Is the Financial Sector Evil?

The financial sector is in the midst of a huge backlash.  While they've never enjoyed any particular enthusiasm from the average worker, they were always viewed a necessary evil at a minimum.  In light of the damning evidence revealed during the financial crisis there seems to be some credibility to the argument that these people were nothing more than parasites.  Even more clear is that many of them were bad at their jobs and negligent.  This does not necessarily imply malevolence, however.

Are They Misunderstood?

Firstly, no one is going to paint these people as particularly sympathetic.  They were all extremely well compensated, ostensibly for doing very difficult jobs very well.  As the degree of their negligence becomes clear, it is even harder to justify the disparity between their pay and the value they added.  Largely they were risk takers who were cavalier with other people's money.  This stereotype really requires no refutation as the evidence makes it clear.  However the idea that they were intentionally stealing and not trying to act in their client's best interest may be unfounded.

A New Paradigm

One component of every bubble is the idea that we've discovered a new paradigm.  Whether it's railroads or dot-coms or real estate, we always convince ourselves that the basic rules of finance have changed.  In the case of the real estate bubble, we can see that it wasn't just financiers who were deluding themselves.  People were paying outrageous prices for properties they couldn't possibly afford.  Everyone was drinking the Kool-Aid.

You see this same delusion across the board.  It goes so far as to include regulators whose specific job it is to prevent such nonsense.  Fannie Mae and Freddie Mac, despite a huge amount of regulatory oversight, did not want to be left out of what appeared to be a lucrative business and began to change their lending practices as well.  This is always a component of a bubble is everyone watching as others reap huge profits and feeling left out.

Negligent but Maybe Not Evil

Ultimately what seems likely based on the broad painting of society is that all of these financial planners and pundits and advisors got caught up in the same illogical frenzy that gripped everyone else.   What is galling of course is that it was their job to be able to identify such bubbles.  Nevertheless that doesn't imply that they were intentionally defrauding their clients.  They are under the same pressures of other businesses.  If their clients are not participating in the huge profits that other manager's clients are they appear to be doing a bad job.  It's all part of the corrupting power of the bubble.  Thus while I would not make any excuses for them, I would not paint them as evil. 

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