Beyond Angry

First Republic Bank Executives Sold $12 Million in Stock in Months Before Crash

This was the Wall Street Journal headline that greeted me this morning at 6 am. Although I wasn’t in the least bit surprised, this sort of thing still has the ability to send me into a spittle spewing rage. We see a photograph of some kid from the projects looting a case of beer during a riot and we clutch our pearls while decrying the death of culture, while the grand theft of these bankers gets relegated to a judgement free article in a business newspaper…while I sit here seething.

Nearly every executive at First Republic Bank sold off large blocks of their own bank’s stock in the first three months of this year, just weeks before that stock got destroyed by events of the past week. Unless you believe that this group of incompetents are just lucky investors, you must come to the undeniable conclusion that they acted on information in their possession that was unknown to the general public. This is known as insider trading, and it is illegal and if convicted of it, you go to jail. Just ask Martha Stewart. Don’t hold your breath waiting for the likes of James Herbert II, Robert Thornton, or David Lichtman to do any hard time. They all have expensive lawyers.

I have been a beneficiary of living in a capitalistic country all my life. Although no economic system is perfect, and capitalism certainly has flaws and weaknesses, it has been responsible for more human flourishing and wealth creation than any economic system ever devised by mankind. But, capitalism is only as good as the ethics of those who participate in it. I am in a business which requires me to act as a fiduciary, in other words, I must always act in my client’s best interest and never my own. If it is discovered by regulators that I have been lining my pockets at my client’s expense, I lose everything. I am exposed to various audits more than once a year to insure my compliance. So are banks. And yet, this sort of thing keeps happening. Either the bankers are smarter than their regulators, or the regulators are incompetent or on the take. I say this  not out of animus, but rather the fact that some of the banks that are in the most trouble at the moment had just recently received clean bills of health by these alleged regulators. This marks the third banking crisis this country has endured in the past 40 years. The lessons of the past keep getting forgotten, and each time, the government has to swoop in bail them out. Moral hazard, anyone?

My Dad used to say that “character is destiny”. At the end of the day, no matter what economic system you operate in, success and flourishing only happen when human beings operate as fiduciaries. As simple as it might sound, “Do unto others as you would have them do onto you” is called the Golden Rule for a reason. It is the basis of every successful financial interaction. When we forget this and act out of self-interest like these despicable executives at the First Republic Bank, everything goes to hell in a hurry.