The CEO of Barclays recently acknowledged the damage to the firm as a result of its transgressions and said:  “Trust is a very easy thing to lose, and a very hard thing to win back.  In my view it will take several years – probably five to ten – to rebuild trust in Barclays.”

Meanwhile, J.P. Morgan has been on a treadmill of settlements, resulting in tens of billions of dollars of costs to the firm (or, if you will, to its shareholders).  Once viewed as having skated through the financial crisis relatively unscathed, its reputation has been tarnished by subsequent revelations.

The list could go on but, given the performance of bank stocks over the last few years, you might ask, “Who cares?”  Many observers have come to the belief that the firms are specifically in the business of stepping over the legal and regulatory lines – and that fines and damaged reputations are just a cost of doing business for them.

Surveys show that trust “in the financial system” has collapsed over time.  But that “system” is very complex and involves a wide range of firms and professionals.  Those in research and asset management, for example, might feel that they have been tarred unfairly with the same brush as the banks.  But we are all in this together.

The natural governors on the investment banks are the large asset management firms.  But they have been missing in action – in fact, they tend to exacerbate destructive trends rather than impede them.  Consider the subprime mess.  Had there been a buyers’ strike when underwriting standards deteriorated, we wouldn’t have had much of a crisis.  An absence of buyers would have meant that the paper-making machines would have shut down well before reaching the level of insanity that was attained. Continue reading →