"Where have all the ethics gone...?"
4/11/2011 11:09:00 AM
As Johnson's Day Family Ethics Lecturer, New York Times' business columnist Joe Nocera discussed Wall Street, the financial crisis, crooks and the blame game with Johnson audience, April 5
Like most folks, Joe Nocera is indignant in the aftermath of the financial crisis that nearly brought the U.S. economy to its knees. That anger is based, in large part, on the fact that none of the powers that be on Wall Street is doing time for the willful disregard for ethics, the New York Times business columnist and author told an audience at Sage Hall earlier this month.
"Actually, someone is in jail—Charlie Engle, a borrower who filed a liar loan to purchase a property and was subject to an intense tax investigation,” Nocera said, adding that despite plenty of blame to go around, the federal government was reluctant to put the breaks on the country’s economic engine.
Among those cited by Nocera who escaped punishment is mortgage lender Ameriquest, which cranked out bad loans that were sent to Wall Street, inflating the subprime bubble. "In this system, the lousier the loan the better, because the goal was to increase yield, and the best way to do that was to take more risks," he said. When the company was finally forced to change its its business practices, and fined, it went out of business.
On Wall Street, Merrill Lynch offers a prime example of how it all went wrong, said Nocera. The firm developed a culture in which traders who urged caution on high-risk investments were shown the door. As a result, the company got deeply involved in subprime mortgage securities, and kept bad loans off the books until the bubble burst.
The impact of new efforts to rein in the financial industry won’t be known for years, Nocera said, citing an ongoing battle between Congressional Democrats and Republicans over the need for more regulations. The Consumer Financial Protection Bureau launches in July, he noted, but Republicans have questioned its budget, responsibilities and authority.
Perhaps a better way to control bad behavior on Wall Street is to create incentives for ethical practices, encouraging traders to think long-term rather than focusing on quick profits and high risks, Nocera said.
In a similar vein he advised MBA students to listen to skeptics, and dissenters, who recognize problems with bad investments. “Go outside your own circle for information and develop independent thinking,” he said.