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Post details: A Letter from the Dark Side

A Letter from the Dark Side

Biting the hand that feeds you is never a good career move. But if the hand that feeds you also fumbles in our collective pocket, perhaps an exception can be made.

Last week New York Times printed a peculiar farewell letter of one of Goldman Sachs London executives. The heartfelt scorcher by Greg Smith titled "Why I am leaving Goldman Sachs" had all the usual verbal trappings of the financial industry insider: "toxic and destructive environment", "sidelining client interests", "decline in the firm's moral fiber", the works. Naturally, such barrage of scathing criticism could not come without frowning reverberations in the press. Indeed, a number of otherwise temperate commentators hopped more than happily on the bank bashing band wagon.

But we should be careful not to throw out the baby with bathwater here. It's not that banking is inherently evil. It's just that its practice over the past decade or so has come seriously astray. Let me give an example.

Fixing cars is an honest business that we all are familiar with. You drive your car to the garage, state the problem and mechanics will do their best to fix it. Of course, they don't do it out of the goodness of their heart. For this service they collects an appropriate fee. That is how capitalism works.

Now imagine a town, let's call it Crookedville where mechanics treat your car in ways that could politely be described as somewhat dubious. They change some of its functioning parts by older and less functioning ones, they use the car for their own personal errands while it is in the garage, they talk you into additional and unnecessary repairs over the phone, they may pour inferior oil into its innards. When you get your car back - you suspect nothing wrong. It runs fine, everything seems normal. Yet in nefarious ways your car, and by extension you, has just been taken advantage of. And that has nothing to do with capitalism.

Banks provide useful services, too. They channel our capital to worthy entrepreneurs and for this service they deserve a reasonable fee. But it is their job to check reputation and credit worthiness of such borrowers. It is also their job to give savers, who provide the capital to begin with, a decent interest rate. It is not their business however to distribute funny money hand over fist to everyone with a heartbeat and then stick the taxpayers with the associated risks. It is not their business to tamper with the value of our currency for their own benefit. And it is not their business to herd their customers into inferior and opaque financial products.

If the global burden of debt reached such insane levels that merely maintaining the current levels of growth forces banks to engage in fraudulent behavior, then it is time to draw a firm line in the sand. It is up to the remaining honest captains of this industry to recognize the sordid state of affairs and steer the ship away from Crookedville even if it means sailing through slower waters.

Yes, that would imply less glitzy life for Wall Street, but over a long run it could earn for it some of the respect that it has lost. The operative word being "earn". I am not talking about that fleeting obeisance which issues forth from a frothy flock of acolytes singing praises to their material trinkets. Such respect is as phoney as the trillions of dollars that the central banks are flooding the capital markets with in order to create an illusion of prosperity. The true organic respect has to be earned by providing valuable service to the community. It cannot be conjured into existence by pressing the GO button on Ben Bernanke's money printing press.

If enough high financiers realized this (and that is a big if) then their subordinates would be able to devote more of their intellectual capacity to helping the global economy and less to writing vitriolic farewell letters.

I know. Dream on.


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