While dishonesty, in all its forms, is ultimately counter-productive (well, that’s the thesis of this Blog) sometimes integrity, as in a steadfast adherence to a strict moral or ethical code, is complicated.
Take, for example, something very clear. A person pays for an item in cash at a checkout and is short-changed. That person has every right to point out the error and receive the correct change. A person pays for an item and is given too much change. A person with intergrity points out the error and pays back the excess change. A person without integrity thinks this is a lucky day and walks out the store feeling pleased.
Now take the present global economic crisis. So many people being affected, so much anger and, yet, an almost impossible job of knowing who or what is to blame for the circumstances that we all find ourselves in. In other words who really cheated and lied their way to personal (and corporate) gain. Actually, let’s peel back the skin on that. Has there been cheating and lying?
Instinctively, thousands feel that something went wrong and many are pointing the finger at an unholy alliance between the bankers and government. But feeling something instinctively and knowing the truth are two very different matters.
Baseline Scenario’s analysis is receiving a wide following and is predicated on the idea of that unholy alliance with the banks. But a recent commentator to a Blog post on Baseline, Per Kurowski, a former executive director of the World Bank, no less, showed the dangers of not constantly keeping an open mind about complex issues. He says,
Where were you (Simon Johnson) in the Basel II debate when some of us wanted to discuss the bias in favour of the large banks? What did you say about this while at the IMF?
At this moment, well into the crisis, the faulty principles of Basel II still rule.
and goes on to say,
The root of our current problems lies in that the financial regulators decided they could arbitrarily meddle with the risk-allocation mechanisms of the markets. The regulators tax, with large but still acceptable capital requirements, anything that in the eyes of the credit rating agencies could be deemed as risky, and subsidize, with extremely small capital requirements, anything that the credit rating agencies deem carries low risk. For instance, when lending to AAA borrowers, the banks are authorized to leverage their capital 62.5 to 1.
How do we fix it? Clearly by ordering the financial regulators not to intervene in this way. And also by starting to think about what the real purpose of the banks should be. That has not been on the agenda for decades.
I do criticize Simon Johnson for focusing on the bad bankers and refusing to take up the issue of the regulators being wrong (and again not because they sold their souls to bankers).
(My italics and minor editing, PH)
Let me repeat two very important sentences. “And also by starting to think about what the real purpose of the banks should be. That has not been on the agenda for decades.”
Somewhere along the way, we have lost sight of what purpose banks have to a society.
Finally, an interesting and reflective article in the New York Times last Friday leaves the reader with the same, unanswered, questions. What really were the motives for rescuing the mega banks? Will we ever learn the truth? What have we created, in terms of at least unintended consequences, for the future?
By Paul Handover