Cultural Studies and Finance Capitalism by Mark Hayward

Author:Mark Hayward [Hayward, Mark]
Language: eng
Format: epub
ISBN: 9780415686815
Barnesnoble:
Goodreads: 13715842
Publisher: Routledge
Published: 2012-01-17T00:00:00+00:00

The ethical demands of finance

The prudential and fiduciary standards of reasonableness differ considerably in how each establishes the duties owed to investors and the scope of liability in representing securities to them. Under a fiduciary standard reasonableness entails an obligation to act in the interest of the other. Those brokers who sold securities with an eye only to their own profit, who encouraged clients to make risky investments based on unfounded speculation, thereby putting their financial wellbeing in jeopardy, would find themselves having to pay for those mistakes. In the amended legislation, however, the broker simply had to show that any prudent person, one who was aware of their needs and the resources they had to meet them, could have taken the claims in the security prospectus as reason to invest. Given that capital is always at risk, prudent judgment cannot be defined in terms of profit or sellers would always be liable for losses. Prudent judgment is characterized in the internal calculus of rational choice; a prudent actor is simply one who uses appropriate techniques to asses risk and to predict future market activity.

These two standards also operate from distinct orientations to power. The fiduciary standard is underwritten by a relational account of power while a prudential standard works through a projection of symmetry. In fiduciary relationships, reasonableness is determined by evaluating the use of power between the parties: Does the party with the authority that comes with knowledge, skill, and membership in a professional community treat the other, dependent party, with the discretion, and intelligence befitting a trustee? Is the vulnerable party, the one whose financial wellbeing is at stake, given adequate, accurate, and sensitive advice in a framework that teaches her or him how to assess the risks that come with a particular investment? Reasonableness does not presume equality; in fact, it assumes the parties are not equal in knowledge, skill, or power. Reasonableness becomes, in a fiduciary framework, a standard for measuring care in inherently unequal relationships. A standard demanding that investment advice display an understanding of the relative vulnerability of the investor and the expectation that the trustee works for the overall good of the investor, and by extension the public. The prudential standard, to the contrary, uses the projection of the brokers’ self-interest onto the client as the guarantor of reasonableness. That is, the prudential standard hangs on the supposition that if professionals give investors the same information and advice on how to use their money that they use to invest their own and use the same means to calculate risk and predict the probability of profit for their clients as they would themselves, they have acted reasonably. The prudential standard works from the theoretical assumption that the two parties’ needs and appetites for risk are identical, rendering actual differences in standing and vulnerability immaterial.

Vulnerability conditions what is a ‘reasonable’ ethical demand: for the fiduciary standard this is a complex evaluation; the prudential standard simply assumes that it does not exist. The ethical demands

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