Thursday, June 25, 2009

The Blame Game

I am all for the minimal participation of government in the private sector, since it has been indisputably demonstrated that the efficiency of the free market is far superior to the unproductive and incompetent functioning of the bureaucratic legislative based institutions.
As to whether the government is solely responsible for the sub-prime crisis remains and will continue to be an item of debate for many many years to come. In my opinion there is ample blame to be spread around.
Certainly, the promotion and encouragement by the government to expand the housing market was based on ridiculous assumptions and was the consequence of the grasping for power by many of the elected officials in both the congress and executive branch of government and incidentally both political parties.
There is no doubt that many politicians bare some the blame for the inflating of the asset bubble in the US housing market. But the responsibility for this mess cannot be only ascribed to the likes of Barney Frank, Chris Dodd and a host of other incompetent and megalomaniacal individuals who are not exclusively Democrats.
Alan Greenspan is certainly complicit in this fiasco. He has done nothing except bail his corporate buddies out since October 19th 1987 when he gave Wall Street a blank cheque to stave off a collapse of the investment firms.
That fiasco was perpetrated by rogue traders and investment bankers who made appalling and unrealistic assumptions using derivatives as a vehicle to increase returns under the guise of portfolio protection…déjà vu perhaps.
The portfolio insurance was not done at the request of Washington just as I doubt that there was an explicit request by legislators to market Wall Street’s financial alchemy to unsuspecting foreigners…condoned perhaps…but there is little evidence that Washington actually promoted such activity—instead they choose to ignore it. Since Greenspan took over at the Fed, he has done nothing but abuse monetary policy and tainted the originally valid and effective policies espoused by the monetarist economists that led the Reagan revolution. A continuing pattern of tacit bail-outs by way of irresponsible and economically incongruous interest rate policy and money creation acted as a band-aid solution to an ever increasing unsustainable economic environment in the USA . This became the status quo as evidenced by the 2000 hi-tech melt-down. The Feds are clearly complicit in this catastrophe.
The culpability does not end there. Wall Street obviously must take some responsibility for the consequences of creating and sustaining an atmosphere of insatiable greed that was founded on economic assumptions that were unreasonable at best but could be better described as irrational and fundamentally self-destructive. Long term sustainability and legitimacy of the financial arena did not really matter to the architects of the investment products that put, not only the bank system in jeopardy, but also affected the entire population. When children are allowed to play on their own and it becomes apparent that their behaviour has become dangerous to others and more importantly self-destructive in nature, the people that are responsible for them must demonstrate some oversight so that their behavior does not result in irreparable damage to all concerned. In a free market it is imperative that some self-regulatory body or a government sponsored regulatory body assume this role. Washington (SEC) and the Stock Exchange’s self regulatory bodies choose to ignore the high jinks being conducted by Wall Street. As you alluded to, regulation is essential for the efficient and fair functioning of the free market. This did not happen!!!!
The regional banks and mortgage corporations that allowed and even condoned the reckless use of mortgage debt obviously bare responsibility as well.
While it is true that banks and mortgage corporations were encouraged to lend, that does not excuse the fact that the executives threw caution to the wind and lent money based on ridiculous assumptions in an unrelenting quest for short term profits in a economic milieu that had become void of all logic, responsibility and accountability. The executives that were generously compensated for their mismanagement surely bare a slice of responsibility.
Individuals, who were overcome by temptation, greed and living beyond their means also must accept responsibility for the consequences of an atmosphere of blatant consumption and blind ambition. In a free society it is the onus of the individual to make decisions that reflect a rational and accountable standard of living. A society driven by insatiable consumption, financed through the assumption that all will continue to be well is not only irresponsible but allows the seeds to be sewn for the type of fiasco that America now faces. In a culture where liberal individualism is the ethos, it is only prudent that these individuals take responsibility for there actions. Evidently, this has turned out to be not the case.
There is abundant blame to allocate to all facets of society, not only to government but to corporate citizens as well as individuals.
With respect to the likes of GM and Chrysler, it is a fundamental error to bail these entities out. THEY SHOULD BE ALLOWED TO FAIL and subsequently allow the pieces fall where they may, which will undoubtedly result in a reallocation of resources in other sectors of the economy, albeit not without some severe pain for individuals and corporations. These failures have been on the horizon for many years. Management and Labour unions bare responsibility for this since they allowed the business model to become irrational and unsustainable. When the auto industry derives most of its cash flow from financial activities it is a sign that the core of the industry—production—has become secondary in nature and that the competitive edge will be lost to business entities that focus on the core function—the production of quality automobiles. The workers and executives of the auto industry did not heed the basic principles of industrial production; instead they focused on short term financial gain at the expense of the long term viability of the industry. Allow them to pay the ultimate price.
In a school yard when the bullies take over, it is only appropriate that supervision must be increased to protect not only the innocent but to ensure the continued existence of a safe and cooperative environment. Likewise in a society that has lost its moral grounding and has devolved into a predatory and unsustainable mode of existence, it is not a surprise that increased scrutiny and regulation increases with the objective of perpetuating a mode of existence that has proven to be the most efficient and effective economic
model: that being free market capitalism. America ’s move to the left is a direct result of the abuse of the liberties that made the nation great.
Culpability is not the issue. The important point that must be acknowledged is that America has suffered a severe decline in morality. This is evidenced in many facets of society, not only in the financial arena.
corporations and individuals must learn to conduct themselves with not only effectiveness but to also incorporate a sense of excellence in their activities. While effectiveness results in optimal production, consumption and material comforts: its essential counterpart—excellence of character is essential for the sustainability of a society that has contributed so much to mankind.

1 comment:

  1. this is pretty heavy reading R.D. but you make some rather valid and obvious points that many people, while they would agree, fear to state openly for fear of being pegged as radical or politically incorrect - imagine the humiliation and shame of carrying such a label. i suppose it is more honorable these days to be a thief or a liar... morality and ethics seem to be ever elusive so i look forward to more blogs. first time reader