The irony of the financial crisis
September 19, 2008
Two stories, one reflected up on by Jeff Nolan and another extracted by Richard Murphy made me think about the irony of what’s going on in the US right now and which may yet wash over to Europe.
The first story from the NY Times lucidly explains the actions of the US government in making bail or not decision in the cases of AIG, Fannie and Freddie, AIG and Lehman Brothers. The second, from the FT asserts: This greed was beyond irresponsible.
Here’s the irony. The very methods which at one time put millions into trader’s hands yet got these institutions into trouble and which are finally the source of public outcry will mean the US taxpayer foots the bill. Despite that many are complicit in tax avoidance as a core strategy for business planning. Forget the rights or wrongs of bailing out or ditching institutions under stress. What government can turn a blind eye to that toxic combination? And just why should the taxpayer bear the brunt?
If it is going to be policy for government to act as the final backstop when markets run into trouble then surely there has to be a much more rigorous form of examining what’s going on within the financial services industry. Deregulation is fine but as one colleague said today:
The fact remains that government’s role in our economy is at an all time low right now by ANY measure. We’ve tested the limits of pure free market, fend for yourself capitalism and frankly it sucks.
I’ll add in something both Richard and I have long said or implied: without a morally bound ethical compass, we all go to hell in a hand basket. Courtesy of inept and emasculated government, aided and abetted by an incompetent audit profession bending over to an industry that has a single agenda: greed at any cost. Does that seem right to you?
UPDATE: added video from Loic LeMeur via Seesmic - more irony.
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Hi Dennis,
Hyperbole nothwithstanding, I’m not sure that the role of the government is at an all-time low. The main problem is its dishonesty, and the public’s somewhat willful ignorance, about the magnitude of its role.
On the one hand it “deregulates” sectors of the economy and reduces oversight vigor and powers. On the other it favors and backstops industries — often w/out spending tax dollars (at least to start) — financials being the prime beneficiary as always. The NYT Freakonomics post’s Q&A lays out the Fannie and Freddie “competitive” advantage.
The dishonesty comes in because the pols can say: look we didn’t raise your taxes, raised spending only on entitlements or faddish “priorities” (e.g., corn ethanol), and are getting government “off your backs.” Of course, in this case the Feds have created the ultimate off-balance sheet liabilities.
No doubt greed made it worse, but there aren’t many clean hands in this mess. And certainly not in the current adminstration and the last several Congresses.
I’d link to my own post, but my 3 1/2 year-old has to get to pre-school. Now!
[Reply]
@Alastair: I understand the audit issue only too well but that’s where innovative thinking can push back.
@Paul: I’m not pointing the finger at any one factor or group though I do believe government has a key role and I do believe the audit profession is abrogating its duties to investors.
Right now I sense there is a prequel going on to the later carnage where the finger pointing is implied. My take: no-one’s to blame but everyone’s responsible. That sharpens the focus. To be brutal, government, regulators, FS CEOs and senior Big 4 audit partners should be sitting in a room somewhere and openly admitting: “We’ve really screwed up this time. Now what?”
[Reply]