their sponsorship. League tables can rank good behaviour from board room remuneration down to the delivery of decent loans for small companies. This approach can win in the long run. My modest dig at the bad banks starts with a song at xc

Posted by CarsickPhil | Report as abusive


Attempting to equate home buyers with the crooked wall street mafia is at best disingenius and at worst a flat out lie. But nice try there fella. Articles like this that attempt to rationalize and sanitize criminals and their routine violation of every thing that is right and decent is shameful. I am sure that the author of this article has no problem looking into the mirror every morning. Which of course makes his obvious pandering to the criminal class on wall street all the more nauseating.

Posted by DDearborn | Report as abusive

Excellently written. Superb, “We can get through this thing all right. We’ve got to stick together, though.”

Continue your excellent work Mr. Edward Hadas.

Keep going.

Take care

Posted by Darmesh | Report as abusive

Great article. Sadly, the sense of being all in this together is gone in America. Sure, many pay lip service to it, but our whole culture seems to be built around winners and losers, with the winners taking all the spoils. And absolutely no shame whatsoever, even among the financial whizzes who caused, and are still causing, the financial crisis worldwide. Just amazing that we have let the robber barons of the early twentieth century come back, and with gusto.

Posted by lhathaway | Report as abusive

@ mott – very much in agreement with your comment

@ edward – “a clear understanding of the purpose of the trade: the mutual benefit of all”; nice to have the reminder

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