Posts Tagged: ethics
December 31 2018
2018 has been a year for anniversaries, September bringing forth a slew of articles about the financial crash 10 years on and a number of books by learned professors (to add to the ones already written about the fall of individual institutions) seeking to make sense of it all. See, for instance, Adam Tooze’s “Crashed: How a Decade of Financial Crises Changed the World”.
But despite the colourful characters, scandalous activities and stories aplenty, it is curious that in the last decade novelists and playwrights have largely shied away from writing about the world of finance. It is an odd omission. 19th century writers were much less shy: see William Thackeray’s Vanity Fair with its wonderfully sardonic and cynical and oh so apposite to our times take on a world where “everyone is striving for what is not worth having“. Or Balzac with his tales of how money – having it, not having it, wanting more of it – corrodes personal relationships. And not forgetting our very own Dickens, whose every novel is stuffed with characters for whom debt was an ever-present – and often malign – reality. Mr Micawber stands as an object lesson to those who think that living beyond your means indefinitely is sustainable.
There have been a few attempts to make a drama out of a crisis: Caryl Churchill’s expletive-ridden “Serious Money”, written in 1987, just after an earlier stock market crash (and featuring the International Tin Council litigation, the very first case I was involved in as a junior solicitor) was one of the earliest. Not a play likely to feature in the repertoire of amateur dramatic societies, given its colourful language.
A few years later “Capital City” was a TV series based on the lives and loves of City traders in the late 1980’s when Britain learnt to fall in love with making Loadsamoney, as much and as fast as possible and with precious few scruples about how it was done. This was the era of the Guinness affair and Robert Maxwell and BCCI. Enough larger than life characters and juicy stories and morality tales there for even the most mathematically challenged writer. But even that great State of the Nation playwright, David Hare, whose plays in the 1990’s: “Pravda” (journalism), “Racing Demon” (the Church of England), “Murmuring Judges” (the law) and “The Absence of War” (the Labour Party) sought to take the moral temperature of contemporary Britain and its institutions, ignored the tumultuous changes in the world of finance and how they were changing British society more radically than even the most provocative newspaper or campaigning politician.
Lucy Prebble’s “Enron” in 2009 succeeded in London but failed in NY. More recently, the BBC’s McMafia series focused on Russian money laundering. John Lanchester’s 2012 novel, “Capital”, was set around the time of the 2008 crash but mainly showed the mysterious alchemy whereby ordinary London homes turned into money-making machines for those lucky enough to acquire them when they were, well, just houses. Sebastian Faulks’s “A Week in December” from 2009 had as one of its main characters someone rumoured to have been based on a well-known – and once successful – trader and featured a naive junior FSA regulator (the resemblance being purely coincidental in the latter case, one assumes). But whatever the books’ other merits, the characterisation of the bankers, traders and regulators was cartoonish and one-dimensional.
Lanchester’s “Whoops: Why Everyone Owes Everyone and No One Can Pay” was a better attempt to understand the mysterious world of finance. As was the US documentary “Inside Job”. Maybe only Michael Lewis has been able to present the human stories present in the financial world in a way which feels like fiction. Perhaps the dramatisation of real life events (“The Big Short” and Massini’s “The Lehman Trilogy”) is the only way to make sense of this world. Perhaps.
It is too easy to think that no-one will understand – or care – about the technicalities and complexities and arcane language of modern finance, let alone about the people whose lives revolve around it. A pity if so. It is not the numbers which matter but the instincts, proclivities and emotions – what Keynes called “animal spirits” – which determine what people do. There is little that is more emotional than people’s behaviour around money.
If the range of human behaviour on show in the run up to, during and after any financial scandal is not a subject for writers, it is hard to know what is. All human life is there, after all.
November 14 2018
2,185 days after he was convicted of two counts of fraud by abuse of position at Southwark Crown Court on 20th November 2012 after a 10-week trial, and despite a shamelessly self-pitying and self-justifying campaign to avoid the consequences of his actions, Adoboli has finally been deported to his home country, Ghana.
The wheels of British justice grind exceedingly slow but they do – eventually – get there.
Let’s put those 2,185 days into a bit of perspective.
- Amount of money lost by his fraudulent trading: US$2,500,000,000. (If the sums spent by UBS on remediation and dealing with the consequences of this loss were added in, the totals would be truly eye-watering.)
- Days spent on remand before his trial: 267
- Days spent by my team and others working on the investigation: 438
- Sentence: 7 years or 2,556 days
- Time actually spent in prison following his sentence: 946
As the City of London Police said following his conviction: “This was the UK’s biggest fraud, committed by one of the most sophisticated fraudsters the City of London Police has ever come across.” The trial judge, Mr Justice Keith, admirably summed up his character when he described him as a gambler, arrogant and in denial and said that he was: “profoundly unselfconscious” of his own failings.
But despite his masterly conduct of the trial, Mr Justice Keith did not explain in his sentencing remarks why what Adoboli did was so wrong, why fraud – of any type – is so damaging and this lacuna is perhaps symptomatic of our failure to take fraud as seriously as we should, as some other countries do. After all, if the UK’s biggest fraud does not result in the maximum sentence, what will?
Fraud is too often seen as a victimless or somewhat technical crime or, perhaps more accurately, the victims, especially institutions, are seen as unsympathetic and partly responsible for their plight. After all, who cares if an arrogant bank loses some money. They are not like some naive widow conned out of her life savings. Who gets hurt, really?
But the damage that fraud does is not the loss of money, bad as that can be. Nor is it even the damage to reputation – and that can be very bad indeed and much more long-lasting than most think.
Fraud is damaging because it is so corrosive of the trust that is the essence of banking, that is – or should be – at the heart of any working environment, at the heart of any good relationship with colleagues, bosses, clients, the public, at the heart of any well-functioning community. Fraud breaks those bonds of trust. When someone is trusted and they let you down by lying, by cheating, by taking advantage, by behaving like Adoboli did, like many other fraudsters have done, real people are hurt. Worse – the very idea of having confidence – in the institution, in your colleagues, in banking as a dependable underpinning of our society – is damaged and takes time to rebuild. A fraudster does not just destroy their own reputation. Their actions chip away at the reputation of everyone else in their sector. And they make it just that bit harder for those people – however good, however hard-working, however trustworthy – to be trusted by others, by the public.
That is the real harm that fraud does. We would do well to take it more seriously than we do.
A Risky Business
September 16 2018
According to this survey (taken this August), only 3% of people had a very positive view of financial services, with 57% having a very or somewhat negative view. And all this 11 years after the run on Northern Rock and a decade after the Lehman’s bankruptcy, the bailout of RBS, the Lloyds takeover of HBoS and the disappearance of venerable institutions redolent of Britain’s sober manufacturing past, such as the Bradford & Bingley Building Society. One might have thought that a decade would have been enough for people to forget what happened. But like an itch that continues to be scratched, banks have, right up to the present day, provided many more examples justifying customers’ perennial exasperation with financial services providers: closure of branches, endless IT problems, the continuing PPI mis-selling saga, interest rates for savers still at rock bottom, mis-selling and mis-advice over pensions. Even the much vaunted culture change programmes embarked on by many banks don’t seem to have changed perceptions, possibly because some of the sector’s leaders have not fully appreciated that this applies to them too.
The 10-year anniversary has brought out two figures from the past to give their take on where we are now and, in so doing, they managed to compliment themselves (without seeming to, unless that was the point of the exercise) on their past successes. The first was Gordon Brown, the Prime Minister in charge when the crisis struck and famous for having claimed in Parliament that his efforts “saved the world” or its banks, anyway. Certainly, the efforts of his government in autumn 2008 prevented the failure of the entire British banking system. Would it be uncharitable to consider what responsibility his government (and the previous government in which he served as Chancellor) had for the state in which banks found themselves that autumn? Had earlier warning signals perhaps been ignored by regulators? Still, his claim that a more fractured system of political governance might make it harder for governments to co-operate should another financial meltdown occur is well made. It is not just within financial institutions that silos can prevent those at the top seeing the full picture; the same can happen at governmental and regulatory levels too.
And so to Bob Diamond, never shy about arguing the case for aggressive investment banks and the need to take risk, who popped up on the radio last week to tell us that we should view Barclays (which did not get government funding) very differently to RBS, which did. Possibly a touch premature, given that the SFO trial of senior Barclays executives in relation to Barclays’ capital raising that autumn is not due to start until January 2019. (Even Diamond’s previous arch-critic, Lord Mandelson, after his change of heart, has weighed in echoing his criticism.) Far from being concerned about a breakdown of trust between governments (Brown’s concern) or, indeed, trust in banking, let alone the culture at Barclays or other banks in the period leading up to the crash, Diamond thinks that the changes made in the last decade have made banks “too risk averse”, that without risk, banks won’t lend, the economy won’t grow.
Both men have a point. But they miss something which has not been much canvassed in the reams of commentary devoted to what happened a decade ago. Regardless of how well risks are understood, regardless of how co-operative governments and regulators are, regardless of how good the rules are, regardless of how many wonderful AI developed risk management systems are used, there will never be a perfect financial system. Or a perfect regulatory system. Problems will always arise. And there will be warning signs – about people, about institutions, about certain types of business. They may not be obvious or easy to read. As the haystack gets bigger, trying to find the needle in it becomes ever harder. Identifying what needs to be followed up and what can be ignored takes skill and experience. Sensing what might become serious and getting people to act before it does so takes persistence. No-one wants to be a Cassandra, endlessly forecasting doom. Even fewer want to listen to her.
Being prepared for the next big meltdown is necessary. But just as much effort – rather more, in fact – needs to be focused on listening to – and acting on – those warning signs, to catching problems (whether mistakes, incompetence or deliberate wrongdoing) early, when they are small, when they can be contained and resolved without too much pain or collateral damage, when they can become learning opportunities for all rather than crises to be managed. Problems, however small, don’t just need fixing then forgetting. They also tell you a story – about the institution, about the people in it, about how business is done. If we are to avoid the inevitable recitation, after every scandal, of the numerous opportunities when the issue might have been identified, acted on and stopped – or mitigated, it is a story which needs to be listened to.
After all, Cassandra turned out to be right.