Is apology the answer to our current financial turmoil? Would it at least be a step in the right direction?
Yesterday on Reuters Golnar Motevalli suggested that we can begin to restore trust in our financial system if those who are responsible set forth and apologize. Link here.
In one sense this is true. Recognizing that one has been at fault is the first step toward rectifying an error.
The trouble is, we have a legal system that makes apology dangerous. When clients are facing possible legal action, lawyers always advise strongly against public professions of responsibility.
Of course, apology does not just mean saying you're sorry. A man who is sincerely sorry, who feels shame for what he has done, needs to do more than utter a couple of magic words.
A sincere apology would involve making amends. That is where it all becomes sticky. Should the apologetic banker retire to his farm, thus refusing to help fix the problems that he was instrumental in creating? Should he make amends by giving back some of his gains? If he does not, would his apology count as sincere?
And then, there is this question: Who should apologize? In principle, the people running the world financial system, but that is a very large number of people.
We know who is in charge of the government, of the army, of a company. In these cases responsibility inheres in the title, be it president, commander, or CEO.
When it comes to the global financial system, who is in charge? We know that Henry Paulson and Ben Bernanke are in charge of the bailout and the cleanup, but that does not mean that they are responsible for having made the mess.
And if someone is going to apologize, we still want an answer to an old question: What did they know and when did they know it?
Was it an accident that the financial system imploded? Or was it something worse? Did the people in charge simply ignore the risks because they were making too much money? If that is the case they bear greater responsibility and greater liability.
Interestingly enough, on the same day that Reuters was calling for apologies from the bankers, New York Magazine published a story by Vanessa Grigoriadis where she drew a portrait of a man who had run the subprime mortgage trading desk at a major bank. Link here.
He, for one, does feel remorse for what he helped to perpetrate. To correct his errors he has gone to work at the Treasury Department: "It sounds corny, but it's my chance to right a lot of wrongs and clean up the mess I helped to create."
But then, what did he know and when did he know it? It happens that he understood very well what he was doing. He knew that he was trading mortgages that had been taken out by people who could not afford them.
And yet, as he put it: "Washington had issued a mandate to increase home ownership." He was merely one of the instruments who would make it happen. As for the home buyers: "I didn't know who any of the people were, and I didn't want to know."
So, he bore some responsibility, but less than the people who had set the train in motion in the first place.
In a startling admission, he added that he was not exactly proud of what he had been doing: "I would've stopped if I had the power to stop it, but the firm wanted to be in it. Maybe the guys on the board didn't know what was going on but everyone else did. We're making millions of dollars and my position is supposed to be: 'I'm out'."
We have someone who knew that it was wrong, who liked the money, and did not feel very good about what he was doing. After a while the only way he could sleep was by taking pills. And he was not at the top of the chain of command.
Here ethics meets and greets psychology. when you are engaged in a corrupt enterprise, no matter how profitable it is, you are sacrificing your self-respect. You are not acting honorably, you are not being a judicious steward of the financial system, and you are not making money the old fashioned way-- you are not earning it.
You are making money at someone else's expense, whether by running a Ponzi scheme or by churning an account to generate commissions.
If you make money when your client makes money, well and good. If you make money when your client has refused to take your advice and loses money, this too is honorable. But if you are making a fortune at your client's expense you will live in dread of the moment when it all catches up with you.
The problem you will face, as you are sitting at the trading desk, is how can you respect yourself? How can you enhance your self-esteem when it cannot be grounded in objective achievement and honorable work?
That is the problem.
One solution is medication. Prozac will make you feel great about yourself, no matter what you are doing. Were it not for the artificial highs that Prozac and other controlled substances were producing, more people would probably have been more careful in the way they were managing the financial system.
By using medication to stifle the messages that their emotions were trying to communicate they were able to continue to run an ignoble scheme until it completely collapsed.
If you cannot take pride in your work, you will have to work hard to inflate your false pride. Remember, false pride is better than none at all.
One way to do it is by creating a culture where people are constantly puffing themselves and their colleagues up. You can have company outings where everyone congratulates everyone else on their brilliance, skill, and talent.
Grigoriadis reports that people who worked for Goldman Sachs were constantly told that they were the most intelligent people on the planet. They deserved what they earned and could do no wrong. No matter how bad it looked they were smart enough to make it right and to make a profit from it. It sounds like Long Term Capital Management on steroids.
Next on the list must be: conspicuous and wasteful consumption.
I am assuming that people who have genuine self-respect do not need to advertise their wealth by burning it on the public square. After all, ostentation is an effort to show the rest of the world that you have more than them, that you are smarter than them... because you have so much that you can simply throw it away.
But if you are simply throwing it away you are also admitting in public that your did not earn what you have, thus that you do not deserve to keep it. After a time people will catch on and someone will come along and take it away.