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Book Review: Finding Virtue in Finance


Seeking virtue in terms of money: Contributing to society in a conflicting industry. 2020. J. C. D. Swan. Cambridge University Press.


JCD Swan, an investment practitioner who teaches business ethics to Princeton undergraduates, has created a field manual of real value for those in the modern finance industry who are afraid for their qualities in the ethical mining field. One is reminded of the famous advice of criminal defense attorney Alan Darshoits to his Harvard law students that, since most of them are bound for white law corporate law, they need the services of a criminal law expert much more than practicing. .

Its main advantage Seeking virtue in finance That is, it can only relieve many of its young readers of that need.

The book is concise and well-written, weaving three broad fields together: the well-known horror show of financial illegality and moral corruption that often makes headlines in the country’s newspapers; Inspirational and uplifting descriptions of practitioners who have lived exemplary professional lives, sometimes at great cost to themselves; And finally, Socratic meditation on the nature of private and public morality in multiple fields of money.

The author provides a clear and concise account of the usual abuses and scandals: Extractive Mutual Funds and Hedge Fund Fees; The reprehensible negligence of compliance and risk-control departments in most large organizations; More local abuse, such as the essential research and development budget of Valent Pharmaceuticals and the increase in the price of its life-saving drugs; Marketing of Abacus collateral debt obligations (apparently designed to be blown away by hedge fund manager John Paulson) to other customers of Goldman Sachs; And, of course, the financial fraud of Barney Madoff and the Arthur Anderson-Enron scandal. Along the way, De Swan also describes abuses that are lesser known but equally deadly, especially the dividend recalculation by private equity buccaneers to dangerously extract the necessary liquidity from indebted companies.

The most compelling sections deal with practitioners whose sacrifices make the reader humble. The most well-known of them were Jack Bogle and David Swansen, who, more than financially comfortable, amassed much wealth in pursuit of public good. But many practitioners will be unfamiliar, such as David Benes, who spent his entire career in Japan developing the nation’s formidable corporate governance system. In the process, he refused to capitalize on his connections to the highest levels of government. Benes currently lives in a decent house in a fashionable Tokyo suburb. Another notable story is Alayne Fleischmann, a JP Morgan Chase mortgage analyst who whistled about the company’s fraudulent mortgage origins, which made him so unemployed that he was forced to find work as a legal intern.

The most notable example of this is Deutsche Bank risk analyst Eric Ben-Artzi who uncovered inflation in the company’s credit derivative valuation. He was eventually paid a few million dollars from the bank’s SEC settlement, but after paying his lawyer and ex-wife, he rejected the remainder on the grounds that the settlement money came from shareholders and not from abusive managers. Lacking funds and, like Fleshman, unemployed, he returned to his native Israel.

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Better a poor horse than no horse at all. How accurate was it that George Soros cleared ১ 1 billion in profits from his 1992 bet against the British pound, whose downfall gave observers the credit for reviving the country’s economy? Is private equity net plus or minus in terms of corporate performance and overall social health? (Spoiler alert: Venture capital comes out a little better.) More generally, even if a practitioner strictly discharges their loyalty to the client, should they consider the social appearance of their craft? Or, at a more basic level, shouldn’t school teachers and nurses be respected more than money professionals?

Like many academic publications, there were, in fact, some errors in the selection process. One of John Bugle’s successors in Vanguard was William McNab, not Frederick, and the author perpetuated the almost misspelling of the Northern Pipeline as the “Northern Pipeline,” the huge amount of cash Benjamin Graham made famous.

More seriously about corporate ethics, De Swan, who works at McKinsey & Company, praised McKinsey’s leadership ethics but failed to mention his high-profile scandals, such as the Lawrence Gupta family in South Africa, his long list of client authoritarian U.S. and dictators, and Its involvement with the deportation process (which it tried unsuccessfully to hide).

Finally, the book index is almost useless. In future editions, I would suggest that the book’s concise summary, great conclusion, should largely replace the current introduction, which is somewhat weaker and broader.

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There is a big omission in the book, which is probably intentional. Describes the moral dangers of art and how to avoid them Practitioner On the level, the author almost completely ignores Why, In the first place, these violations are local to the money profession and what should be done about them Methodical Level This is something that Robert Schiller, for example, is starting to approach Money and good society. At some point, De Swan comes very close to these questions, observing that “occupations that attract mission-driven individuals whose purpose is primarily to think of social service-public school teachers, nurses, and NGO workers . ”

It’s not hard to jump to the opposite of this statement – the money that attracts them No. “Mission driven.” Collegiate Economics Major, for example, donate less to charity than other students; Worse, after non-economics adults take economics courses, they become less charitable. Elsewhere, he noted that relatively low-paying sectors, such as endowments and foundations, “attract people who are not primarily motivated by increasing the size of their total assets.” The author has clearly failed to take the next step, which means that people do not go into funding for the same reason that they are social workers, primary school teachers, paratroopers or foreign professionals.

Meaning, in short, Willie Sutton is suffering from the problem. Consider, for example, the difference between journalism and the highest level of money, neither of which has the kind of law, medicine or the kind of mandatory certification shown in accounting. This is a general reporter New York Times, The Wall Street Journal, Or Economist Works under strict code that mandates strict veracity verification, fairness of investigative matters and protection of sources. The same depth of professional ethics does not apply to the country’s top investment banks.

Why the difference between journalism and money? In De Swan’s Lexicon, the former attracts those who are “mission-driven” towards intellectual curiosity and public service but certainly not towards financial rewards, while those who are “mission-driven” are attracted to the opposite. (Or, as indicated by The Wall Street JournalJason Zweig, the former complicates the simplicity while the latter simplifies the complexity – so it’s no surprise that it offers better.)

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The author and his academic colleagues can provide many of their students with the necessary moral fiber. Any significant reform of the moral and legal dilemma that the modern economy may require may require more direct changes in its compensation and regulatory structure. I would urge De Swan to point out his impressive research and prose skills in a follow-up volume in that direction.

In the meantime, and despite the aforementioned minor flaws, I can highly recommend this volume to anyone and all practitioners trying to navigate the treacherous ethical waters of the industry.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.

William J. Bernstein

William J. He has contributed to peer-reviewed finance literature and has written for several national publications, including Money Magazine And The Wall Street Journal. He has created several meaning titles and three pieces of history, Lots of births, An excellent exchange, And Masters of the wordRespectively, on the impact of economic growth in the early nineteenth century, the history of world trade and human relations, and the access of technology to politics. He was the 2017 winner of the James R. Vertin Award from the CFA Institute.



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