Lessons for Wall Street from Hammurabi’s Code

The Code of Hammurabi in ancient Babylon had this to say about the social responsibility of business.

If a builder builds a house and the house collapses and causes the death of the owner, the builder shall be put to death.  If it causes the death of the son of the owner, a son of the builder shall be put to death.

Nassim Nicholas Talbeb, author of Fooled by Randomness, The Black Swan and the forthcoming Anti-fragile: Things That Gain From Disorder, said in a still-relevant interview last October that the banking crisis is due to the fact that we’ve forgotten the age-old wisdom of every civilization since the time of Hammurabi—that people should be responsible for the consequences of their actions.

The opposite has been the case with the U.S. banking and financial system since the Reagan administration, he said.  The pattern is that financial institutions gain huge profits from taking huge risks, the executives walk away with huge bonuses and then when their gambles fail, they successfully look to taxpayers to be bailed out from the consequences of their actions. This is wrong.

“If there is an upside, there should be a downside,”  Taleb said.  If you get to keep the profits, you should bear the losses.  If your negligence causes other people to suffer, you should suffer yourself.   This has been well understood down through history until very recently.

No executive of a financial institution that has been bailed out should ever receive a bonus, Taleb said; no executive of a financial institution that has been bailed out should be paid more than a civil servant of equal rank.  After all, if the bank or investment firm has been rescued with U.S. tax dollars, then the executive are in effect employees of American taxpayers.

Taleb himself is a speculator in options and derivatives.   Speculation, like high-stakes poker, does no harm so long as the speculator is gambling with his own money and the money of people willing to take a chance on losing it.

Below is a later interview with Taleb.

Click on Fooled by Randomness for Nassim Taleb’s home page.

This was edited for clarity after first being posted.

Tags: , , , , , ,

One Response to “Lessons for Wall Street from Hammurabi’s Code”

  1. Atticus Finch Says:

    Excellent points here, Phil. That is why when people often argue that the bailouts saved the economy, save jobs, etc. I have a hard time agreeing. If you never let the market decide and letting some companies fail – bad business practices never end and bad business men never have the incentive to get better – all at the cost of the taxpayer.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: