What’s going on with the spontaneous move to occupy major financial centers? Is this the last gasp of disgust over the global financial crisis of 2008-09, or is it the first shot in a whole new war against finance? There’s a lot riding on which of these it turns out to be. Let’s play, for a minute, with the idea that it’s actually the start of a new round of revulsion with the effects of too much leverage (Lehman, Greece, Iceland, Ireland, Fannie/Freddie, etc.), too many ostentatious paydays for financiers, and not enough jobs or wealth creation for the average person. Where does this go, and should CFA Institute be doing anything about it?
If it is the first shot in a new battle, then the movement will most likely spread to organized labor, to progressive citizen groups, and ultimately to candidates for public office. Populist movements can get out the vote, and can demand public policy choices that push back on financial services in favor of other claimants. A case in point: U.S. Sen. Dick Durbin’s success in getting debit card fees to retailers capped. If “Occupy Wall Street” organizes and spreads, other demands could easily include taxes on financial transactions, confiscation of profits at the firm and employee level, socialization of finance, and other fairly disruptive outcomes. Don’t think this can’t happen? If you want examples, read Last Call, by Daniel Okrent. His book tells the story of how the U.S. found itself with a constitutional amendment that outlawed alcohol and helped create amazing unintended consequences.
The finance business has alienated ordinary people in at least two profound ways: It has appeared to be a profit collector rather than a spark plug of economic growth. Just try to get a mortgage or small-business loan these days to see what I mean. Second, the “people on Wall Street” seem to be making lots of money these days, when most people are struggling to get by. To make matters worse, most people’s own financial and real estate assets have stagnated for years, despite following the fundamental rules of saving, diversification, and investing for long-term growth. And that feels unfair.
Here are some things the finance profession needs to do to repair its image. First, renew a commitment to supporting society’s interests in matching risk capital to the needs of enterprises that drive and sustain economic vitality. This is the essence of finance — matching capital and good ideas to build communities.
Next, the profession must again embrace the concept of fiduciary behavior. There is too much double-talk about whether financial institutions exist to make money solely for themselves and their shareholders, or to make decisions based on the best interests of their clients. Firms that pursue the personal profit objective above all others will ultimately alienate themselves from customers, regulators, and sound ethical practice. Those ethical considerations are key to any effort by the financial services industry to restore its image with society as a whole.
Finally, we could use some entrepreneurial energy, perhaps out of the “Occupy Wall Street” movement, to generate new models of financial institutions that respond to the entirely legitimate concerns of the people. Steve Jobs’ death reminds us that powerful things can happen when one individual with a vision taps into the popular culture. Maybe we need some of that in finance too.