The unacceptable face of capitalism

Philip Augar has found a snappy title for this forensic examination of the sins of the investment banking fraternity, and a startling figure: $180 billion. That is the amount he reckons the big hitters of Wall Street and the City harvested in the 1980s and ’90s in the form of excessive profits for their firms and excessive remuneration for themselves.

They did not make this fortune as more admirable entrepreneurs do, by creating value that would not otherwise have existed or providing goods and services that improved their customers’ lives. They did it by skimming fees and commissions and trading profits out of corporate clients, retirement funds and individual investors like you and me, and very often by bending rules or simply breaking them. If Augar’s analysis is correct, this behaviour constitutes a bigger pattern of scandal than anything else in the modern financial world, whether it be the peculations of African potentates or the £5 billion-a-year raid on British pension funds by our own Chancellor of the Exchequer.

Augar writes here chiefly about American firms such as Citicorp, Merrill Lynch, Morgan Stanley and Goldman Sachs. But if any large-scale, British-owned investment banks had survived the competitive mayhem of the last decade he would no doubt have been writing about them too. In any case, as he says in his preface, ‘If you look hard enough, the games that are played in American capital markets can be found wherever you live. And if you look hard enough you will find that you too are paying the price.’

The games he refers to are multifarious, but are all driven by the over-dominant positions of the biggest firms and the ‘integrated’ nature of their businesses — meaning that they house, under one roof, financiers whose job is to persuade companies to float shares on the stock market, analysts whose job is to persuade investors to buy those shares, and traders whose job is to make profits from the movements of those shares both upwards and downwards.