17 September 2009

The Love of Money

The BBC has produced what it calls a "Series offering a definitive account of what happened to create the greatest financial crisis for eighty years", entitled The Love of Money. The series is remarkable in that it provides a window into the thinking of the people that were/are in the driving seat, and whose decisions for better or worse brought us to the current mess.

To be frank I am completely shocked by former Lehman Brothers boss Dick Fuld's admission that he simply didn't know what had happened. Fuld can be seen chastising the media, as if journalists had anything to do with his irresponsible business decisions. The icing has to be another interviewee explaining that Lehman's owed 44 dollars for every dollar they had. How can that be sustained over the long run? It can't, it couldn't, but one of Wall Street's puportedly greatest minds just "didn't know what had happened", couldn't read the writing on the wall.

So if Fuld was the initial villain, now Alan Greenspan is meant to have caused the problem, many years ago, for having failed to regulate properly credit defaut swaps, despite warnings from financial authorities, and for keeping interest rates too low for too long, contributing to the creation of the notion of free money. Given that Greenspan was the figurehead that dictated the line to be towed by chiefs from central banks from around the world, his oversight is the ultimate culprit. Greenspan defended his position by arguing what any commonsensical person would: i.e. if you own or run a large financial institution, or any business for that matter, it is in your best interest to look after the shop and not do anything stupid, such as lending money to people that you know have no means to pay back, regardless of whether or not the money you're lending was given to you "for free". That's pretty straightforward, isn't it? Obviously no one told the bankers that there's no such thing as a free lunch. Greenspan's position was informed, I think, on the belief that any businessmen out there is trying as hard as she/he can to earn as much money as possible, while factoring risk in its appropriate dimension and ensuring that investments are backed by tangibles of some sort, not by a ratio of 44 to 1. Greenspan is of course a man of principle, he acted as such, his err was to think that everybody in the business world shared that particular premise with him.

And how about the politicians that were in charge and pushed the banks to lend money for electoral gain? Enters Fuld, he must have thought that if the government was short of forcing banks to lend, so that poor folks could get on the property ladder, then it stood to reason that when Joe Doe refused to meet mortgage payments, triggering a crisis of cataclysmic proportions, then he could pass the buck to those doing the pushing, or to anyone but himself. He miscalculated, and in doing so he did away with the trust that shareholders and associates placed on him and, of course, his reputation.

This whole affair is meant to be incontrovertible proof that capitalism does not work and I beg to differ. For what it proves, rather clearly, is that for human beings greed, and the prospect of betterment, self-enrichment, a quick buck, a freebie, in sum personal gain, stand in the way of reason, or of collective welfare, in almost every case. That is not a problem endemic to capitalism, rather it is human nature, and it is precisely why communism will never win the day. Examples of this behavior are seen everywhere, from Wall Street to Westminster, passing through Harare, Havana, Caracas or Seoul. Human errors are to be faulted, Capitalism continues to be the system that offers the greatest amount of individual freedom.

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