What is common to the FIFA (English: International Federation of Association Football), the Vatican and some central banks? Apart from being extremely powerful in their respective fields, they have all been recently involved in questionable practices and allegations of corruption. Coming on top of a number of scandals and malpractices involving bankers, the recent allegations make one wonder whether the old adage about absolute power corrupting absolutely is truer for money power and the power to confer benefits on supplicants.
One of the standard tools for measuring and managing price risk in financial markets is the value at risk model. In today's world are moral values at risk? Will monetary capital under Basel III norms be adequate when moral capital is being eroded in the financial services industry? Does the well-known law of diminishing returns not apply to accumulation of money? When we believe in Adam Smith's The Wealth of Nations, and its propagation of the virtues of market capitalism, do we tend to overlook his other, less-known work, Theory of Moral Sentiments?
To come back to where we started, long-time FIFA President Sepp Blatter has been suspended as he is under investigation for corruption in connection with awarding venues to particular countries for future world cups. (There are also allegations against Franz Beckenbauer of Germany and Michel Platini of France, my heroes of yesteryear - both great soccer players, now administrators.) Lamine Diack, former president of the International Association of Athletic Federation, was also arrested and charged with corruption and money-laundering. Closer home are cases of match-fixing and spot-fixing in cricket, where player compensation has gone up hugely since the inception of the Indian Premier League.
Professionalisation/financialisation of sports is supposed to provide incentives to players so that they make greater effort and raise the standard of the game. Has it? Or has financialisation only encouraged the all too human tendency pointed out by Plato: "Men are not content with a simple life: they are acquisitive, ambitious, competitive, and jealous; they soon tire of what they have, and pine for what they have not; and they seldom desire anything unless it belongs to others"?
The Vatican's finances have been shrouded in secrecy since the 1980s when Roberto Calvi, then head of Italian bank Banco Ambrosiano and known as 'God's Banker', allegedly hanged himself below a London bridge. The Institute for Religious Works, the Vatican bank, is in the midst of controversy as millions of euros tucked away in accounts do not appear in its balance sheet. A Spanish bishop was arrested earlier this month for leaking confidential papers about The Vatican's finances. There are charges of money-laundering, and Pope Francis is now trying to clean everything up.
Turning now to central banks. When the Federal Reserve was established a little over a century back, conservative legislators of laissez faire persuasion wanted it under private ownership to keep the government out of the economy. Today, while the revolving door between Wall Street and policy-makers/regulators in Washington is perhaps the most egregious example of crony capitalism, bank lobbyists take care of the small print in regulations and legislation. It was this worry about the Washington-Wall Street axis that persuaded John Maynard Keynes to try to get the International Monetary Fund headquartered away from Washington. He failed mainly because of World War II-ravaged Britain's weak bargaining position at the time of the Bretton Woods conference in 1944.
Recently, the Bank of England was criticised for allowing one of the outside members of its monetary policy committee to retain his partnership stake in a hedge fund, in which he was active earlier. (He has since sold his stake.) The bank is now investigating whether its staff helped rig auctions of treasury securities in 2008 and whether they knew about the Libor rigging since 2005.
Several members of the executive board of the European Central Bank (ECB) have been meeting bankers and fund managers for sensitive policy decisions (Financial Times, November 9, 2015). One wonders if such meetings are more useful to the ECB or the market participants: a wink and a nod can communicate a lot! The same Financial Times article quotes Rosa Lastra of the Queen Mary University in London as saying: "Central banks have become supremely powerful and if power corrupts, absolute power corrupts absolutely. We need to be more innovative in designing accountability".
Corruption is a big word, but surely such actions and incidents lack at least the appearance of chastity - an essential attribute of Caesar's wife.
The author is chairman, A V Rajwade & Co Pvt Ltd; avrajwade@gmail.com
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
