A brief history of scandal

It is rare to open a newspaper these days without reading of some new financial scandal and it is notable that the companies and individuals involved are hardly minor. Two leading banks with major Hong Kong operations, HSBC and Standard Chartered, are busy dealing with serious allegations of wrongdoing by the US authorities. While in Hong Kong, property developer Sun Hung Kai, one of the city's biggest companies, is immersed in bribery allegations. Elsewhere in Asia, Japan's Nomura is recovering from a major insider-trading scandal and in both Europe and the United States scandals surrounding financial institutions have made the word "banker" synonymous with other words that cannot be printed here.

All this may produce the impression that something new or even unusual is happening in the world of finance, but the reality is that financial scandals are as old as the creation of money (think of biblical references to money-changers in the temple) the main difference these days is a matter of scale not substance.

Contemporary scandals follow a very well-trodden path of similar motives and outcomes. What is surprising is that the core motivation for many of those at the heart of these scandals is not necessarily greed, indeed, some of the biggest scandals involved little or no monetary gain for their instigators. Many of these scandals have no central player nor even involve any criminal activity, they are little more than wild reckless gambles that end as all wild reckless gambles end.

And, let it not be forgotten that, with few exceptions, these scandals would never have reached the levels they did without the gullibility, and of course, the greed of their investors.

Scott MacDonald and Jane Hughes have written a comprehensive account of financial scandals in the US called Separating Fools from Their Money, which traces the themes common to such disgraces, namely: greed, hubris, media connections, politicians-turned-opportunists, and the fertile atmosphere of booms before they bust.

Revisiting history we find that even the earliest of the big scandals have echoes today. Take Dutch tulip mania, which finally crashed in 1637. Investors throughout Europe persuaded themselves that investing heavily in rare tulip bulbs would yield fabulous returns and for more than three decades they were right. Like all these bubbles there was some basis for the craze, because Dutch bulbs were indeed highly valued and rare colours were richly prized, but sometime during the all-consuming mania sharks moved in and everything erupted way out of proportion.