How Can Pernicious Norms Be Changed? The Case of Investment Bankers

Posted: 24 May 2011

See all articles by Claire A. Hill

Claire A. Hill

University of Minnesota Law School

Date Written: May 24, 2011

Abstract

A ‘perfect storm’ of pathologies and (financial) technologies contributed to the financial crisis. Investment bankers became willing and able to expend significant energy chasing massive payoffs, where the conduct being rewarded was at best societally neutral but more likely harm-causing. To some, this may seem like "human nature," albeit not at its best. While this behavior is clearly something a fair number of people engage in, my view is that norms matter quite a bit. Many more people engage in this behavior when norms encourage it. This state of affairs is contingent: norms could be changed to at least not encourage, if not actively discourage, the behavior.

What are the pathologies at issue? Consider Goldman Sachs’s behavior regarding Greece’s financial statements, or Enron’s. Bankers took enormous pride coming up with ways for Greece and Enron to present wildly more attractive financial appearances than the reality warranted. Bankers were extremely well rewarded for their efforts - apparently, a motivating force notwithstanding that many of them had sufficient assets beforehand that the marginal value of additional money qua money was quite small. That third parties would be adversely affected was either a matter of indifference, or in some cases (such as Enron’s manipulation of energy prices (remember "Grandma Millie"?)) a matter of pride.

To get investment bankers to behave in a manner less destructive to society, these norms have to change. Law should change too, but, for reasons I will discuss (notably, resources available to find loopholes and "identity benefits" to doing so) law changes are not enough. I will discuss some preliminary suggestions for avenues and techniques for norms-changes.

Suggested Citation

Hill, Claire Ariane, How Can Pernicious Norms Be Changed? The Case of Investment Bankers (May 24, 2011). Gruter Institute Squaw Valley Conference: Law, Institutions & Human Behavior, 2011, Available at SSRN: https://ssrn.com/abstract=1850770

Claire Ariane Hill (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-624-6521 (Phone)

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