The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

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Contents xiii 6 The Ethical Economy of the Market for Derivatives: Trading with Values Derived from Other Values for Hedging, Speculation, and Arbitrage ................ 83 Futures and Options: Non-Conditioned and Conditioned ForwardTransactions.......................... 85 Variants of Derivatives: Futures, Options, Swaps, Structured Finance and Investment Products . . .................. 86 Non-Conditioned Futures and Forwards . . ............. 87 Conditioned Futures: Options . . .................. 87 Swaps: A Sequence of Forwards or Options ............ 87 InterestRateSwaps ......................... 88 Credit-DefaultSwaps ........................ 88 The Collateralized Debt Obligation as a Structured Finance Product and an Instrument of Credit Enhancement . ........ 89 The Functions of Speculation in the Derivatives Market: Enabling the Division of Labor Between Hedging and Speculation . . 92 7 Interdependences Between the Financial Markets for Credit, Capital, and Derivatives, and the Challenges the Financial Markets Pose for Ethics .................. 97 A Capital Market Within Banks in Bank-Controlled Industries: The Corporatist Model . .................. 97 The Information and Influence Asymmetry Between Banks and Manufacturing Firms: Banks as Monitors of Their Debtors’Firms ............................. 99 The Intangibility of the Merchandise Traded in Financial MarketsasanEthicalProblem..................... 100 8 The “Banking Secret”, the Right to Privacy, and the Banks’ Duty to Confidentiality .................... 105 The Protection of Facts Communicated Under Confidentiality .... 105 Banking Secrecy, the Investigation of Tax Avoidance, Tax Evasion, Money Laundering, and the Discussion Around the Swiss “Banking Secret” ...................... 106 Banking Secrecy, the Right to Privacy, and the State: Thoughts on Political Philosophy . .................. 113 The Dualism of Private and Public, of Society and State . . .... 113 Protection of the Distinction Between Private and Public as a Consequence of Skepticism About Humans as Political Beings . . . ....................... 115 Part III Financial Wagers, Hyper-Speculation, Financial Overstretch: The Financial Market Crisis of 2008 9 Financial Wagers, Hyper-Speculation and Shareholder Primacy . 119 Wager or Gambling: What Is Speculation? . . ............. 119
xiv Contents The Productive or Knowledge-Increasing Financial Wager . .... 121 The Productive and the Unproductive Wager on Derivatives .... 122 The Gambling Wager: Chance-Driven Betting for Fun orGoodFortune........................... 123 The Power of Gambling over Humankind in the Epic Mahabharata 124 Wagers and Gambling in Cultural Theory . ............. 125 Wagers and Gambling in Civil Law and Economic History . .... 127 The Continuum from the Wager on Corporate Strategy and the Wager on Technological Development to the Gambling Wager: The Difference Between the Value-Creating and the Non-Value-Creating Wager . . . .................. 129 The Functional and the Dysfunctional Extent of Financial Wagers on Derivatives . ....................... 130 The Principle of Shareholder Primacy and Hyper-Speculation .... 132 Why Was the Shareholder-Value Criterion Elevated to PrimacyastheCorporatePurpose? ................. 134 Shareholder Value as the Control Instrument of the Firm . . .... 135 The Product as the Purpose of the Firm . . ............. 137 The Dominance of the Shareholder-Value Orientation andtheHoldingStructureoftheFirm................ 139 Perverse Incentives from Shareholder Primacy: Speculation Instead of Production . ....................... 140 The Inversion of the Control Instrument of Shareholder Value to the Purpose of the Firm, and the Role of the EmployeeintheFirm ........................ 142 Does the Shareholder-Value Principle Lead to a Fusion of Shareholder and Manager Interests? . . ............. 143 10 Financial Overstretch: The Epochal Disturbance of the Invisible Hand of the Market by the Financial Industry ...... 147 The Disturbance of the Compatibility of the Acting Person’sAimwiththeFirm’sAim................... 147 Hyper-Incentivization and the Hubris of the Financial Manager . . . 148 EasyCreditandtheHubrisoftheConsumer.............. 155 Credit and Credo, Economic Success and “Manifest Destiny” .... 158 Separating the Financial Services from the Value Creation for the Customer: Self-Dealing of the Banks as Shady Dealings . . . 162 The Financial Market Crisis as a Crisis Caused by Excessive Trust: Credit Enhancement and Excesses of Trust . . . ........ 163 Conflicts of Interests and Conflicts of Disinterest: Having an Interest in Credit Enhancement and No Interest in the MonitoringofIt............................. 166 From Big Bang Deregulation to Big Bailout, or: How Deregulation Ended in the Largest State Bailout of Banks in History . 167
Page 2 and 3: THE ETHICS OF BANKING
Page 4 and 5: The Ethics of Banking Conclusions f
Page 6 and 7: Preface The crisis in the financial
Page 8 and 9: Introduction: Is the Finance Indust
Page 10 and 11: Introduction: Is the Finance Indust
Page 12 and 13: Contents Part I Foundations of Busi
Page 16 and 17: Contents xv After the American Fina
Page 18 and 19: Part I Foundations of Business and
Page 20 and 21: Chapter 1 Ethical Economy, Economic
Page 22 and 23: The Justification of Ethical Duties
Page 24 and 25: The Justification of Ethical Duties
Page 26 and 27: Business Ethics and the Fiduciary D
Page 32 and 33: Part II The Ethical Economy and Fin
Page 34 and 35: Chapter 2 The Ethical Economy of th
Page 36 and 37: Purpose and Task of the Credit Mark
Page 42 and 43: Duties of Banks Arising from the Na
Page 48 and 49: Chapter 3 The Ethical Economy of th
Page 50 and 51: The Globalization of the Capital Ma
Page 52 and 53: Values and Valuations in the Capita
Page 54 and 55: Which Values Should Determine the A
Page 56 and 57: On the Ethics of Financial Consulti
Page 58 and 59: Tasks of the Capital Market and Dut
Page 60 and 61: Tasks of the Capital Market and Dut
Page 62 and 63: Speculation and Finance Ethics 45 S
Page 64 and 65:
The Functions of Speculation in the
Page 66 and 67:
The Functions of Speculation in the
Page 68 and 69:
Chapter 4 Insider Knowledge and Ins
Page 70 and 71:
Insider Trading as Pseudo-Speculati
Page 72 and 73:
Page 74 and 75:
Page 76 and 77:
Page 78 and 79:
Statutory Provisions Against Inside
Page 80 and 81:
The Abuse of Insider Knowledge as a
Page 82 and 83:
The Abuse of Insider Knowledge as a
Page 84 and 85:
Ethical Duties of the Investor 67 a
Page 86 and 87:
Ethical Duties of the Investor 69 a
Page 88 and 89:
Chapter 5 The Ethical Economy of th
Page 90 and 91:
The Finance Ethics of Hostile and F
Page 92 and 93:
Mergers and Acquisitions 75 On the
Page 94 and 95:
Corporate Governance by Consensus a
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
Chapter 6 The Ethical Economy of th
Page 102 and 103:
Futures and Options 85 They are str
Page 104 and 105:
Variants of Derivatives 87 signific
Page 106 and 107:
Variants of Derivatives 89 the law
Page 108 and 109:
Variants of Derivatives 91 CDO synt
Page 110 and 111:
Hedging and Speculation 93 insuranc
Page 112 and 113:
Hedging and Speculation 95 average
Page 114 and 115:
Chapter 7 Interdependences Between
Page 116 and 117:
The Information and Influence Asymm
Page 118 and 119:
Intangibility of Financial Products
Page 120 and 121:
Intangibility of Financial Products
Page 122 and 123:
Chapter 8 The “Banking Secret”,
Page 124 and 125:
The Swiss “Banking Secret” 107
Page 126 and 127:
Page 128 and 129:
Page 130 and 131:
Banking Secrecy, the Right to Priva
Page 132 and 133:
Banking Secrecy, the Right to Priva
Page 134 and 135:
Part III Financial Wagers, Hyper-Sp
Page 136 and 137:
Chapter 9 Financial Wagers, Hyper-S
Page 138 and 139:
Wager or Gambling: What Is Speculat
Page 140 and 141:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
Page 148 and 149:
Page 150 and 151:
The Principle of Shareholder Primac
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Page 156 and 157:
Page 158 and 159:
Page 160 and 161:
Page 162 and 163:
Page 164 and 165:
Chapter 10 Financial Overstretch: T
Page 166 and 167:
Hyper-Incentivization and the Hubri
Page 168 and 169:
Page 170 and 171:
Page 172 and 173:
Easy Credit and the Hubris of the C
Page 174 and 175:
Easy Credit and the Hubris of the C
Page 176 and 177:
Credit and Credo, Economic Success
Page 178 and 179:
Credit and Credo, Economic Success
Page 180 and 181:
The Financial Market Crisis as a Cr
Page 182 and 183:
The Financial Market Crisis as a Cr
Page 184 and 185:
From Big Bang Deregulation to Big B
Page 186 and 187:
Page 188 and 189:
Page 190 and 191:
After the American Financial Overst
Page 192 and 193:
After the American Financial Overst
Page 194 and 195:
The Failure of Economics and Manage
Page 196 and 197:
The Outsourcing of Asset Management
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The Outsourcing of Asset Management
Page 200 and 201:
The Financial Crisis - Systems Cris
Page 202 and 203:
Page 204 and 205:
Page 206 and 207:
The Way Out of Financial Crises 189
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Page 210 and 211:
Page 212 and 213:
Page 214 and 215:
References ALBERT,H.:Marktsoziologi
Page 216 and 217:
References 199 CASPARI, K.-B.: “D
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References 201 HALDANE, A,A.TURNER
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References 203 KOSLOWSKI, P.: Ethik
Page 222 and 223:
References 205 MESSNER,J.:Das Natur
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References 207 SCHMID, N.: “Insid
Page 226 and 227:
References 209 WEBER, M.:Die Börse
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Name Index Note: Page numbers in it
Page 230 and 231:
Name Index 213 N Naughton, M. J., 1
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