Financial advisors lie – why is the sector any different?
Posted by Dave Bath on 2012-04-29
My SkepticLawyer less-lefty-than-I-am friends (in facebook) linked to "Is the Pope a Catholic" results from an experiment about financial advisors providing self-serving advice, and there is no reason I can see why the same dynamics, behaviour and outcome wouldn’t apply to the financial sector as a whole, pressuring societies into baring their collective throats to the predators.
"Valuable advice on investment advisors" (Tim Harford, 2012-04-28) points to a neat double-blind experiment, sending portfolios with common biases and some stupidities to financial advisors to see what would be advised.
The financial advisors demanded control of at least part of the portfolios first, then dispensed advice that maximized trades, and thus maximized revenue to the advisor – in some cases, blatantly against the interest of the consumer.
No surprises there, unless you believe the fairy story that competition between financial advisors will weed out the bad ones, and the Invisible Hand works miracles.
To my mind, the financial sector as a whole operates this way, treating nations as a whole, and the public, as prey. They push for maximal activity rather than production, advise governments either through "expert" advise to governments directly, or through the media, peddling their poison to the credulous public.
The financiers hunt in packs, convincing the sheep that the wolves have ovine interests at heart, that the scraps and blood unswallowed by the wolves, and the wolves’ droppings, fertilize the ground so more grass grows for the sheep to eat.
In economies as a whole, the finance sector pushes the line that increasing trading is good, rather than making prudent decisions that could stand the test of time – even if by time I mean 6 months. The trading increases without any increased benefit to society – finance sector profits as a percentage of corporate profits increasing manyfold without any proportional increase in human well-being.
The sheep are hurt by the Global Financial Crisis, and the wolves are stronger than ever – and push for ever less regulation over more trades.