For favour of publication. Kindly acknowledge receipt. =Averthanus= _____
FINANCIAL OR MORAL MELTDOWN ? Averthanus L. D'Souza. The entire world is gripped with anxiety about the deteriorating situation of the Financial Institutions all over the globe. As President George W. Bush put it - it is a case of anxiety feeding on anxiety which is bringing about the collapse of the entire banking system. Contrary to all their proclaimed policies of non-intervention in the affairs of the banking system, Government after Government has intervened to take over the many Banks which were going into liquidation. In effect, this is the collapse of the Capitalist system, although no one is calling it that. Unlike the Great Crash of 1929, one does not see long queues of people lining up outside their Banks to withdraw their deposits. What is happening, instead, is an invisible run on the Banks. There is an internal haemorrhaging within the Banking system. Banks are refusing to lend money even to other Banks because they are not confident of getting their money back. This is being euphemistically described as a "crisis of confidence." Individual Governments are taking steps to "restore" confidence in the Banking system, but they have realized that in a rapidly globalizing world, national efforts alone cannot stem the meltdown. This is a global problem which needs to be addressed globally. Ideological differences have become irrelevant and antiquated. Both Capitalism and Socialism (even in its more radical manifestation of communism) simply have to be abandoned in the face of the global financial crisis. The political response of Governments needs to be coordinated. The "common man" is simply baffled by all the technical jargon which he encounters in the media. The analyses of the various charts of the different Stock Exchanges does not make any sense to him. He does not understand how the reduction in the Bank Rate of the country can be helpful in preventing the further loss of confidence in the ability of the Banks to honour their commitments to their depositors. People in the United States of America and in Europe, particularly, are apprehensive about retaining their jobs; they are worried about repaying the huge loans which they took to buy their houses, their cars, their refrigerators and washing machines and other equipment. Unemployment and poverty stare them in the face. The scenario is indeed bleak; and the people do not know where to turn for redress. They do not understand the labyrinthine processes which operate within the Banking system. They deposited their money in the Banks "in good faith" and their "good faith" has been abused by the Banks which seem to have cheated them out of their money. The question which looms large is not simply a matter of Financial Management or of Economics. It is primarily a moral question. Have the Banks and the other Financial Institutions respected the trust which the common man has placed in them? Did the Banks really "manage" the money wisely, or did they "exploit" their depositors and use their money unwisely? To what extent are the Banks morally obliged to repay the money which they have taken from their clients? Does a declaration of bankruptcy exonerate them from their obligations? Are the Boards of Directors of the "failed" Banks to be held responsible for their Banks going bankrupt? If so, what penalties should be meted out to them? Who is to bring them to book? These are not merely academic questions. They need to be addressed if we are to get to the roots of the problem. One thing is quite clear - viz. that all the attention is presently focussed on the symptoms. The media, the financial experts, Fund Managers and Commentators are describing the problem from their respective points of view, and speculating about the gradual unfolding of the global crisis. Very strangely, indeed, no one appears to be looking deeper than the symptoms to determine the root cause of the problem. They are appealing to the Governments to take charge of the deteriorating situation. To a man of common sense it appears obvious that the solution will be effective only if the cure is applied to the root cause of the problem. And the root cause, appears to be that the entire global financial edifice has been built on the shifting sands of greed and avarice. Greed has been institutionalized. Businesses as well as individuals have been encouraged to spend money which they do not have. Consumerism has been idolized. We have built for ourselves the Golden Calf of Mammon - the Credit system. (Ironically, the Bull represents growth in the Stock Market.) Any house built on sand is bound, sooner or later, to collapse. It is clear that the present crisis - which is also being called a financial tsunami - has not come about spontaneously. It has had a long gestation period. What is happening is simply that the "Market" is collapsing under its own unsecured weight. For a long time now, the Banks have behaved recklessly and irresponsibly without following the common-sense principles of Banking which have evolved over centuries. The corporate greed of the Banks has both fuelled and preyed upon the individual greed of their clients. The Credit System popularized by the Banks encouraged people to spend more than they can ever hope to earn. Banking ceased, long ago, to be a service to the common man. It became an instrument of financial manipulation of the "Markets." Using the money (mainly) of small investors the Banks recklessly invested in the Stock Markets with a view to maximizing their own corporate profits. Instead of sharing their profits with their clients, they only enriched themselves - at the cost of their clients. Ordinary banking services, which used to be provided free of cost a few years ago became more and more expensive for the small depositors. The attitudes of the Bank employees became more and more arrogant and insensitive. The entire "spirit" of Banking was distorted and the system, instead of being a social service became a voracious monster which preyed upon its gullible depositors. The present crisis is being described as a Crisis of Confidence. The main ingredient is the absence of any credibility in the promises of the Banks. People have simply lost confidence in the ability of the Banks to live up to their promises. Even among themselves, the Banks do not trust other Banks to keep their promises to repay loans. This can be described in very crude terms as a situation in which dog eats dog and Bank eats Bank. There has been a falling out among the thieves. Under these circumstances, it should not come as a surprise to anyone that Banks are crashing every other day. Now, the very same Banking system which loudly opposed any "interference" by Governments in their operations, are appealing to their Governments to bail them out. A strange contradiction, if ever there was one. Some Finance Ministers are trying to reassure their citizens that their Banking institutions are less likely to succumb to the domino effect of other crashing Banks because their Regulatory Systems are stronger. Underlying all these "crisis management" strategies is the late realization that there can never be an "unrestricted and uncontrolled economy." Free Economies are mere slogans which have not withstood the test of time. Regulations, whether of the Economy, or of the individual, are an essential part of planned growth. This should not be under question. What needs to be debated is the nature and the extent of regulations which need to be put in place in order to ensure that Social Justice prevails. One sector of the Economy cannot be allowed to thrive at the expense of another. There are lessons to be learnt from the present global financial meltdown. The first lesson is that morality is an essential ingredient of any political, social or economic system. Unrestricted greed cannot be the foundation of economic prosperity. Those who loudly proclaim that morality (and religion) should be kept out of the "Market" place, need to take a fresh look at their fundamental premises in the light of this present global financial meltdown. Averthanus L. D'Souza, D-13, La Marvel Colony, Dona Paula, Goa 403 004. Tel: (0832) 2453628.