The collapse of several of the biggest banks and finance companies in America, including Lehman Bros, Morgan Stanley and perhaps even Citibank, and the general economic meltdown, which has compelled the US government to mobilise a massive $700 billion (Rs.3,360,000 crore) bailout package, raises several important questions about ethics, morality and the ugly face of contemporary capitalism.
All investigations and analyses of the economic upheaval in the US, clearly indicate that the root cause of the banking collapse, which has bled the entire US economy, was the unrestrained greed and consumerism of bank managers, and hitherto trusted leaders of America’s financial community. In frenzied pursuit of huge bonuses running into hundreds of millions of dollars per year during the past decade, they threw all norms of banking prudence to the winds, recklessly advancing massive housing loans to millions of ineligible borrowers.
Next, greedy financiers sliced and diced risky real estate loans shown as high-value assets of American banks, packaged them into complex interest bearing financial instruments or derivatives, which were recklessly given AAA plus ratings by complicit securities rating agencies, and marketed them downstream to governments, banks, financial institutions and publics worldwide. When housing starts overtook public demand and the real estate bubble in the US burst, banks and finance companies, which had issued these new securities, were unable to redeem them. Hence the massive chain reaction of bankruptcies and bailouts in the US, which threatens a global economic depression.
For the prime target audiences of this publication — teachers, students and parents — there are several morality lessons to be learned from the great economic and market meltdowns of 2008, which could form the basis of socially positive new year resolutions. The first of them is that contrary to what the infamous financier Gordon Gecko famously declared, greed is not good. Millions of people around the world, far removed from the charmed circle of banking and finance insiders in Wall Street, New York, are paying a high price by way of wiped out savings and jobs, because of the avaricious pursuit of ever higher salaries and bonuses by well-paid bankers and financiers.
The second lesson is that socially responsible citizens worldwide should exercise restraint, and impose self-determined limits on consumption. The suspect economics of the school which advocates ever-increasing consumer spending as the prerequisite of national development, needs to be buried once for all. The global economic slump of 2008 has established the supremacy of Keynesian economics which mandates saving and investment as the best prescription for the prosperity of nations. Restrained personal expenditure and high savings facilitate greater investment in public goods and services.
Moreover, the third and perhaps most important lesson is that savers and investors shouldn’t over-rely on financial mavens and media-hyped ‘experts’. The definitive lesson of the global economic and market crash of 2008 is that nobody can be as protective of your savings as yourself.