Reporter's Notebook: Wall Street's Lost Moral Center

John G. Taft speaking at a meeting of the Securities Industry and Financial Markets Association last year.

Image of Stewardship: Lessons Learned from the Lost Culture of Wall Street
Author: John G. Taft, Charles D. Ellis
Publisher: Wiley (2012)
Binding: Hardcover, 240 pages

The term "Stewards of Capital" used to mean the businesses of Wall Street, which were supposed to hold and grow assets for clients. Now, it's a quaint archaic term that decades ago, gave way to "Masters of the Universe."

John G. Taft, the CEO of RBC's wealth management arm in the U.S., is trying to hit the brakes and take the Wayback Machine to a time when Wall Street businesses were there to serve clients - not serve themselves from a big buffet table full of money. Taft said that investors have lost faith that the market will grow their wealth over time, and he calls himself "someone who is dedicated to making sure that the financial system does more good on the earth than it does bad."

I interviewed Taft this morning in our New York studio. In the small, beige, soundproofed room, Taft - a direct descendant of former president William Howard Taft - talked about his book, "Stewardship: Lessons Learned from the Lost Culture of Wall Street," and the broad sweep of what's wrong with finance, and how to fix it. 

Taft spoke of the broad sweep of Wall Street's history, and the sense that Wall Street employees used to be proud to work for financial firms, where now they are ashamed. He wondered where it all went wrong, and settled on the idea that Wall Street used to have a stronger sense of honor and responsibility towards its clients - which has morphed over time into a "me-first" mentality.

There, Taft shares a point of view with Occupy Wall Street. Although he notes the movement was not well-organized, he concedes that it was an "educational" experience that got him thinking about how Wall Street had lost its way.

"Income inequality is a stewardship crisis waiting to happen," Taft told me - meaning, that the gap between the rich and the poor is the nub of the problem that could take down Wall Street as we know it.

The only question is: does the rest of Wall Street see that coming? I said to Taft that a lot of people on Wall Street - or elsewhere - believe that capitalism is measured only in profit and loss, not in bad or good. They don't think morality is the ruling principal of money - in the same way that you don't go to church to make a profit, you don't trade money to be spiritual. Taft dismissed that point of view as destructive. In reply to another question, he summed up the point of his book, and all the interviews he's doing: 

"The financial services industry is really all about stewardship - responsibly managing what others entrust to your care. That is the financial services industry," he said. "And if stewardship is not front and center as our primary purpose, then we are going to get into a lot of trouble and we are going to get our clients into a lot of trouble."

Taft's points aren't revolutionary, but they are particularly interesting considering his position in the world of finance. Sure, he is, as a Wall Streeter might say, "talking his book" - that is, endorsing a set of investment beliefs that help his own interests. But the fact that any CEO considers ethical finance his vested interest, it pays to listen. As the CEO of a wealth-management firm, Taft is recognizing that the loss of public trust and confidence in the financial system are not just the delusional chatterings of the hoi polloi - they are the rumblings of a societal change. We already saw the first quakes last fall when Occupy Wall Street got started; now it remains to be seen how much the future shocks will register on the Richter scale.

To be sure, Taft is not rebelling against every part of the world of finance: he believes in the bonus system, and he's no fan of Dodd-Frank in its current form (even though Rep. Barney Frank, co-author of the law, blurbed Taft's book on the back: "thoughtful, constructive, and, in a word I rarely get to use in the context of the financial crisis, inspiring.") Taft believes it when Citigroup CEO Vikram Pandit talks about the bank's intention to "lend responsibility," and he considers it a good sign that the Street is examining the premises of how to do its business.

But Taft is a dissident from what he considers Wall Street's prevailing culture of -- well, let's call it recklessness, although that's not the word he used - and contrasts it with the "fiscal responsibility" that the Street should be following, and that Canadian firms embody. (One of which, Royal Bank of Canada is, of course, his employer.) He's cautious about "financial innovation" - a common Wall Street euphemism for derivatives.

Taft said he supports "innovation," as long as it makes sure that money is supposed to go where it's supposed to - not just to make money whip around in fee-paying silos that only benefit banks.

I mentioned to Taft that many investors feel that the markets are rigged against them; he agreed and replied that Wall Street has a lot to do to restore faith. When I followed up by asking why investors should even have faith, he started his reply simply: "First you have to ask: what's the alternative? To put money in mattresses? That strategy has as many risks as not being involved in the marketplace."

There, Taft has a good point, I think.

It should make you realize: We may bemoan the power of Wall Street over our money, but since we have nowhere else to put it, we're all in this together. When we put our money in 401Ks, in pension funds and in the stock market and hand it to Wall Street firms, we are participants and enablers. It's no longer enough to hand it over without asking questions and then yell later about the betrayal and the lack of transparency. What if we try to hold our banks and money managers accountable, the same way we try to hold our politicians accountable? When money is so powerful in our society, financial discourse is just as powerful as the political discourse that takes over the Sunday talk shows and feeds a thousand political pundits.

Nonetheless, clients of financial firms probably want more comfort than "there's no other game in town." So Taft suggested that many large financial institutions are too busy playing the high-finance game, out of touch with their communities --  and that the solution to "too big to fail" may be "thinking small" once again.

But Wall Street, now that it has come to occupy a world stage, may be reluctant to go back to a smaller sandbox.

 

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.
Image of Stewardship: Lessons Learned from the Lost Culture of Wall Street
Author: John G. Taft, Charles D. Ellis
Publisher: Wiley (2012)
Binding: Hardcover, 240 pages

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