Crashing Through the Windshield: How Finance Is Like Alcoholism
During the last decade of her life my mother, an eccentric recovering alcoholic, lived on a farm in northern Georgia with dozens of goats, chickens, Vietnamese pot-bellied pigs, miniature horses and Basset hounds… and a haughty llama named Greta.
She maintained her sobriety by regularly attending meetings of Alcoholics Anonymous organized and run at a local church by a 60-something pony-tailed biker named Kenny.
Occasionally, when visiting, I would attend those meetings with her.
One night, a young man who had recently been released from prison after burning down his mobile home complained about all the issues he was still having to deal with, even though he was now sober.
After hearing his story, Kenny, the group’s leader, offered up an analogy I have never forgotten.
“When you stopped drinking,” Kenny said, “it’s like you, all of a sudden, stopped your pickup truck.”
“But when you stop that suddenly, everything in the back of the truck comes crashing through the windshield.”
That may well be an instructive metaphor for the spectacle we are witnessing in the financial services industry today.
It’s important to recognize that a lot of the behavior being exposed right now by financial industry regulators happened years ago. Take, for example, the case of Barclays' recent $455 million settlement of charges by U.S. and U.K. regulators, charges that it manipulated the London InterBank Offered Rates (Libor). Those activities took place in 2005-2008. Clearly, that was a time when the financial services industry’s addiction to supercharged returns on equity was at its apogee. When the industry was drunk on leverage and illiquid assets. When it was manically deluded about its own importance in the global economy. (Read: Libor —What Criminal Charges Are Likely?)
The question is whether the financial services industry is still suffering from an addiction to wealth and power, the fallout from which is the same kind of repeated destructive and dysfunctional behavior we saw during what George Osborne, Chancellor of the Exchequer, recently referred to as “the age of irresponsibility.”
Or have we, metaphorically speaking, stopped our pickup truck? If so, is the wave after wave of regulatory infractions and fiduciary malfeasance we keep reading about simply the equivalent of stuff in the back of the truck “crashing through the windshield?”
I, for one, see signs of hope, signs of real recovery. But our industry has not yet embraced the equivalent of a 12-step program — which is what it may take to correct the cultural failings that underpinned the bad behavior that prevailed in the years leading up to the financial crisis.
Key steps towards recovery in any 12-step program, as summarized by the American Psychological Association, include the following:
Admit one has a problem.
Most people in our industry would concede that point, but many still see it as a reputational or public relations or regulatory problem, rather than a problem with our culture and core values.
Examine past errors with the help of a sponsor. Make amends for past behavior.
We’re doing this, all right… But it’s largely a forced march at the point of regulators’ bayonets, with progress marked by settlements and fines and restitution paid to clients.
Live life by a new code of behavior.
The core principal of Stewardship—serving others by responsibly managing what they have entrusted to our care—represents the code that should govern and inspire and inform the financial services industry. In our industry, it’s known as putting clients first. There’s lots of lip service being paid to “client first” principles right now. But the jury’s still out on whether those principles will get translated into responsible behavior.
In the meantime… get ready for yet more stuff to come crashing through the windshield.
John G. Taft is CEO of RBC Wealth Management - U.S. (a division of RBC Capital Markets, LLC, a member of NYSE/FINRA/SIPC), and author of Stewardship: Lessons Learned from the Lost Culture of Wall Street (Wiley, 2012)
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