The practice of intermediation is a very old one. Put simply, it is based on the idea that a mass of people are incapable of understanding something complex or ordering their lives in difficult circumstances - and need a higher level of skill or wisdom to help them do it. Intermediaries are necessary to provide advice and help people to behave in healthy ways. Good intermediaries throughout history have been a lubricant that enables the moving parts of society to work without too much friction.

In religious terms, the higher order of wisdom is the Word of God, churches and priesthoods are the intermediaries that help people understand how to behave in ways that will enable the Word to be followed. The Word of a good Deity provides a code by which humans could live their lives on earth without destroying themselves. The “carrot” that ensures compliance is the promise of a better world to follow this for those who abided by the Word.
This is a simple idea to comprehend - and one that is very useful as human societies became more complex. Ordering the affairs of millions of people is a far cry from that of maintaining healthy families or small communities. Governments can stand as intermediaries between the mass of the people and foreign powers. Judiciaries can dispense impartial justice according to codes legislated by governments on behalf of the people.
However, some religions have dispensed with the intermediaries as interpreters and advocate that each person is personally responsible to God for ensuring that their behaviour follows His/Her codes. The 19th Century Quakers, who founded so many great enterprises on strongly ethical values, did not believe in having intermediary institutions to come between Friends and the higher order of beliefs. Consequently they were persecuted by the established church and state as a threat.

Problems with intermediaries

But not all intermediaries are benign helpers. Throughout history, the roles of intermediaries have tended to become corrupted. The reasons are almost always the same. When they lose sight of the fact that their roles are simply to help others to understand or cope with complexity and believe that they have a superior purpose in their own right the problems start.
In the religious sphere, many churches have established elaborate hierarchies, linked with ostentatious regalia, imposing buildings and byzantine rituals that signify separation from the congregations that they were set up to serve. As the might, wealth and power of institutions increases, so does the risk of corruption and arrogance. In the end, the institutions can become all-powerful and the interests of the congregation diminished. Institutions and their leaders make a transition from the servants to the masters of the congregation, laying down the law and instituting sanctions for those who disobey the word of the church. The institution becomes the sole interpreter of the Word and the congregation is expected to accept their authority.
Some of the world's most evil and corrupt dictatorships have started with apparently populist motives. But as the power of the individual or institution becomes established, behaviour becomes increasingly arrogant and oppressive. In the end, great violence and damage is wrought on society in the name of the people. Nearly every modern dictatorship claims to be in the interest of the people and their leaders to be enlightened servants acting on their behalf. Most modern autocracies have found some way of claiming that they are “democratic”.

Investment and financial intermediaries

In the beginning, banks and brokers were institutions that had the purpose of taking care of customers' money and acting as responsible lenders to those who needed finance for business and personal uses. Insurance brokers advised on risk and found the most appropriate policies for clients needs. They advised customers on how to use their savings and earnings prudently in order to make their journeys through life.
Their role was to act as agents of people that wanted to make a return on their savings or pension funds. As agents, they channelled clients' funds into sensible investment vehicles, including enterprises that needed capital to start in business and expand. Stock markets and banks were an innovation that enabled the industrial revolution to get off the ground. From the earliest days, some unscrupulous rogues set out to swindle and mislead clients and deprive them of their money, but this was not the norm. The majority of early financial intermediaries were respectable retail banks, insurance and stock brokers that provided sound advice and acted prudently on their clients' behalf. Retail banks and mortgage brokers applied strict rules to how they lent, endeavouring that borrowers did not extend themselves unwisely.

Financial Intermediaries grow in power, lose sight of their primary roles and become corrupted.

As banking and finance became more international, so did the power of banking institutions. Increasing complexity in the uses of finance meant that understanding what was in customers' best interests became increasingly defined by the banking institutions. The latest financial disasters have their roots in the deregulation of the financial markets across the globe and the explosive growth of massive banks that exercise more power than most national governments. This has meant a huge growth in complexity of investment instruments, to the point that only a few can understand them, but worst of all, it has meant that power and wealth has become concentrated in the hands of a few institutions and their leaders. So have the seeds of corruption caused by excessive power and wealth been sown.
Back before the deregulation of the financial markets, banks and other financial institutions were strictly controlled. The activities of investment banking, broking and retail banking were separated from each other. Financial capitalism in the old days was in the hands of people who believed in honour and “a gentleman's word was his bond”. This slightly misty-eyed picture was maybe distorted by the fact that money always attracts its fair share of rogues - and managing money simply to make more money somehow lacks social the sense of social purpose that may keep other activities straight and honest. But finance was generally more stable. Lessons had been learned from the Great Depression of the 1930's. But by the late 1970's it was becoming clear that the established wisdom was under attack from different theories that advocated the virtues of the free market.
Under the influence of market fundamentalism, the old order suddenly changed with the deregulation of financial markets in New York and London and the abolition of legislation separating retail and investment banking.
The financial markets were invaded by a different kind of financial animal; hungry for profit, amoral and hugely dedicated to their own interests. These new bankers also knew how to use their financial power to buy legislators and democratic representatives; and so began the biggest gold rush in history.
In effect, intermediaries and agents grew arrogant, sensed their power and began to act as though they owned the money entrusted to them by others. Instead of giving sound advice and finding good homes for peoples' money, they began to speculate internally, using money circulating within the banking system to develop forms of gambling that were simply aimed at making the bankers rich. Of course, a lot of this activity was dressed in different guises, such as risk insurance and reduction, but that was a lie. Banks used money to make themselves more money; and as money by itself has no morals or social value, the bankers rapidly became obsessed with wealth and power and set about “buying” politicians. Governments were dazzled by the apparent unending bonanza coming from the financial sector, and supported banks in removing any serious impediments to their excesses.

25 Years of Infamy

The financial services sector, released from any significant shackles, has indulged in a positive orgy of speculation, fraud, misinformation, mis-selling and simple swindling. In addition to ripping off their customers with flawed products, there has been a history of serious overcharging for inferior performance and selling useless products. Financial advisers and stock market analysts have indulged in selling misinformation for their own gain. Supposedly “independent” financial advisers have turned out to be in the pockets of suppliers of financial products. Investment institutions have forgotten that they are the agents of the owners of the savings and pensions, and behave as though they owned the corporations in which they invest other peoples' money.
The antics of investment bankers have become more and more removed from the worlds of ordinary people and even regulators. Instead of investing other peoples' money for their benefit, they have come to take others' funds and speculate for gain inside the banking system itself. The current global crash has its roots in the invention of hugely complex financial instruments, supposedly to hedge against risk, but instead designed to make massive profits for bankers themselves. Remuneration of senior bankers has gone stratospheric, and now has nothing at all to do with their performance or usefulness.
Finally, the huge global banks have acted as bullies and coerced political leaders into bowing to their demands - which are invariably about being left to carry on as they always have.

What can be done

The last twenty five years have conclusively shown that, in the main, the finance and banking industries lack any form of ethical framework or moral compass. Of course, there are exceptions to this generalisation, some mutually founded institutions and co-operatives stand out like beacons from the surrounding morass. But the industry mostly cannot be trusted to act for the benefit of customers and the wider community. Therefore voluntary regulation is unlikely to work (and certainly hasn't so far). Voluntary arrangements might be likened to appealing to the better natures of a pack of hyenas!
What is needed is decisive measures to stop the rot. Here are some:

Effective action needs international co-operation.

The strength of global banks and huge corporations often exceeds that of national governments. If global finance is to be reined in, there is a need for “big beasts” with tremendous financial and political clout. The European Union is one such body. The United States is not powerful enough to act alone and needs alliances to stand against the might of the financial industries.

A powerful reason for international alliances

Smaller countries like the United Kingdom are in no position to stand alone against the banks or huge corporations. This is a seldom mentioned reason for membership of the EU. As an example, without the strength of the alliance, the UK will become prey to the bullying behaviour of the London-based banks, which will further destabilise, unbalance and weaken the British economy.

Investment markets
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