Eighty years ago, before the US Congress, JP Morgan Junior summed up what working in financial markets comes down to. Appearing before a Senate subcommittee in May 1933, the senior partner of the premier Wall Street firm at the time – and arguably still today – said he and his colleagues sought “only first class business, and that in a first class way”.
The Reserve Bank of Australia's deputy governor Philip Lowe reminded banks and funds who trade, underwrite and recommend securities to investors of this yesterday. Rules alone are never enough in financial markets, he said.
“As soon as the ink is dry on a set of rules, people start trying to find ways around them, and they generally have some success doing so,” he told a Sydney audience.
“Over recent years regulators have looked into almost every corner of the global financial system. Too often they found practices amulnd behaviors that they judged generated unacceptable risks. Sadly, there were also serious ethical failings by some highly paid staff [at financial institutions].”
Finance relies largely on confidence and trust. The fallout from the collapse of Lehman Brothers in September 2008 was that the public’s confidence in financial institutions has been largely lost, says Lowe, particularly when the perceived wrongdoers got taxpayers’ money to remain in business.
If anyone needed reminding of the culture of high finance, The Wall Street Journal’s Justin Baer reminded all this week. National Australia Bank is seeking $US230 million from Goldman Sachs on the basis that Goldman violated industry sales practices related to mortgage-linked securities that later plunged in value.
JP Morgan Jr said all bankers should remember that their trade is based on a code of ethics. A person's and a firm’s fortune, reputation and usefulness to the community is dependent on the individual and the collective adhering to such a code. The banker who disregards this code, which could never be expressed in legislation but has a force far greater than any law, said JP Morgan, “will sacrifice his credit”.
“This credit is his most valuable possession. It is the result of years of fair and honourable dealing. And while it may be quickly lost, once lost cannot be restored for a long time, if ever."