

What is it about the financial sector that encourages bad behavior? - tangerine_beet
http://www.scientificamerican.com/article/banking-culture-encourages-dishonesty/

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jmcohen
One reason why bankers might become more dishonest after being primed to think
about their jobs is that being a good banker, like being a good used-car
salesman, often _requires_ dishonesty.

I’m thinking of a scene from the (non-fiction) book Liar’s Poker where an
investment bank finds itself stuck holding a bunch of bonds whose value is
rapidly declining. Does the firm swallow the loss? Of course not! Management
tells the sales team that priority #1 is unloading the low-quality bonds onto
the bank’s gullible customers at an inflated price.

Another example that might hit closer-to-home here is that of equities
analysts on Wall Street during the .com bubble who became unreasonably bullish
on certain tech companies in order to gin up IPO business for their firms’
profitable mergers/acquisitions divisions.

In banking, the interests of the firm and the customer are often misaligned,
and, well, it’s not the _customer_ who's going to pay the banker’s bonus.

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drinkyouroj
Interesting article, but I'm not entirely sure I agree with the author's
attempt to explain the findings of the original study.

The paper upon which this article is based is really cool, because it
scientifically confirms something that many people (myself included) already
believed: mere participation in our financial industry leads to a certain
degree of moral corruption. However, the author of this article goes on to
make the case that the cause of such endemic dishonesty is the focus on money
and number crunching required in banking.

The author's evidence seems reasonable, but doesn't match up with the original
study: banking employees that work in industry "support units" (e.g., HR or
risk management) showed the same tend towards dishonesty as those working in
"core" units (private bankers, asset managers, etc.) This issue is directly
addressed in the original study. The author's thesis suggests that working
more directly with numbers/money would cause a higher degree of dishonesty,
but the paper points out: "the treatment effect in core units is similar and
statistically indistinguishable from the support units."

There's something more complex at work in our banking system.

~~~
im3w1l
Or the study was just not adequately powered to discover a difference. Haven't
actually read it so just throwing it out there.

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inthewoods
Banking culture is unique in that it seems completely willing to burn
customers - I can't think of any other businesses that have this so embedded
in their approach. Imagine a company like Zendesk, where, at the end of the
year, they suddenly charged their clients an additional $5k on their credit
card just because they had it on file.

And yet people and companies continue to do business with them. If a company
like Goldman approached me about doing a deal on a credit swap, I'd assume I'm
going to get the shaft - but large pension companies continue to work with
them.

Of course, this is a generalization - there are honest people in the finance
industry, but they tend to be in roles where the incentives, again, are
aligned with their clients. I'm thinking RIAs and companies like Vanguard.

~~~
pktgen
> And yet people and companies continue to do business with them. If a company
> like Goldman approached me about doing a deal on a credit swap, I'd assume
> I'm going to get the shaft - but large pension companies continue to work
> with them.

This is what I've always wondered: how the hell do companies like Goldman
still exist and get business?

~~~
inthewoods
To a large extent, I think it is because there are very few companies that can
deal with the complexity of, say, going public or writing CDS contracts. So to
a certain extent people, particularly large clients with billions under
management, don't have much choice.

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w_t_payne
There is another cultural norm that is prevalent in the financial industry
leads (IMHO) to dishonesty. It is an incredibly competitive industry, reliant
on a small(ish) number of very well remunerated individuals.

These individuals are put under immense pressure to perform flawlessly. Any
mistakes are picked up on very quickly and a perceived weakness can cause the
wolves to circle in an instant. There is no incentive to come clean about
mistakes, and immense pressure to cover-up and hide any weaknesses or errors.

You can't avoid human fallibility. If you expect perfection, all you get is
lies and deceit. The only way to truly outperform is to institutionalise
openness, continual improvement, and learning from our mistakes.

~~~
webnrrd2k
That sounds a lot like medicine, and a lot of other professional services.

~~~
bashinator
And in medicine, and aviation, and civil engineering, the regulators have
teeth because the stakes are so high.

But, there's also a culture of not blaming the lowest-common-denominator
employee when there are problems. To the best of my knowledge, the FAA and
NTSB explicitly don't blame any individuals when putting together post-mortem
incident reports. That's specifically to avoid creating the culture of ducking
responsibility that GP was talking about.

------
known
Higher social class predicts increased unethical behavior

[http://www.pnas.org/cgi/doi/10.1073/pnas.1118373109](http://www.pnas.org/cgi/doi/10.1073/pnas.1118373109)

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CyberDildonics
A system of incentives will see people act in line with those incentives. If
you have heavy incentives to be dishonest, people's actions will be bent
towards dishonesty.

~~~
inthewoods
Also, if there is little-to-no punishment for dishonest behavior, then those
incentives to be dishonest are enhanced.

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MaysonL
There's an old saying: "The fish stinks from the head down."

A players hire A players.

Cheats hire cheats.

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tzs
The actual title of the article is "Banking Culture Encourages Dishonesty".
There is no question mark at the end.

I point this out because many times people assume that a headline that is in
the form of a question means that the answer is "no", and the author is trying
to make it sound like there is some question to get people to read. E.g., if
you were reporting on an expedition that searched for and failed to find
Bigfoot, no one is going to be interested if the headline is "Bigfoot not
found", so you write it as "Bigfoot found?". If the expedition had found
Bigfoot, you would have written "Bigfoot found!" which would pull in a lot
more readers.

There are some pretty interesting things in this article, so it would be a
shame if people skipped it because of that incorrectly added question mark.

~~~
batemanesque
worth noting that the HN admins often silently change submission titles so the
poster wasn't necessarily responsible for this

~~~
dang
We added the question mark. We sometimes do that when a title makes a highly
controversial claim. Otherwise the threads tend to turn into discussions about
how the HN title is misleading.

I usually post a comment about this but it was late and I was impatient.

