Banking on Failure: Is Financial Speculation Moral?

I came across this video the other day via Jeffrey Tucker.

Click the above image to watch the video on the BBC website.

In the video, BBC’s Justin Rowlatt spends the day with financial speculator Hugh Hendry in order to, as the BBC website states, “find out whether public unpopularity of speculators is well-founded.”

Hedge funds are indeed pretty unpopular, and always have been, but this interview is particularly timely in that Greek Prime Minister George Papandreou has recently been quite outspoken in criticizing financial speculators and blaming them for Greece’s many economic woes.

In the video, Rowlatt lobs the following Papandreou quote at Hendry (pulled from Papandreou’s recent opinion piece):

To me this is a challenge to our democratic institutions. An elected government, making huge changes with the consent of its people, is being undermined by concentrated powers in an unregulated market – powers that go beyond those of any individual government.

Rowlatt then emphasizes to Hendry that Papandreou is talking about financial speculators like him. “School’s are being closed down,” Rowlatt says to Hendry, “real things are happening in Greece because of people like you.”

Ouch! Indeed it’s true that credit default swaps and betting on other people’s failures won’t necessarily renew an economy and may even speed up demise, but can anyone really believe that those in Hendry’s position are the cause of such downward spirals? If financial speculators think there is more profit in the failure of others than in their success, isn’t that just a reflection of the state of the economy and/or the consumer culture?

Hendry seems to see his role as such when he makes the following statement earlier in the video:

The fact that we’re willing to risk our clients’ money…is a portent that we aren’t reckless, we’re typically wise. And if we’re betting in that manner, it would be better to consider why we have that opinion.

Exactly. But still, even if this sort of financial speculation doesn’t necessarily cause government’s to collapse, how can financial speculators justify their role in speeding up economic demise? Isn’t doing so just pure and destructive greed?

Hendry seems to think the opposite. Here is his response to Rowlatt’s Greek analogy mentioned earlier:

Greece has been found cheating…I’m trying to save us — putting more money into this black hole which is Greece and these other reconstructed economies which wish to continue on the never-never.

If I’m hearing him correctly, it would seem that Hendry is making an argument for wealth creation here — that there is little genuine productive behavior going on in Greece (thanks to the government) and that his investments in the country (whether in its failures or its successes) are more positive than not. But even beyond that, Hendry takes it to another level when he talks about his role within the context of capitalism:

Hendry: “I believe I am the guard dog of the capitalist system. I’m the one person that can stand up. I can say, ‘The emperor has no clothes.’”

Rowlatt: “But you’re not saying it for any moral purpose. You’re saying it because you think you’re going to make money.”

Hendry: “I don’t want to live in a society that marks me as a bad person because I make money. I think making money gives me a legitimacy.”

Hendry’s argument, therefore, seems to be this: He sees financial speculation as an indicator of economic collapse that people should pay attention to and respond to accordingly. If they do take action and respond adequately (via democracy, lifestyle change, etc.), he and his clients will lose (or invest their money elsewhere) and society will win.

Therefore, Hendry does seem to see his actions as beneficial and constructive, but when Rowlatt pushes him on the morality of his intentions, Hendry doesn’t dispute that he’s just in it for the money. In fact, he responds by implying that money is a perfectly noble motivation in and of itself. This may be shocking to some people, and may even seem downright immoral. But can’t money be a noble pursuit? The pursuit of money certainly can be evil, but in a free society doesn’t lawful pursuit of wealth rely on mutual choices, whether bad or good? When it comes to being “evil” isn’t that a judgement we would be making based on nothing more than unfounded prejudices against financial speculators like Hendry?

If Hendry’s pursuit of wealth leads him to reveal the vulnerability and brokenness of economies (i.e. reveal that “the emperor has no clothes”), wouldn’t this benefit override any “corrupt” motives he may have as far as we are concerned? Hendry’s profiteering on credit default swaps may make us cringe, but don’t we both as individuals and as a society have control over whether he can actually profit on such a venture? Certainly bad things are bound to happen to us unexpectedly, but we are talking about overall trends here.

Even if we see the Hendrys of the world as evil (and I certainly don’t), shouldn’t that just spawn a competitive spirit within us to promote frugality and avoid “defaults” in our own lives rather than criticize someone else for pursuing his own self interest, not to mention the self-interest of his clients?

What are your thoughts?

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  • Remnant Culture

    New blog post: "Banking on Failure: Is Financial Speculation Moral?" Hugh Hendry thinks so. #tlot #tcot #finance #money