IN BOTTOMLESS PIT: WORLD ECONOMY OR ETHICAL VALUES?

Bernard Madoff is certainly a part of it, but the madness is deeper than
just the Madoff Ponzi scheme. There is a global pattern. No one seems to
claim the process and seek a patent. There is no cross-border conflict in this.
Enron was not the beginning; and Allen Stanford is not the end. The
humankind has learnt to turn greed on its head and make a virtue of the vice
that you thought it was.

Greed is an ocean that appears to have devoured the majority of

people across nations. Take for instance, the United States. It comes as a
much less corrupt nation on the world corruption index. But the sheer greed
of making a fast buck on the housing market built up a huge bubble, which,
when it eventually burst, plunged the entire world into fathomless recession.
It was an irony that Fannie Mae that Franklin D Roosevelt legislated into a
GSE in the wake of the Great Depression of the 1930s to stimulate demand
in the economy was a major character in the drama that climaxed into the
present state of unprecedented level of unemployment in the world’s largest
economy.

If only George Bush had spent on revamping the healthcare system

half the money that he was constrained to commit when the sub-prime crisis
sent the US economy hurtling, instead of allowing the number crunching
“quants” to help spawn mortgage-based securities that would fuel the
housing bubble! If only Bush’s policies had encouraged job-creating
investments in the real economy rather than turning a blind eye to the
structured finance products being created by the “quants” in esoteric models
that promised huge profits without any apparent risks! Or, were the
investment banks that collapsed like nine pins were in perpetual denial mode
that they refused to factor in the risks? Maybe, the investment bankers who
ran the show took the principle of an incorporated company being an
independent legal entity to absurd, and at times unethical, lengths by
exposing the banks to the greatest risks by feeding the public greed, while
filling their own pockets deep with enormous salaries and bonuses. What
else could have been the motivation to dispense with due diligence process
by encouraging no-documentation mortgage applications through a network
of unscrupulous mortgage brokers? Did they not know that, when structured
finance products fail, the first party that would immediately and
devastatingly be affected would be the investment banks themselves as it
inevitably happened? It is quirky that it is because of the very stickiness that
is the hallmark of the banks in India, including the foreign banks operating
in India, in being truly diligent in their verification processes – to the extent
of being irritating at times – that such derivative products can thrive in
Indian markets at all times without the risk of ending up in a fiasco.

If the US recently had two representative individuals in Madoff and

Standford subverting the system, India’s Satyam Computers was confidently
bluffing its way through, misleading the shareholders and the regulators
alike through fudging of the books of accounts for years together. What were
the globally reputed auditors doing? Were they in such an awe of the
promoter siblings at Satyam that they tossed the accounting standards into
the winds and made the proud knowledge workers of Satyam Computers
look pussy cats? What is the use of the independent directors and statutory
auditors, if they cannot prevent such gross misdemeanors? The recent
transgressions highlight once more that no amount of regulation can replace
a strong value system to keep the human race on the right side of the law.

What is more disgusting is the alacrity with which the political class
moves in to sweep everything under the carpet and, in the garb of being the
saviors of the people, economy, and of the nation, stitch together packages to
bail out the very same corporations that presided over the mayhem in the
first place. If it was Bill Clinton who, in 1997, opened the floodgates of
mortgage-based securities and less-diligent lending to prospective home
owners, Bush appeared to show some sanity in 2000 to plug it. Then the
reversal of roles: Bush gave in to populist pressure in 2004 and Obama is the
current savior. Ding-dong, ding-dong…familiar?

If you look at the present world economic situation in a nation-neutral

perspective, you would probably find that what is right now holding back
much needed investments and credit expansion to kick-start the world
economy is the fear factor. Is the self-limiting greed for a fast buck on the
run, the undoing of capitalism itself from time to time? Assessed in this
context, would you not be tempted to classify the great John Maynard
Keynes a philosopher rather than an economist?