It’s time to leave the discussion of the greed culture in the financial sector behind us and concentrate on banker incompetence. That is at least as serious as the presumed poor morals in the financial world. It is also definitely an ethical issue, because trading against your better judgement, or trading without wanting to know what the consequences are, is morally evil. This is what Groningen professor of Financial Ethics Boudewijn de Bruin will say in his inaugural lecture on 9 April in the Aula of the Academy Building of the University of Groningen, in which he will speak of epistemic vice in the financial world.
Since the financial crisis broke out, the profession of banker has lost its gloss. Top people from the financial world are being painted as greedy pigs only interested in bonuses. Right at the start of the crisis, the Dutch Banking Association advocated the restoration of trust. That led to a new code of behaviour for the financial sector including a unique initiative – the bankers’ oath.
The effect of this has turned out to be limited, because between 2008 and 2013 consumer confidence in banks dropped from 56 percent to 31 percent. Restoration of trust apparently requires more than just better morals, and De Bruin doesn’t think that’s all that strange: ‘It’s not so much about trust as about reliability. Compare it with medicine. Patients think doctors are reliable if they have the motivation to care for patients, and the competences to make the right diagnosis and implement treatments. We have discussed these motives endlessly. It’s now time to talk about competence.’
The definition of incompetence, or at least deliberate ignorance, as a moral evil is relatively new, says De Bruin: ‘That theme has only recently become open to discussion in academic ethics. An extreme example is a carer who, against his better judgement, does not refer someone with cancer on to an oncologist. You can’t simply rely on what you believe, without taking the facts into account. You have this sort of financial quackery in the banking world, too. It’s not about taking risks, because that’s part of the job, but rather that financial service providers are not open about the fact that that’s what they are doing, and sometimes they are even afraid to admit they’re not sure.’
Another type of failure in his view is when financial experts simply do not apply the knowledge they have. An example of this is the machinations of the American Bernard Madoff, who continued to attract investors for feeder funds with a sales pitch that even a third-year economics student should have been able to see through. ‘Anyone who understands even a small amount of maths could work out that his promise of a stable return of ten percent was simply impossible. But people really wanted to believe and virtually no-one did the sums. Those who did could hardly believe that the construction was fake. Even I would have had to think twice. That’s why I refer to what the whistle-blower Harry Markopolos, against the prevailing mood, did in revealing that fraud as an epistemic virtue.
The opposite, an epistemic vice, must in De Bruin’s view be tackled at various levels. ‘This is not only a matter for financial service providers, but also for the consumers who trustingly closed their eyes to the facts. That is why our Faculty , in cooperation with the University of Cambridge and the Netherlands Authority for Financial Markets, wants to design a module where consumers can test how critical they are when choosing a financial product.
But indeed, a lot needs to happen at the level of bankers, too. We must not become fixated on the moral standards in the financial world but set conditions for their competence, ensure that they are not only surrounded by yes-men and that they admit the gaps in their knowledge. That will mainly be up to the sector itself, but because the financial sector also has a social function, I can see a role for central government.’
De Bruin states that too much attention is being paid to the image of greed. Even after the impressive series of blunders made by bankers, including Dutch bankers, with the latest nadir the developments around the SNS bank, a recent report by De Nederlandsche Bank, ‘Leading by Example’, is still talking about behaviour and culture. ‘The ideal would be a combination of competence and pure motives, but the overemphasis on the latter means that I would prefer to have a selfish but competent banker to an altruistic incompetent one.’
Prof. Boudewijn de Bruin (Almelo, 1974) studied composition at the conservatory in Enschede for a year, then mathematics and philosophy at Amsterdam, Berkeley and Harvard. He was awarded a PhD by the Institute for Logic, Language and Computation (Amsterdam) for a thesis on game theory and epistemic logic, which was also awarded a prize by Praemium Erasmianum, a cultural institution active in the fields of humanities, social sciences and the arts. De Bruin joined the University of Groningen in 2005.
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