Nowadays, big tech—especially Facebook (FB), Alphabet (GOOG, GOOGL), and Amazon (AMZN) are relentlessly criticized as evil corporations. And while the big banks like Goldman Sachs (GS) get a lot of harsh attacks too, they aren’t the prime targets that they were a decade ago. Back then it wasn’t in vogue to attack big tech (Google’s “Don’t Be Evil” motto not only still existed, but was taken seriously), and back then it was absolutely the trend to say that Wall Street was a source, if not the source, of much evil in the world.
Addressing those criticisms, as they’re leveled today and were leveled back then, is not easy, in large part because there are so many—but also because they often rely on misunderstandings or simple falsehoods about finance in general. But they do all share a primary assumption about finance, and, indeed, human civilization itself, that is rooted in a well known and common mistake: the is/ought fallacy.
Have you ever, for instance, described something bad that a friend of yours did to a family member, only to have that family member recoil in horror? “My friend cheated on his girlfriend,” you might say, to which your family member will reply, “that is absolutely horrendous!” But that’s not really the correct response. Stating that Friend A cheated on Girlfriend X with Person Y is a statement of fact (if it is indeed a fact) without moral judgment. “My friend cheated on his girlfriend and he is a bad person for it” is a statement of fact with moral judgment—and the two things are importantly different.
In the world of finance—and, indeed, in all large institutions, including corporations, government, and other large administrative bodies—there are by necessity observations of fact and judgments about those facts, and they need to remain separate both for logical consistency and for clarity.
To explain why this is so important, let’s take a real world example. Imagine a bank is looking to underwrite a $1 billion bond issued by a large energy company for a specific project. In the underwriting process, the bank will be required to make several estimates and projections for various aspects of the project. One, particularly for ESG purposes, will be to assess how much carbon output the project will have. “This project will produce an estimated 100,000 kg of co2 output as byproduts from its construction and a further 10,000kg of co2 emissions during its operation annually” is a statement of fact.
The underwriter who writes this and adds, “and that’s a totally unacceptable amount of environmental destruction—this company is evil and its investors should be ashamed!” would be out of a job quickly—but so too would the underwriter who adds “and this isn’t really that much, in the broader scheme of things—and anyway we really need this energy now and it might actually help people in the long run and we’re just all trying to do our best.”
Both introduce ought into a situation where is is essential, blending ethical judgment which objective observation. The underwriter who does this not only looks unprofessional, but also untrustworthy. Her judgment could be called into question as having a bias that an underwriter is not supposed to have.
This doesn’t mean that underwriters or financially professionals always operate in an amoral and entirely objective realm. No human does. But those who are aware of their bias and try to keep it out of their work will be more successful, all other things equal, because there will be market participants either on the other side of the trade or who are motivated in finding faults to find market inefficiencies that can be exploited.
So, are banks evil? Not really—but they aren’t good either. Because the question itself is flawed; banks are in the business of minimizing risk, maximizing access to capital, liquidity, and returns for clients, and maximizing returns and profits for investors. Sometimes people in those institutions act unethically to achieve those goals—and sometimes they don’t, because they expect unethical actions to have unintended negative consequences that ultimately hurt those goals, especially if there are counterparties, market participants, regulators, or legislators who will respond accordingly. Perhaps it’s better to say that banks—and all institutions, really—are about as evil as they can get away with.
