Rules Help Establish Morality on Wall Street - by Julie Corte

Present Government Legislation Controlling Wall Street

The great corporate and financial scandals of our time can always be traced back to one thing: the failure of the rules, or the moral imperatives, that overrule greed.

When there is unconstrained greed for profit, then we get the corporate governance meltdown of 2001, the financial crisis of 2008, and Judge Rakoff’s criticism of the Securities Exchange Commission settlements with Citigroup and Bank of America, whose securities made them hundreds of millions of dollars but lost even more for their clients. This kind of greed earns Wall Street a confidence-in-leadership ranking lower than that of Congress, the news media and the White House.

Rules and morality are about fairness. It is fair to make money, but it isn’t fair to do it by cheating others. Financial institutions exist for one reason: to make money for their clients. Choose any fund prospectus at random and you’re likely to read that the investment objective is growth of capital. Nowhere will you find that the investment objective is to enrich the asset managers no matter what else happens. Sometimes the market goes down, which should be well understood by the client, and the asset manager should share the pain when that happens.

For more: Rules Help Establish Morality on Wall Street - Room for Debate - NYTimes.com