Power of Context

I have come across a speech by Dr. Subbarao, Governor, Reserve Bank of India. He is simply brilliant in his elocution. In my last posting, I have raised questions about the role of finance in an economy. Dr. Subbarao has delivered a speech linking ethics with finance. His broad views are - Ethics is contextual and varies from person to person. However, there is no such water tight compartmentalization as these set of people are extremely ethical and others are not. It shows great spatio-temporal and individual variations. He argues that People in the field of finance are not highly unethical as compared to people from other parts of life/society. There may be greater temptation due to involvement of pecuniary interest.

In the context of the current crisis, I find his observation quite fascinating. As per my understanding he argues what is legal need not be always ethical. Ethics is above the mundane law. To quote Dr. Subbarao:

At one level, it is possible to argue that nobody in the entire chain did anything legally wrong. But that is too simplistic an argument. We do not govern our behaviour simply by what is allowed by law or regulation. Our code of conduct should be held to a stricter test. Was the behaviour of actors across the chain of the financial sector fair, ethical and moral or was it swayed by the opportunity of making quick profit afforded by information asymmetries? Were sub-prime borrowers adequately warned that there is a good chance that asset prices would fall? Did investment advisers tell their clients of the risk they were taking in buying MBAs and CDOs? Did credit rating agencies not compromise their standards and cut corners? In sum, were professionals in the financial sector legally right, but only legally right and morally wrong?

I believe to answer these questions does not require great effort. It needs a little bit of soul searching, a little bit of courage, a little bit of honesty towards yourself.

It reminds me a great vedic story of India - the story of Lord Shiva and Bhasmasura. Being pleased at his severe penance Lord Shiva had granted him a boon that whatever he would touch with his right hand would be reduced to ashes. Bhasmasura wanted to test this boon and said "Lord, you have granted me the boon alright, but how will I know it is true? Once you disappear now, I will not be able to get you for the next few hundred years perhaps. I would like to test your boon. This is a mountainous, snowy area. For miles around there is no object that can be touched. Therefore, come forward. I will touch your head and see if what you say is true". Perhaps, Bhasmasura knew that he would become more powerful once Lord Shiva disappears for forever.

Well, I have cited this story for two reasons - A. (In case of Shiva) one may fall victim of his/her own actions if he/she is not adequately thoughtful of his/her actions. If you leverage yourself too much, you may see the value of your assets plummeting to zero one day. If you run excessive fiscal deficit, you may become bankrupt and people may brand you as Pigs (no disrespect towards the Pigs though!). If you mis-sell your product, you are only entering into a repo transactions which you have to buy back ultimately when the value is negative. B. (In case of Bhasmasura) Great responsibility must come with great power. If you try to misuse of your power, then you may be the next one to be ruined by the more powerful.

Please read the speech. Each of his lines is quite powerful.