Have Wall Street Ethics Slipped? in Wake of Salomon Brothers Scandal, Scholars Blame '80S Boom, High Competition, New Hires

Article excerpt

'IF you want to be ethical, join the clergy."

That's what a cynical Wall Streeter told Robert Sobel, a business historian at Hofstra University.

Of course, such a statement slanders the many investment bankers, brokers, bond dealers and others in finance who maintain a great deal of integrity in their dealings.

Nonetheless, there is a widespread suspicion among professors of business ethics and other observers that the standard of ethics has deteriorated on Wall Street. The bond-buying scandal that prompted the resignation of three top officials at Salomon Brothers Inc. Aug. 18. has reinforced such opinions. Salomon, the world's fourth-largest underwriter of securities, has admitted repeatedly violating Treasury rules against buying more than 35 percent of a Treasury issue of securities at an auction.

Several theories are offered to explain the rash of scandals that have rocked the financial community in recent years, symbolized by such names as Michael Milken, Ivan Boesky, and Dennis Levine.

One theory is that financial booms, such as occurred in the 1980s, draw in greedy, ruthless types willing to cut corners.

"Every long boom in which there is a lot of money to be made in securities transactions has some odor connected to it," says Robert Fogel, professor of American institutions at the University of Chicago's Graduate School of Business. There were major scandals in other boom eras - the 1920s and 1880s, for example.

During the last decade, Wall Street employment grew by 30 percent as investment bankers, lawyers, and others helped finance and plan the restructuring of perhaps one-quarter to one-third of United States industry.

"A lot of those people came from the provinces," says Mr. Sobel, who wrote an authorized history of Salomon Brothers covering the years 1910 to 1985. These newcomers sometimes "lack a moral compass." As a result, in some firms a culture of toughness has developed where making a profit overrides consideration for others, he says. Gentlemanly traditions

In the early 1960s, the typical American financier was likely a WASP and belonged to a country club. His father was possibly in the business, having managed to survive the hard times in the 1930s. The rules of the game were gentlemanly, with ostracism facing those who broke the rules. Gradually the securities industry become more diverse. Jews, Italians, even a few blacks and women won positions of power. …


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