The rulers of the exchange of mankind’s goods have failed,” U.S. President Franklin D. Roosevelt told a Depression-blighted nation in his 1933 inauguration address. “There must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing.”
Fast-forward three-quarters of a century. Financial markets are in disarray. The global economy is throwing a tantrum that could spell recession for some nations. Central banks are publicly pumping billions of dollars into the money markets to keep the banking system afloat, and privately doing God knows what to avert the next Bear Stearns Cos. or Northern Rock Plc.
The importance of the finance sector to the global economy has swollen along with the bonuses it awards itself. Standards of behavior, however, have failed to mature at anything like the same pace. And, so far, nobody in banking has apologized for the chaos caused by lax lending standards and monumental hubris.
“One of the innumerable problems with Wall Street and the City is that they never do seem to learn from their mistakes,” says Tim Price, director of investments at PFP Wealth Management in London. “Each generation seems obligated to re-experience the errors of its predecessors. There is little or no `race memory’ that might at least mean this year’s crisis is brand-new rather than a tired retread of past embarrassments.”
Gathering Force
The backlash is gathering force. Every day brings fresh threats of increased oversight and tighter rules from blindsided regulators and angry lawmakers. The credit-rating companies have finally woken up, with the gradings of Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. all cut this week by Standard & Poor’s. Finance-industry chiefs are being pushed onto their swords, albeit with a thick padding of compensatory dollars to dull the blow.
The finance industry ceded its dominant role in the Standard & Poor’s 500 Index to U.S. technology companies last month. Banks, led by Bank of America Corp. and JPMorgan Chase & Co., now account for about 15.77 percent of the index, second to the 16.63 percent weighting for computer and software makers such as Apple Inc., Microsoft Corp. and International Business Machines Corp.
In the past three years, finance companies contributed about 20 percent of the S&P 500 Index, with the technology industry a distant second at about 15 percent. Eight other industries, including energy and health care, make up the remainder.
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