Among professionals in the Financial Services Industry, Doctors are known for their lack of success as investors. While Doctors are probably brighter than the average investor, their lack of success is attributable to the non-existent courses regarding personal finance as part of their curriculum. My friend and former client, Dr. Michael Chapman, led the Orthopedic Department at the U.C. Davis School of Medicine, and before his retirement he often spoke of the need for such an addition to their curriculum. Michael would often ask me to hold an informal class on the fundamentals of investing for those in residency at the School.
Educational institutions training professionals in other fields have had gaping holes in their curriculum as well. But unlike the Doctor making bad investments, the lack of a complete curriculum for Business School students has created an environment that has all of us living on the edge of a financial cliff.
And the class not required–“Ethics and Responsibility 101.” Unless you’ve been away on a 20-year wilderness safari or have an insatiable appetite for reality TV, you have witnessed (and been the victim of) ill-conceived business models, illegal scams, and irresponsible speculation with OPM.
And sadly, it’s all driven by some of the best and brightest graduates from our leading Business Schools. Whatever role bankers played in the near collapse of the financial system in 2008, it would appear that nothing much has changed four years later.
Just this past year alone, we have had startling examples of the irresponsible (and perhaps dishonest) behavior of some of the most talented bankers in the world. Whether it’s Robert Diamond manipulating LIBOR; Jamie Dimon investing in derivative based products without any understanding of how they worked; or Jon Corzine misplacing several hundred million dollars of clients’ money, the culture continues to manifest as bad behavior. I wonder what revelations are yet to come.
I have written about the Wall Street culture in the past. “Never accept responsibility when things go wrong if you can find a good scapegoat.” “Ethics don’t matter if the actions are legal.” “Everyone else is getting rich doing it so why not me?” “We make the rules, not those rubes down in D.C.” “Who needs regulation, we know what we are doing.”
I have to agree that they know what they are doing, and the rewards they reap are huge. But what are the consequences for the rest of us. Since the repeal of Glass-Steagall in 1999 we have seen one financial crisis after the other, and while bankers do not bear all the blame, they have played a major role. Since 1999, the annual return from the S&P 500 has been around 2%. During the prior 13-year period the annual return was 18%. Hmmmm—has to be some connection.
“Trust” is an asset that must be earned. Whatever trust bankers may have had in the past, it has all been squandered. Banks play a huge role in our economy, but we are going to have to treat them like children who need rules before they can be trusted.
To be continued–