Goldman Sachs and the “Gospel of Selfishness.”
The sensational public exposé of the moral climate at Goldman Sachs – a leading Wall Street bank – by a disillusioned executive this past week comes as no great surprise.
The great “vampire squid” (as it is affectionately nicknamed) has become a poster child for rampant greed, regardless of the damage it causes to others. It seems to embody Ayn Rand’s “gospel of selfishness” and Gordon Gekko’s famous speech in the movie Wall Street that “greed is good.” As one of Ayn Rand’s fictional characters tells us: “All that proceeds from man’s independent ego is good…The first right on earth is the right of the ego. Man’s first duty is to himself…His moral law is to do what he wishes, provided his wish does not depend primarily upon other men.”
As various commentators on Greg Smith’s cri de coeur in The New York Times have noted, there is nothing new in the Goldman Sachs’ story. Greed is as old as, well, who knows? Greed is inevitable. Just look at the past history of Wall Street and other financial centers. So, let the buyer beware and, let’s get back to greed as usual. It’s good for business.
But this is a cop out. The issue is a whole lot more complicated than that. For starters, the capitalist free market ideal is about mutual benefit. You make money by benefitting others not by exploiting them, or cheating them. Markets require fairness and fair dealing, otherwise it becomes a form of “predatory capitalism.”
Once upon a time, fair dealing and serving the interests of your clients/customers was the guiding moral principle on Wall Street, even though it was sometimes abused. It was enshrined in the ethical codes of Wall Street firms and in the legal principle of “fiduciary responsibility” – the contractual obligation to put your client’s interests ahead of your own. This strong moral standard was reinforced in two ways. One was the private partnership model, where the banks were owned by groups of partners who had to put their own fortunes at risk and who could only make money when their clients did as well. The other incentive was a tough and aggressively enforced set of financial regulations under the Glass-Steagall Act, which was enacted after an earlier orgy of greed on Wall Street during the 1920s and the great stock market crash in 1929. These regulations were designed to backstop our imperfect moral sensibilities.
Now both of these restraints are gone. The partnership model has been replaced by a public stock ownership model in which the top executives take risks only with other people’s money and benefit from trading commissions and bonuses based on short-term profits. And thanks to heavy bank industry lobbying, the Glass-Steagall Act has been repealed. The new Dodd-Frank regulations, enacted after the 2008-2009 financial meltdown are much weaker and are already under attack. Worse yet, there is now a prevailing climate of amoral group-think on Wall Street. Since everyone else is doing it, it’s OK to exploit your customers if you can.
The problem with this ethic is that it produces rot in the foundation of the system. Predatory, exploitative behavior – rampant greed – destroys trust, and trust depends on moral behavior. Indeed, it was a loss of trust that lay at the heart of the financial meltdown that has done so much harm to our economy and our people. When the banks stopped trusting one another because of doubts about their honesty and their behavior, the system “froze up.”
So, the way out of the woods for Wall Street seems clear. The principle of honest dealing and fiduciary responsibility must be reinstated as a basic moral standard that everyone should adhere to, and this must be backed by tougher and more zealously enforced rules. As Adam Smith himself warned in his earlier work, The Theory of Moral Sentiments, everything in a free market depends on a moral foundation of trust and “justice” (not doing “injury” to others). As a Stoic and Christian, he stressed that “There can be no proper motive for hurting our neighbor.”