How Not To Be a Jerk

If you’re going to manage other people’s money, you need to have mega-ethics

by Jonathan Page, Student of Master of Business (Applied Finance)

Quantitative risk methods have negated personal ethics and responsibility for individual investors and those managing other people’s money – Modern society has a faith-like belief in materialism, that is, science, mathematics and their practitioners. Self-driving cars promise safety and efficiency, as do robots replacing humans in the workplace. Further, the world, including its governments, politicians, scientists and academics believe ‘climate’ can be modelled and forecast with mathematics. If that was not a big enough ask from the gods of materialism, it is believed that finance practitioners can measure, model and control risk in financial markets. Can I hear an Amen?

“The arrogance of man will be brought low and human pride humbled; the LORD alone will be exalted in that day”. (Bibile: New International Version)


In 2013 Ernst and Young (EY) conducted a survey of major financial institutions titled ‘Remaking financial services: risk management five years after the crises’. In 2013, 48% of respondents rated themselves as having ‘excellent performance’ in tracking and enforcing adherence to risk, 35% said that they had moderate performance. Only 13% rated themselves harshly in ‘EY speak’ as being in the ‘early stages’. In 2011, at the height of the European Debt Crisis banks rated themselves even higher; one can only imagine what it would have been in 2008!


“Buffett found it ‘extraordinary’ that academics studied such things. They studied what was measurable, rather than what was meaningful. ‘As a friend [Charlie Munger] said, to a man with a hammer, everything looks like a nail.”  (Lowenstein, 1995)


So, what are these quantitative metrics used to measure risk that inspire such faith? According to EY they can include stress testing, operational losses, earnings at risk and value at risk (VaR), all modelled mathematically. And what has made these measures so attractive to financial institutions, their customers, those tasked with regulating them and governments? One may pitch these metrics as ‘tools to measure, model and control risk’. However, it can be argued that they are simply an outcome of the social sciences, bureaucracy.


Sine ira ac studio “without anger and fondness”


Bureaucracy is theory of institutions being governed by logical procedures and measurable rules, it is unthinking and unemotional. Bureaucracy offers many advantages to organisations such as financial institutions, regulators and governments, as Max Webber (Webber, 1921) proposed: ‘Precision, speed, unambiguity, knowledge of the files, continuity, discretion, unity, strict subordination, reduction of friction and of material and personal costs’……….. ‘And as far as complicated tasks are concerned, paid bureaucratic work is not only more precise but, in the last analysis, it is often cheaper than even formally unremunerated honorific service’.

 The attractiveness of quantitative risk methods and bureaucracy to each other is clear. Both rely on rules, both provide measurable results, both relegate the individual to, in Webber’s words, “a small cog in a ceaselessly moving mechanism which prescribes to him an essentially fixed route of march” (Webber, 1921). Therefore it can be seen why financial institutions, financial regulators and governments have been so willing and eager to incorporate quantitative risk measures into their bureaucracies.

So is that it? Do quantitative risk methods negate personal ethics and responsibility for individual investors and those managing other people’s money? Not quite. Bureaucracies are made up of individuals, fallible individuals, individuals who are susceptible to fear, greed, empathy, charity and greatness, individuals who have to feed their families, pay mortgages and send their children to private schools. Unlike bureaucratic institutions with rigid procedures and rules, individuals are thinking and acting.


“Non-attribution to the United States for covert operations was the original and principal purpose of the so-called doctrine of “plausible denial.” Evidence before the Committee clearly demonstrates that this concept, designed to protect the United States and its operatives from the consequences of disclosures, has been expanded to mask decisions of the president and his senior staff members.” – Report of the Congressional Committees Investigating the Iran-Contra Affair (Lee H. Hamilton, 1987).


Financial institutions, regulators and governments are bureaucracies built by instinctively risk averse individuals. Individuals who are benefited by the protection that bureaucracy affords them. Remember, they are only a ‘small cog in a ceaselessly moving mechanism.’ Therefore in the case of a catastrophe ‘that nobody saw coming’, individuals in financial institutions, regulators and government could point and say ‘we conducted due diligence’ and ‘risk management was methodical and measured daily and all reasonable scenarios were developed and contingencies in place’ etcetera etcetera, and avoid all tangible repercussions.


“I love money. I love money more than the things it can buy. There’s only one thing I love more than money. You know what that is? OTHER PEOPLE’S MONEY”.  (Jewison, 1991)


Those in financial institutions, those responsible for ‘other people’s money’, those with a potentially unlimited upside, those with a downside protected by bureaucracy have true ‘Optionality’. Optionality is defined by Nassim Taleb as “the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny).”


“Belief is a wise wager. Granted that faith cannot be proved, what harm will come to you if you gamble on its truth and it proves false? If you gain, you gain all; if you lose, you lose nothing. Wager, then, without hesitation, that He exists.” (Pascal & Krailsheimer, 1995)


Those in government and financial regulators have a slightly different proposition provided by quantitative risk methods and bureaucracy. They have hedged their downside risk, if there is a catastrophe they are protected from downside risk of losing their job and salary. Therefore, those in service of the public and common wealth effectively transfer their accountability, summed up by the popular phrase ‘cover your ass’.

Effectively, individuals within financial institutions, regulators and government are given a choice to be ethical, without having to choose. Like taking advantage of St Peter’s Christian innocence at the pearly gates, ‘St Peter, I will flip you for it, heads I win, tails you lose’, ethical?


 “The public is not cognizant of the real value of education, and does not realize that education as a social force is not receiving the kind of attention it has the right to expect in a democracy.”  (Bernays & Miller, 2004)


Modern society has a faith-like belief in science, mathematics and their practitioners. After all, each of us spent twelve or more years in school ‘learning’ of the absoluteness of scientific method and rigor. Like Pavlov’s Dog we salivate at the sound of the bell, that is, when an authoritative figure in a suit starts to speak at us, using big words and flashing up complicated formulas and charts (always moving upwards from right to left) we listen attentively, we trust and we act, with our wallets. It can be argued that the finance industry is one big confidence trick; they take advantage of our innate trust, assuring us that they have the most robust quantitative risk management policies in place and exploit our vanity and greed with promises of riches. And as shown, no matter the outcome, they win while you effectively gamble with your money.


“I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.” (Rand, 1996)


This does not mean that banking customers get let off the hook. It has been shown that even in bureaucracies that limit individuals to ‘cog’ status individuals intuitively act in their own self interest and since this is the case, customers must bear some of the responsibility for their own actions when handing over their money to the authoritative looking man in the suit.


Timshel—“Man’s ability to choose between good and evil”


Quantitative risk methods do negate personal ethics and responsibility for individual investors and those managing other people’s money and those responsible for regulating them. Put bluntly, quantitative risk methods as a tool of bureaucracy cannot ensure ethical behaviour by individuals. Therefore, responsibility for ethical behaviour by those managing other people’s money lies with the individual, or put more elegantly by John Steinbeck in East of Eden: “the word timshel—‘Thou mayest’— that gives a choice. It might be the most important word in the world. That says the way is open. That throws it right back on a man. For if ‘Thou mayest’—it is also true that ‘Thou mayest not.” Therefore, the only ethical choice an individual has is one of participation, as an individual’s participation means consent.




Bernays, E., & Miller, M. (2004). Propoganda. Ig Publishing.

Bibile: New International Version. (n.d.).

Jewison, N. (Director). (1991). Other People’s Money [Motion Picture].

Lee H. Hamilton, D. K. (1987). Report of the Congressional Committees Investigating the Iran-Contra Affair. Washington: U.S. House of Representatives.

Lowenstein, R. (1995). Buffet: The Making of an American Capitalist. Random House.

Pascal, B., & Krailsheimer, D. (1995). Pensees. Penguin Classics.

Rand, A. (1996). Atlas Shrugged. Signet.

Steinbeck, J. (1992). East of Eden. Penguin Twentieth Century Classics.

Taleb, N. N. (2014). Antifragile: Things That Gain from Disorder. Random House Trade Paperbacks.

Webber, M. (1921). Economy and Society. New York: Bedminster Press.


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