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What's wrong with finance?

Why are there so many scandals within the finance sector? From the many news reports the banking, finance and insurance sector across the world seems rife with malpractice.

Insurance seems to be commonly mis-sold – to those who don’t need it and to those who don’t care enough to shop around at the end of the year. Banking often provides poor service and finds it hard to justify its charges. (But it can help you avoid tax.) And then there’s finance. Apart from crashing the world economy, a surprising number of markets seem to have been rigged and operated for the benefit of the industry rather than the market participants.

It doesn’t look as though it’s a matter of a few rotten apples spoiling things. The entire barrel looks badly decomposed. It is tempting to think of the sector as a zombie – still out to get you even though it is clearly dead. But that would be wrong.

It is true that there are so many separate companies involved in all these scandals that it must be a systemic problem. And because finance is the life-blood of the economy, an infection in one part of a bank can spread everywhere.

Also, the typical reaction of the management of financial companies rarely helps. The response to a scandal is almost invariably a variation on this theme: “we’re sorry that [something] has gone wrong. This behaviour does not represent the ethics of the bank as a whole, it is the result of a few rogue individuals. However we have already put in place far stricter controls that will prevent this sort of thing ever happening again.” With a few changes, that could also have come from the mouth of the regulator.

But a few weeks later, it happens again…

Which matters because we have little choice in where to put our money. True, crowd-sourced finance, local money schemes and friendly societies are beginning to push the mainstream finance sector out of the way. But can this disintermediation spread beyond smaller ventures? As a result, trust in a fundamental institution of our economy is falling away. The final result may be increasingly ‘irrational’ behaviour by all of us that will make the smooth functioning of the economy – and of our lives – increasingly difficult.

The question remains, however – why is the finance sector in particular in this state?

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