I think the majority of problems in finance stem not from poorly designed regulations or lax enforcement but rather from bad parenting. I have never been saved from doing the wrong thing because of a regulator or a regulation or a manager or a compliance officer or a lawyer. I have been saved by the imagined voice of my father saying, “I’m ashamed of you.” (And once he was gone, now I imagine my children saying the same thing.)
What my father said to me, which is the same as what I say to my children
In 1970 before sending me to college, my father said to me:
- Don’t be evil.
- Don’t let money go negative
- Don’t lie and beware of the lie you believe because that is the one others will believe too.
- If it is immoral then don’t do it. If it is unethical then don’t do it. It if is illegal then don’t do it except as an act of civil disobedience when you think a law is immoral or unethical.
- There is no shame in shame.
- There is no honor in dishonor.
- The tradesman has a duty to do an honest day’s work for an honest day’s pay whereas the professional has a duty to put the interests of others before himself.
- I have a right to judge others on their character. Sometimes this will be a duty.
- I must give others the wherewithal to judge me.
- If I see something that is wrong and I do nothing then I am the reason that nothing is being done.
- I must be moral but avoid moralizing.
- I may want to be good but I must not be self-righteous.
My father did not need me to be good; he just didn’t want me to be evil. I didn’t need to make him proud; he just did not want to be ashamed of me.
He did not need me to become rich; he just did not want me to be a financial burden on anyone once I turned 18. He did not want me to spend money I didn’t have because that would make me a burden on my future self. If I tried my best and failed then he would feel sorry for me. If I didn’t try and I blamed failure on others then he would be ashamed of me.
He said that there is a relationship between debt and evil because failing to replay a loan is the moral equivalent of stealing. If I failed to repay a loan then he would be ashamed of me.
He said that to speak an untruth is to lie; and if you don’t know something then it is not good enough to say something merely because it sounds plausible – even if you can convince yourself that you are right.
Believing falsehoods can lead to great harm; convincing others of falsehoods that brings them great harm is to be incompetent at a minimum, and if I lie for my own personal gain then I am being evil and I should be ashamed of myself as he would be.
I must have a conscience that knows the difference between good and evil otherwise I cannot follow his edict that I not be evil. I must have a code of conduct if I am to be ethical. And I must know the law because ignorance of the law is no excuse. To fail in any of these is to not be prepared for adulthood and regardless of my age I would have no right to call myself an adult.
If I do something wrong I must feel shame. We all make mistakes and shame is how my conscience speaks to me.
However, to do shameful acts shamelessly is to be a sociopath and if I am going to be a sociopath then he would not defend me against a society that wants to put me in a mental institution or a jail so that I do no harm to others or myself.
I must make a commitment to be be moral, ethical, and legal (as long as the law is moral and ethical). And I must honor that commitment otherwise to say I am committed means nothing.
Humans or not perfect, but if I fail to live up to my commitments then I must apologize, make amends, ask for forgiveness, and not make excuses – otherwise I am not acting honorably. If someone falsely accuses me of not honoring my commitments then I must defend my honor because without honor what is there? Claiming to be honorable while not acting honorable is dishonorable and there is no honor in dishonor.
The tradesman must be skilled and honest in all his dealings. The tradesman trades work for a livelihood. The tradesman can fix a car for a bank robber if he is unaware of the robber’s intentions. The banker, however, has a duty to his depositors, to his borrowers, his shareholders, and to society and he must put the interests of others before his or her own. Otherwise the banker can easily become a bank robber working an “inside job.”
It is important to exercise judgment when deciding who to trust and befriend, and if I am acting in a professional capacity this is a duty. I must provide to others the tools to judge me and I must allow people to speak their mind about me without repercussions. (My father also said, “Your reputation is your most valuable asset.” But, in this day of spinmeisters I prefer to agree with John Wooden, who said, “Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”)
There is an inexhaustible supply of injustices in the world, but if I see something that is wrong and I do nothing then I am the reason that nothing is being done. It isn’t everyone else’s responsibility to do what I won’t consider doing myself, and although trying to right wrongs might lead to more defeat than victory, it is fighting the good fight that gives meaning to your life.
I must be moral (know right from wrong and be of good character) but I must avoid moralizing (commenting on issues of right and wrong with an unfounded air of superiority).
I may pursue good (which is more difficult than merely being “not evil”) but I must not be self-righteous (possessing a certainty, especially an unfounded one, that one is totally correct or morally superior). We all must not have too much faith in our own goodness because even with the best of intentions we can be evil inadvertently.
My parents were not alone
My parents were born in the 1920’s and came of age during the Great Depression. Although born in West Virginia, my mom moved to Florence as a youngster. She and her American father escaped Fascist Italy for the States at the last possible moment. With the help of his parents, my father lied about his age to enlist early to fight WW II. After the war he received training as a sculptor and had a career arc that took him from fine arts to commercial art to advertising to marketing to management to consulting. My senior year in high school he told me all the things I mention (and much more) and then he gave me $500 for college and told me that now I was a man and it was my job to make my way on my own.
My parent’s values were not unique; their generation shared these values that had been forged by hardship and they proved necessary in order to survive the greatest depression, win the greatest war between good and evil and then forgive one’s enemies and build a new world from the ashes. Tom Brokaw was right when he called theirs the Greatest Generation.
I am a Baby Boomer; I was born in 1952 and came of age in the 1960’s. My parents’ generation wanted to give our generation everything they didn’t have: peace and prosperity and a life free of hardship.
My parents’ generation built that.
And my generation dismantled it.
We inherited from our parents the greatest creditor nation in history and we are delivering to our children the greatest debtor nation.
We could earn a decent living right out of a high school if we were willing to work hard. Today more of our children believe that the moon landing was faked than believe you can have a decent life without a college degree.
We could pay for a state college education ourselves by working minimum wage jobs (as I did) whereas our children graduate with debt that they can’t discharge in bankruptcy and that some will never pay off in their lifetimes. And while many more go to college fewer graduate in six years than we graduated in four, and that means there are lots of students paying off debt but don’t have a degree.
When our parents went to war they believed you did not win the peace until your defeated enemy is glad that you won. Today, our generation fights undeclared wars in foreign lands with volunteers, mercenaries, and drones. And we don’t tax ourselves to pay for it but we stick our children with the bill.
(I am going to stop now because I want to concentrate on the idea that financiers should hold themselves to a higher standard and not get into my personal political feelings.)
Perhaps the best indictment of the modern financial can be found in Enough, True Measures of Money, Business, and Life by John C. Bogle, a Wall Street insider and founder of The Vanguard Group. The book begins:
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his widely popular novel Catch-22 over its entire history. Heller responds, “Yes, but I have something he will never have… enough.”
He quotes an 18th century British epigram:
- Some men wrest a living from nature with their hands; and this is called work.
- Some men wrest a living from the men who wrest a living from nature with their hands; and this is called trade.
- Some men wrest a living from the men who wrest a living from the men who wrest a living from nature with their hands; and this is called finance.
Bogle makes the case that the finance sector costs too much relative to the value it provides.
And you can get a sense of his case from the chapter titles:
- Too Much Cost, Not Enough Value
- Too Much Speculation, Not Enough Investment
- Too Much Complexity, Not Enough Simplicity
- Too Much Counting, Not Enough Trust
- Too Much Business Conduct, Not Enough Professional Conduct
- Too Much Salesmanship, Not Enough Stewardship
- Too Much Management, Not Enough Leadership
- Too Much Focus on Things, Not Enough Focus on Commitment
We need a Second Greatest Generation
My generation has overseen the greatest wealth transfer in the history of mankind, and it has not just been from the poor to the rich but from the future to the present. Thomas Jefferson said: “It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”
How will our children pay off our debts and build enough wealth to leave their children assets instead of liabilities? It is going to take strength of character and hard work and even then they might have to default on some of the promises that have been made on their behalf.
We must raise our children to be unlike us if they are to create a world unlike the one we are giving them
When I lived in Japan I met an old Japanese World War II veteran. I asked him how they built modern Japan given what they were like before their defeat.
He said, there are two things you must remember:
- There is nothing you can accomplish right now.
- There is nothing you cannot accomplish in a generation if you raise your children to be unlike you.
Our children will not be saved by more of the same.
They will be saved only if they become unlike us.
And if we raise a new breed of ethical financiers then they will certainly be unlike us.