Thirty years ago when Warren Buffett took over Salomon Brothers after an earlier generation of investment bankers in that firm tried to rig the US government bond market, he explained his philosophy in the following terms:
No one should do any piece of business unless they would be totally relaxed about it appearing the next day on the front page of their local newspaper where all the details could be read by their spouse, their children and their friends.
At a conference organised by the English Institute of Chartered Accountants on Wednesday one of the speakers asked the audience how many would encourage their children to follow them into a career in the City. No one moved. None of them wanted their kids in the business.
Not quite the Warren Buffett test in action. But had it been rigorously applied here down the years then perhaps the audience would have been more relaxed about encouraging their children to follow in their footsteps.
There again, it may not be an issue for them if you believe a later speaker, Paul Woolley, who was once a successful fund manager and is now a self-funding academic at the London School of Economics where he studies what it is that makes markets and the financial system dysfunctional. In what was almost a throwaway line he said that the financial sector was three times as big as it should be and needed to contract.
Behind the comment lies the belief that finance in the UK has reached the point of diminishing returns. If it confined itself to providing the services society needs rather than devising ways to skim the cream off the top of the system it need only be one-third its current size. When it gets too big it not only hires a disproportionate share of the brightest and best thereby creating a shortage of top talent in other industries, but it also devotes capital to trading rather than loans thereby depriving business of the funds it needs to expand.
Interestingly other academic work supports him. A paper published recently under the auspices of the Swiss-based Bank for International Settlements suggested the benefit from finance was the shape of an inverted U. For a while society as a whole benefits from increasing sophistication of the financial sector but beyond a certain point increased levels of financialisation are damaging for the economy as a whole.
And finally John Kay in his recent work on the equity markets pointed to the growth of intermediaries each taking a cut in activities like share buying and mortgage lending which previously seemed to function perfectly well without so many links in the chain.
But even now I am not sure that the powers that be still understand how much needs to change. The question the conference explored was "can responsible finance pay?" which can be paraphrased as asking whether it was possible to do the right thing and still make money. Someone talked about devising incentive schemes which rewarded people for doing the right thing.
It took someone linked to the Church of England to point out that they should do the right thing because it was the right thing, and if they could not make a profit then they should pay themselves less or withdraw from the activity altogether. The alternative to responsible finance should not be irresponsible finance – but it is astonishing how many still don't understand that.