Your Banker as your Friend

My friend Crank has a nice piece up about a case I'd missed: evidently JP Morgan Chase gave away some customer's trade secrets (and when I say "gave away," I think you can read "sold"). It's an interesting story in its own right but I'd like to generalize. There was a time when your banker was your friend, a wise counselor with obligations of loyalty and confidentiality. He knew as much about your receivables as your doctor does about your pineal gland. He was supposed to draw on his fund of experience to help you run your business so you could get rich together.

Or so it might have been in a Frank Capra movie. I don't suppose it was ever true but I do think it was a lot more true two generations ago than it might be today. I guess the watershed moment in my understanding was the episode in 1994 when it came to light that Bankers Trust had written a Byzantine-incomprehensible derivatives deal and essentially stuffed it at Proctor and Gamble; P&G took a $157 million loss in five months (there's a rudimentary outline here).

You may say: hey these are big boys, they can look out for themselves. But no you thought you were looking out for yourself when you hired a trusted and reliable banker.

Back to the mantra: markets are great, but a market doesn't just fall from a tree; a market is a human construct, and there are good markets and bad. We need a world where you can trust your banker. Apparently we don't have one. Or perhaps you knew.