6 Reasons for Teaching Financial Ethics

Kudos to Cass Business School, City University London for requiring their MBAs specializing in Finance to take a course in “Ethics, Society, and Financial Services”. Cass joins a growing list of Business Schools around the world offering and even requiring courses in financial ethics. There are good reasons for doing so.

Why Teach Financial Ethics

1. The Anglo Irish Bank tapes.

Newly released tapes of the bank’s top executives discussing with seeming jocularity and callousness, about lying to the Irish government about the true extent of losses at Anglo Irish. The audio recordings are from the bank’s own internal telephone system and date from the start of the financial crisis in 2008. The bailout of the bank cost Irish taxpayers 30 billion euros. Senior manager John Bowe is caught on tape saying the bank would give incorrect information to the government about how much was needed to save the bank. The strategy of management was to get the money from the state and once money started flowing, the government would be unable to stop giving. When asked how he came up with the initial amount of 7 billion euros, Mr. Bowe is taped saying: “Just, as Drummer (then-CEO David Drumm) would say, ‘picked it out of my arse’.” Read more about these tapes here.

2. The Barclays Bank Libor manipulation emails.

John Stewart defines Libor as, “the benchmark for all money-lending on errr, let’s say Earth.” Communications between Barclays traders and those at the bank responsible for submitting Libor estimates were released by the US Commodity Futures Trading Commission (CFTC). According to the CFTC report, numerous emails show attempts to manipulate rates. One Barclays trader wrote to a Libor submitter: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.” Most of the time Barclays’ Libor submitters acquiesced to the requests to manipulate the rates: “Done…for you big boy”. And of course, this famous email from a satisfied trader after rate submissions were manipulated as requested, “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.” Read more Libor manipulation emails here. 

3. The Fabrice Tourre/Goldman Sachs Abacus CDO emails.

The investment bank was accused of making misleading statements and omissions in connection with the ABACUS CDO placement. The bank worked on a transaction despite obvious conflicts of interest, serving two clients on opposite sides of the same deal. Fabrice Tourre is the trader at the center of the Goldman Sachs Abacus CDO case. A typical email from Mr. Tourre:  “When I think that I had some input into the creation of this product (which by the way is a product of pure intellectual masturbation, the type of thing which you invent telling yourself: “Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?”).” Read more Tourre emails here. 

4. The Greg Smith Goldman Sachs tell-all.

Greg Smith was executive director and head of US equity derivatives business in Europe, the Middle East and Africa for Goldman Sachs (GS).  According to Mr. Smith, GS managing directors refer to their own clients as “muppets”.  Derivative sales meetings were devoid of the mention of clients’ interests, “…not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.” Read Greg Smith’s letter to the New York Times here.

5.  The taped conversations of Raj Rajaratnam, convicted for insider trading.

Rajaratnam had a network of paid ‘experts’ providing him with insider information. Here is a taped exchange between Rajaratnam and Anil Kumar, the former McKinsey & Co. consultant, about a transaction that will boost the share of Advanced Micro Devices. “They’ve shaken hands” on a deal, Kumar tells Rajaratnam. “You can now just buy.” A list of Rajaratnam recordings are here.

6. The size of the financial sector.

The financial services sector accounts for roughly eight percent of Gross Domestic Product of the United States and about 40 percent of American corporate profits. In an age of globalization, scarcely an individual, institution, or market is not affected by the ethical dimensions of finance. An industry so large and influential surely should have a specific study of ethics associated with its discipline. Afterall, we teach bioethics, marketing ethics, engineering ethics, information technology ethics. It is remarkable that financial ethics is not standard fare at business schools. This lack is an historical intellectual lacuna that requires remedying.

Photo: Private Eye, 31st. May, 2013.