Caveat emptor

In my previous post, where I introduced the raison d’être of this blog, I already mentioned briefly the issue of moral misconduct in the financial sector. Now since this is one of my “favourite” topics, I’d like to dedicate my first real post to one particular aspect of it: the principle of caveat emptor.

Taken literally, it means ‘buyer beware’. It is a common and widely accepted legal principle, practiced throughout the financial sector to indicate that clients and consumers are ultimately responsible for what they buy. So if either a senior trader at Citigroup or a certain John Layman from Uppsala municipality would decide to acquire a set of stocks or a mortgage, both should know whether it’s a good deal.

Fair enough, you might think. But in fact, caveat emptor has a dark side. In his influential book Swimming with Sharks (‘Dit kan niet waar zijn‘, in Dutch) Joris Luyendijk describes the principle as one of the main reasons for the widespread amoral behaviour in the financial sector, especially the City. As the responsibility is placed in the hands of clients and consumers, bankers are freed from any moral considerations related to their sales. Ethical questions regarding the ‘good’ or ‘bad’ nature of a trade are completely ignored. Why would a banker care about a shady loan posing a significant risk for their counterpart in a deal? After all, it is the buyer who ought to be vigilant, not the seller.

From this line of reasoning, it is tempting to conclude that caveat emptor  contributes to amoral behaviour among bankers in a systemic way: they simply internalise the amoral aspect of the principle. However, the story is not that straightforward. As I will illustrate below, the amoral behaviour as described by Luyendijk can also be explained from an individual perspective.


According to one important account in moral psychology, attributing blame to others is a common expression of moral disengagement. Blaming others for the harmful consequences of your own behaviour is an effective way to disengage from moral self-sanctions. As a result, you do not acknowledge the reprehensible nature of your behaviour because it is framed as if someone else is to blame. Examples of this process abound, like the rapist who blames his victim for wearing a short skirt.

In our case, the principle of caveat emptor is distressingly similar to the attribution of blame in the framework of moral disengagement. From this point of view, shifting the burden of responsibility towards clients and consumers is in fact a cheap and easy way to get rid of any blame when shit hits the fan. This is precisely what happened during the 2008 financial crash, with bankers skilfully practicing the art of redirecting blame when asked how they could sell so many “shitty deals” (see: US Congressional hearing of Goldman Sachs).

Worse still, not much has changed since then. Unsophisticated clients are continued to be called “muppets” and bankers trained in the Anglo-Saxon tradition are more than happy to sell us their morally dubious products. I am quite convinced that, for as long as bankers enjoy the legal protection of caveat emptor, the financial sector will not get rid of its amoral logic. Taken as a whole, the sector undoubtably reinforces reprehensible behaviour through certain practices, such as its merciless hire & fire culture. Yet the origin of the problem must be found at the individual, who exploits any opportunity to switch off his or her conscience – not only when money and prestige are involved, but especially when it is perfectly legal not to care about other people’s interests.

Above all, we need to counter this perverse incentive by educating bankers differently: instead of focusing on what is strictly legal, bankers should consider whether their behaviour is also moral. Easier said than done, for sure. But what if we manage to change the perception of the future banker? What if a new generation of financial actors favoured a return of ethics in their profession? What if we, as consumers, would demand that banks play by our rules?

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