Lack of ethics to blame for economy’s collapse

In the wake of all the economic devastation wrought by a combination of record high energy prices and massive over-leveraging in the commercial banking industry, we’ve been treated to a surplus of talking heads all too willing to blame it all on the excesses of capitalism.

In the wake of all the economic devastation wrought by a combination of record high energy prices and massive over-leveraging in the commercial banking industry, we’ve been treated to a surplus of talking heads all too willing to blame it all on the excesses of capitalism.

You can’t go a day without coming across some public figure or shaper of public opinion talking about how lack of oversight and regulation caused this, or how our current economic problems are the result of the inherent problems of capitalism.

Well, no, they’re not.

The single biggest issue that is causing us the most grief right now is the collapse of the U.S. banking system, and it wasn’t from lack of regulation. It was from lack of ethics.

If you spend as much time reading about the investment banking industry, at least in the last few months, as I have, you’ll come to understand a unique and troubling feature of that whole industry.

Essentially, Wall Street is a closed shop. Nobody gets in who isn’t already in.

Critics of the investment banking community have seen that it is almost a strictly Ivy League community, and the problem with that is that Ivy League educations have become almost the sole purview not of America’s best and brightest, but of the most financially successful.

It’s not that a good number of Harvard and Princeton grads aren’t exceptional in many ways, it’s that far too many of them are exceptionally average in all ways except for family net worth, and far too many of them end up managing billions of dollars of other people’s money.

For example, Chelsea Clinton, daughter of Bill and Hillary, is a hedge fund manager at the age of 26, having amassed no apparent experience in determining the inherent worth of various types of businesses and investments.

Admittedly this is but an illustrative snapshot of the root problem.

As I mentioned, many people have suggested that lack of regulation in the financial sector and the inherent nature of capitalism have led to the banking meltdown. What is lacking in this attitude is any real grasp of the scope of pre-Bush era meddling in the American banking system, and how it has led to today’s problems.

Fannie Mae and Freddie Mac were the real forces behind sub-prime mortgages, which are essentially very short-term financial instruments.

Once you get a couple of thousand underemployed “Billy Joe Bobs” mortgaged up in a house they can’t afford, you package all those mortgages up with some good ones and sell them, taking a nice hit in the process.

A big chunk of those sub-prime instruments ended up in the long-term retirement plans of millions of “Joe and Jane Sixpacks” and they weren’t worth the paper they were printed on.

The powers that be at Fannie and Freddie knew what they were doing was wrong, as did every investment bank involved in the sub-prime mess.

It wasn’t a question of regulation; it was a question of right or wrong, and choosing wrong largely because the Clinton administration was demanding they do so.

It spiralled slowly out of control from there. At the same time, a small handful of Clinton cronies who remained at Fannie and Freddie throughout the Bush years have pulled down some $30 million in bonuses, even when those two foundations were reeling from the impact of the sub-prime meltdown.

In every instance of failure at the investment banking level, cronyism and ethical failure were the root problems.

The American public is rapidly waking up to this, and they’re not happy. They are well aware, more aware than many groups of citizens, that regulation and socialism are no antidote to ethical failure.

The fallout from the AIG bailout, and the bonuses being paid to derivatives traders (read: sub-prime traders) have struck a chord.

The hundreds of billions of dollars being pumped into the investment banking community represent one of the greatest assaults on private wealth in American history.

Meanwhile, Americans are fully aware that socialist countries are even less resistant to corruption and ethical failure than are capitalist democracies. This is best illustrated by the fact that Fidel and Raul Castro are multibillionaires, according to Forbes magazine.

Closer to home, witness the serial plundering of the public treasury by the Chretien Liberals, as well as the very tight connections both Chretien and Paul Martin have to various UN aid-related controversies.

Always remember, government oversight is no substitute for a clear sense of ethics.

Bill Greenwood is a local freelance columnist.

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