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The Great Moral Squeeze

Is it just a global credit crunch we are facing; is it merely a crisis of confidence?

Or have we stopped valuing values?

In reality, is it that we are in the midst of a global “moral bankruptcy?”

Does a strong ethical framework foster a healthy economic environment?

And, what can we do to regain our normalcy?

Note: This essay discusses a wide variety of ideas and draws from several bodies of knowledge. Therefore, it ought to be read with the cognizance that an in-depth exploration of the topics covered may warrant a volume in the future – of which this essay could form the underlying foundation.


Monday, September 15, 2008: Lehman Brothers files for the largest bankruptcy protection in U.S. history. The US government refrains to intervene to save the failing investment bank.

Tuesday, September 16, 2008: U.S. Federal Reserve presents $85 billion rescue package to the insurance behemoth: AIG. The move is made in order to avert larger, systemic shocks to the global financial system. The same day, Merrill Lynch, the third largest investment bank in the world is sold to Bank of America in a fire sale.

Sunday, September 21, 2008: In order to shore up their toxic balance sheets, two of the most venerable names in the investment banking world: Goldman Sachs and Morgan Stanley dropped their much vaunted investment banking status to become bank holding companies.

October 6-10, 2008: The Dow Jones Industrial Index falls 1874 points (18%) to record the steepest weekly fall in its history of 120 years.

Friday, October 31, 2008: UK’s second largest bank: Barclays announces a £7.3 billion investment from Middle East sovereign fund investors for roughly a third of its ownership.

Monday, November 24, 2008: US government and Citigroup together identify $306 billion in distressed assets on Citigroup’s balance sheet. Citigroup would absorb the first $29 billion in losses and various US government agencies would pick up most of the remaining tab. The Treasury Department also commits to a total $45 billion infusion into the bank.

Thursday, December 11, 2008: Former Chairman of Nasdaq, Bernard Madoff is arrested on a securities fraud charge that is estimated to be worth a historic $50 billion.

There’s plenty of other bad news to recount. But you get the picture.

So, what is happening to the world?

Globalization of Capital

“Globalization is a fact of life. But I believe we have underestimated its fragility.”

– Kofi Annan

Today, more than ever before, global capital markets are exactly that: global. They have ever greater access to information. They are ever more inter-connected and inter-dependent. And with the ubiquity and integration of financial data and transactional platforms, they have the ability to act across the globe on a real-time basis.

Furthermore, while some may argue that there has been a certain degree of “de-coupling” in trade flows between the West and the rest of the world, it is undeniable that there is an ever greater integration and fluidity in capital flows across the world. Globalization of capital across sovereign borders and economic blocs has broken down structural barriers that foster capital formation imbalances within economies. It is logical that when capital is given a free rein, then it will flow to fill up those gaps, i.e. geographies and industries which provide for the best risk-adjusted return on investment. However, one of the few unintended downsides to globalized unfettered capital flows is that such an environment precipitates the “hot money” phenomenon. In a world of liberalized national capital controls, a sophisticated and globalized financial system can swiftly spread a financial contagion. Today’s inter-connected financial markets can trigger higher and faster “wildfires” within and across discrete financial capitals of the world. As we have seen, from New York to London to Paris to Frankfurt to Dubai to Mumbai to Hong Kong to Shanghai to Singapore to Tokyo and to Sydney – the current contagion has spared no one.

In the 11 months since Jan 2008, the Dow Jones Industrials has lost a third of its value, London’s FTSE 100 has also dropped by 33%, Tech-heavy Nasdaq is down 44%, Tokyo’s Nikkei has lost 42%, Hong Kong’s Hang Seng lost 53%, Mumbai’s BSE Sensex is down 55%, and for all the talk about China’s fundamentals faring better in the downturn compared with all other major world economies, the Shanghai Stock Exchange Composite Index tells a different story: down a whopping 64%.

The synchronized behavior of capital markets around the world also points to another theme: As emerging economies become more and more akin to “producer economies,” and mature economies transform themselves into “consumer economies,” there is rising affluence in the emerging, producer economies. Wealth that is being created in the emerging economies is still largely being deployed into seemingly safer and broader array of investable assets within mature, i.e. developed economies. For example, the “investor class” of the emerging economies has much more confidence in the stability and liquidity of US treasuries than the bonds issued by their respective emerging markets’ sovereign governments. To use New York Times columnist Thomas Friedman’s oft-cited notion, the “world is flat”…hot and crowded. To our collective chagrin – regardless of where we are on the planet: we are experiencing the transitional “growing pains” of a fundamental and systemic re-adjustment within the sphere of international finance. For now, a “flat” commercial world is giving rise to a “flattened” financial world.

Add to that, as the financial markets have become ever more global, inter-dependent, transparent, and in some ways, democratic, their ability to arbitrage information has declined. Therefore, the other actors within the financial markets have developed ever more inscrutable and esoteric financial instruments to generate profits.

Rising Market Volatility

“Nothing travels faster than light, with the possible exception of bad news…”

– Douglas Adams (British Author and Comic)

In today’s global markets, traditional “herd-like” emotional responses to market gyrations are magnified by the ever greater and quicker availability of information (fact, sentiment and rumor). This phenomenon acts as a self-fulfilling “feedback loop” that gathers momentum embroiling ever greater numbers of investors and amounts of capital as it builds up like a wave sweeping across the globe. In the past, it took longer to grow a short-term or a long-term bubble from one asset class, economic zone or geographic context before it spread to the next. Today, it is virtually instant, across different asset classes, and around the world.

One can hypothesize that there is a direct correlation between the rising numbers of market participants (with access to real-time market information) within an asset class across the globe to the rising price volatility of that asset class.

Initial findings seem to support the above hypothesis. Case in point: the stock market bust that was led by the “dot com” collapse in the summer of 2000 was more contained than today’s global financial crisis due to:

1. Fewer market participants (retail investors) existed in 2000 than there are in 2008 within any one asset class: for example equities.

2. Fewer market participants existed in 2000 across various asset classes than there are in 2008: for example, number of investors across the globe in equities, bonds, currencies, derivatives, real estate, etc. is higher than it was in the year 2000.

The recent months’ intra-day capital markets volatility may provide further evidence to suggest that faster and greater exchange of financial and economic data offers up a double-edged sword: on the one hand, faster and greater access to information (fact or fiction) reduces information asymmetries for market participants across the globe. On the other hand, this free flow of instantaneous market data affords market participants to act in real-time on both positive and negative market sentiments. The upside: quicker and bigger market corrections due to quicker and greater exchange of factual data. The downside: quicker and bigger market distortions due to quicker and greater exchange of speculative sentiment.

Furthermore, one can assert that there is also a strong correlation between the velocity and volume of capital outflows in one asset class impacting the velocity and volume of capital inflows in another asset class and vice versa. The correlation, of course, can be direct or inverse depending on which two asset classes are being considered. For example, let us imagine that there is a closed financial system where no new capital inflows into, or outflows occur out of, the system as a whole. In such a system, the velocity and volume of capital inflows in one asset class (say, real estate) may have a negative correlation with the velocity and volume of capital inflows in another asset class, say, commodities.

The steep descent of oil from a peak of over $147 in July, 2008 to $47 in December, 2008, further reinforces the notion of dramatically greater volatility originating from the same “wildfire phenomenon.” It is a phenomenon where the velocity and volume of information and fund flows is directly impacting the price volatility of a particular commodity or asset class, in this case – oil. Of course, to state the obvious, the past eighteen months’ escalation of oil prices in particular, and commodity prices in general, have a distinct marker of significant governmental, institutional and trader speculation on futures contracts.

While such volatility in the markets ushers in interesting times for students of economics and finance, such uncertainty is profoundly de-stabilizing for the smooth functioning of economies across the mature and emerging economies alike.

After all, a certain degree of economic uncertainty generates a healthy band of risk-adjusted economic opportunity. It fuels somewhat prudent and efficient capital allocation – which results in value creation and a resultant healthy pace of growth in an economy. The current levels of financial markets volatility, on the other hand, are having insidious effects on the investment climate.


The reason is, in an environment of abnormal levels of volatility like the one right now, the band of possible economic outcomes widens to the point where the option of inaction becomes ever more attractive than the option of taking virtually any investment position. Of course, in such times, being on the right side of speculative positions would generate a lot of wealth for a few investors. For the markets as a whole, however, this level of volatility is harmful.

De-regulation – The panacea that never was

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” – Ernest Hemingway

With the collapse of the communistic model of Soviet Union and the Eastern Bloc countries in late 80’s, a dramatic unraveling of decades old power structures, bureaucracies, and regulations created massive vacuums in the social, political, and economic lives of these societies. One after another, these economies eagerly, and often all too impatiently, embraced various forms of free market capitalism with all its transformational opportunities and inherent dangers. Meanwhile, the West – particularly America – became triumphant and ever more assured that free market capitalism was the panacea for all social, political and economic evils. The question raised by the Western governments and intelligentsia was: How can we not de-regulate in a time when those diametrically opposed to our ideologies are in the midst of a de-regulation frenzy?

Hence, all throughout the 1990’s, financial de-regulation continued its slow and steady march – regardless of whether the Democrats were in the White House, or Republicans held the majority in the Congress, or whether it was the Conservative Party or the Labour Party that enjoyed a majority in the House of Commons. The 1999 repealing of the Glass-Steagall Act – that had been first brought into law in the wake of The Great Depression of 1929 – became a watershed moment for the financial services sector. In essence, this change meant that the separation between commercial banks and investment banks was no longer necessary. In addition, what it also meant was that banks could not only sell insurance products but now could also underwrite insurance. The result: a spate of merger activity and industry consolidation that resulted in today’s massive, monolithic institutions such as Citigroup, Bank of America, JPMorgan Chase, Wells Fargo (Wachovia) – that sold everything from checking and savings accounts to individual and corporate loans to mortgages to credit cards to insurance to bonds to underwriting, and so on.

They became too complex, too unwieldy, and too big to fail.

“Money is not the most important thing in the world. Love is. Fortunately, I love money.”

– Jackie Mason (American Stand-up Comedian)

The 1990’s also saw former Chairman of US Federal Reserve, Alan Greenspan’s peaking of influence on the world economy. Thanks to Greenspan’s monetary policies, this period was marked by cheap and abundant liquidity that kept building up silently in the US and across the globe for years to come. This period is fondly remembered as the “long-run, secular bull market.” As time went by, Greenspan’s prophecies became the stuff of legend. Policy-makers, economists and bankers alike hung by every word he said as gospel. They tried to decipher every assertion Greenspan made as a prized clue or a signal for something deeper, more meaningful and more valuable than it often was. Meanwhile, all of the cheap liquidity began to show up as perverse spending and investment binges involving an ever-growing number of unsophisticated investors. This, in turn, directly gave rise to a burgeoning investor appetite for equities (particularly the “dot bomb” stocks) in the late 1990’s, real estate in the early 2000’s, commodities and securitized debt instruments in the second half of 2000’s. Unfortunately, because of the outrageously high stakes involved, the most recent “financial innovations,” i.e. derivatives were put together like a string of obfuscations by some of the brightest minds coming out of Harvard, Wharton, MIT, Stanford, Princeton, London School of Economics, and other hallowed academic institutions.

According to Prof. Robert Shiller of the Case-Shiller Home Price Index fame, in the current crisis, the derivatives themselves were not so much of the problem as was the application of these instruments (meaning the enormous leverage the banks and hedge funds used to wager on these derivatives). Whether you agree with him or not, these instruments turned out to be built on untenable promises made by mortgage lenders to unsuspecting or over-optimistic homebuyers. Not-so-secure loans were sold by retail lenders as secured loans to merchant and investment bankers. Collateralized securities were rated much higher by ratings agencies than was prudent or responsible. Short sellers spread rumors of doom and gloom to line their pockets. And of course, high-risk, highly-leveraged derivatives often backed by sub-prime debt were sold by greedy investment bankers as low-to-medium risk investments to less-than-sophisticated or plain lazy buy-side investment community.

In fact, as of mid-November 2008, the asset-backed commercial paper market was valued at$845 billion. This value is post the 30% decline in their value since August, 2008.

An estimated $150 trillion (that’s right, trillion) of loans and derivative contracts are indexed to Libor across the world.  Markets are now trying hard to asphyxiate the toxic monsters of sub-prime mortgages,  Mortgage-backed Securities (MBS’), Collateralized Debt Obligations (CDO’s), Structured Investment Vehicles (SIV’s), Credit Default Swaps (CDS’) and other on and off-balance sheet instruments that in hindsight created little –if any – real value. And as part of this market exorcism, the global economy is being inflicted with wrenching pain and suffering.

Safety in Numbers

“We go by the major vote, and if the majority are insane, the sane must go to the hospital.”

– Horace Mann

The word on the street was: if a sufficiently high number of people would be on the wrong side of the issue, the rule of safety in numbers applied. Well, the numbers part did apply, and the safety part did not.

During the boom times, “free markets” were given as much a free rein to benefit from the growing “investor class” of wealthy high net worth individuals, investment bankers, hedge fund managers, asset managers, and private equity firms, among others. Millions of less than sophisticated investors got caught in the current financial crisis through one product or another – whether through an unrealistic home mortgage, or spiraling credit card debt, or a derivative investment, or a home equity line, or one of the other cheap credit-fuelled products. Now, tens of millions of average Joes and Janes through their savings, 401-K’s, IRA accounts, and mutual fund and common stock holdings are bleeding hundreds of billions of dollars. Somewhere along the way, the financial services sector (purveyors of easy credit-fuelled products) got too smart and too greedy for everyone’s good.

Ultimately, bad karma had to catch up.

And how has bad karma caught up?

Seemingly sophisticated financial market participants (investment banks, insurance companies, hedge funds, asset management firms, etc.) have suffered, and in certain instances, succumbed to what Warren Buffet calls, “weapons of mass financial destruction.” And now, expectedly, everyone – the perpetrators and the victims – are in that clichéd state of: fear, uncertainty and doubt.

Doesn’t history have a way of repeating itself?

In fact, there are several parallels between now and The Great Depression. On the back of years of easy credit, speculation was rampant across several asset classes such as equities, commodities and real estate then, just the way it was on this go around. There was a “trust” (investment firms that were publicly traded) securities bubble then just the way there was a derivatives (fixed income securities, commodities futures, etc.) bubble this time around. The role of investment banks in creating and selling new, arcane, and insidious financial instruments, was central then just as it has been in this crisis. And an unfettered financial markets regulatory environment and a damagingly loose monetary policy regime that spawned the market distortions then are strikingly similar to the “market fundamentalist” economic policy framework that has given rise to the current financial meltdown today.

Whether folks are aware of the parallels between now and the Great Depression or not, markets are spooked by the inability of the financial services sector to self-correct the excesses of its own offspring, i.e. products of financial engineering.

And therefore, markets find themselves underneath a cascade of events from housing price collapse, to home foreclosures, to personal and corporate bankruptcies, to the ever-growing sub-prime crisis, to millions of job losses, to an unrelenting colossal liquidity crunch, to historic stock market crashes, and to a potential US financial markets failure, and a global economic meltdown…and possibly the invocation of The D word?

So, how did we get here?

The Moral Argument

If we scratch just beneath the surface, we will see that it is not just a “credit squeeze” we are in, it is actually a dual and interconnected squeeze. The squeeze in credit is really a symptom of a squeeze in confidence. But, it does not stop at that either: Loss of confidence originates from a more fundamental place. It originates from a lack of trust.

And needless to say, lack of trust is one stop away from the root cause – often dismissed as an irrelevant and antiquated notion in the modern, pragmatic world of business, economics and finance – ethics and morals.

Greed, for a lack of a better word, is good. Greed is right. Greed works. Greed clarifies…”

– Gordon Gekko (character played by Michael Douglas in the movie: Wall Street)


Trust, one may argue, is better. Trust unites. And, trust liberates. Most of all, trust elevates.

Trustworthiness earns us the entitlement of being called human and civilized.

It is the glue that ties individuals – businesses – communities – societies – in fact all relationships together. It gives us a symbiotic construct within which to co-exist with fellow humans.

One may argue, it naturally waxes and wanes with the continuously changing cycles of how much integrity or “moral equity” or “ethical capital” there is left in a society at a given point in time.

The disturbing state we find ourselves today is: trust is running dangerously low.

In the continuous cycle of peaks and troughs of honor and integrity, and yes, consumer and investor confidence, our times and our societies are experiencing for themselves what comes out of violating universal values. These universal and timeless values are deemed sacrosanct and inviolable for a civilized society to function with some semblance of order and certainty. It is those values which are considered the most basic, common denominator that have been, and should be, considered a given. It is these values that aggregate to what we commonly refer to as our moral compass.

It is our moral compass that protects us from giving in to Gordon Gekko’s “greed is good” mantra.

It is our moral compass that steers us clear from mistaking a healthy dose of Rand-ian Objectivism (the operating philosophy of legions of Wall Street bankers and Corporate America’s CEO’s) with a “tunnel vision” and perverse pursuit of Chicago School economics agenda.

It is our moral compass that provides a degree of certitude to the other (whoever that other might be) that regardless of what we stand to gain or lose, we will honor our commitment to deliver on our promises (whatever our promises might be).

It is our moral compass that navigates us through life’s numerous temptations.

It is our moral compass that guides us to do the “right thing” – for the right reasons.

It is our moral compass that through hundreds, thousands, millions of big and small interactions and decisions keeps the society’s trust intact.

Could it be that what we are really facing is a colossal “moral bankruptcy?”

“…Pay my respects to grace and virtue,

send my condolences to good,

give my regards to soul and romance,

they always did the best they could,

and so long to devotion,

you taught me everything I know,

wave good bye, wish me well,

you gotta let me go,

are we human…”

– From the song “Human” by The Killers


Glamorous, effective, and even practical as it appears, unethical and immoral behavior leaves the perpetrator and the victim impoverished. It is intoxicating but temporary. It leaves societies and economies stagnated or regressed. And it strips us of much that makes us civilized, cultured, and yes, human.

Governments, of course, cannot legislate morality. They can, to varying degrees of success, regulate business practices. Few would disagree that the numerous regulatory institutions and their complex and arcane control mechanisms in mature and emerging economies such as US, UK, France, Germany, Japan, China, India, Korea, among others have been able to regulate their markets to varying degrees of success. That was true until the current financial crisis began.

Governments can punish irresponsible, unethical or immoral behavior. Perhaps, through certain policy measures, they can even marginally incentivize ethical and moral conduct. Consider trading of carbon credits as an example.

With a clear sense of ethical direction, even companies can competently regulate their business conduct through governance standards, through audit committees and internal audit departments, through risk management departments and their policies and procedures, through their auditors and consultants, among others.

Ultimately, though, it is individuals who constitute these organic, evolving societies – who have to live by certain organizing principles that are governed by a broader social and moral code as well as a narrower administrative, legal and legislative framework. And if individuals do not or cannot self-govern themselves with a clear and broad set of rules of engagement, then the government can only do so much through its regulatory levers. But that does not mean it should forego its social responsibility and absolve itself of its moral obligation.

With that in mind, who is most accountable for this mess? Who is primarily to blame?

“It's not whether you win or lose, it's how you place the blame.” – Oscar Wilde

Wasn’t it too long ago (circa 2002) that the Enron and WorldCom accounting scandals broke out? Didn’t the venerable auditing firm: Andersen go down as a casualty of the Enron fiasco? In the aftermath, didn’t Sarbanes-Oxley Act come along to transform governance and accountability in corporate America and had ripple effects across the global business community? Wasn’t the multi-billion dollar, global industry spawned by “Sarbox” or “SOX” compliance developed to protect the shareholders from reckless management practices and to provide early warning signals for financial malfeasance? And by the way, didn’t the regulatory burden of SOX compliance squelch the listing of high-growth entrepreneurial companies on Wall Street and greatly benefit London to supplant New York as the new worldwide leader in public equity listings?

Defenders of SOX would argue that it prevented many more accounting scandals, it made CEO’s and CFO’s more accountable for their companies’ financial statements, it provided greater oversight powers to Audit Committees of publicly and privately held companies, and in any case, SOX had little to do with the amount of leverage an institution could carry on or off its balance sheet. It is posited that the Basel II regulations were supposed to take care of issues like banks’ risk management, capital adequacy, and leverage ratio issues.

Auditors, rightly, would point out that the odds are stacked against them because the complexity to which accounting standards have evolved – and the disparate, distributed and fragmented nature of their clients’ global operations – makes for a breathtaking challenge to uncover financial irregularities. It is like finding the proverbial needle in a haystack.

In the ra-ra years of easy credit and even easier profits from the toxic derivatives that have been lately uncovered as the poison that ate away our collective trust in the markets and in each other, surely there must have been voices of reason within risk management departments of financial institutions and corporations across the world. But since this train-wreck was ultimately not averted, one can safely hypothesize that those voices were drowned out by aggressive and greedy bankers, corporate lenders, fund managers, among others. Even if the bankers were scrupulous or discerning enough to understand what was going on, they did not want to disrupt the gravy train of multi-million dollar bonuses coming their way.

Then, there were Wall Street’s research analysts who track company performance for a living. They were expected to scour the financial statements of the companies they cover for issues that could be material to the ongoing profitability and viability of these companies. Prior to the financial crisis, there were few analysts who forewarned investors in stark enough terms to provoke a response toward the stocks of publicly-held investment banks indulging in this high-stakes gamble. The ratings agencies fell spectacularly short of assessing the risk profiles of various companies and the securities floated by these companies for the public capital markets. There were brokerages – which make a living ostensibly by advising clients on helping pick investments that would yield them an appropriate risk-adjusted return on their investments. Then there was the not-so-elegant dance that investment banks, insurance companies, and bond issuers were doing together around Credit Default Swaps (CDS’) – exposure to which was not being reported to the investing public with the appropriate level of transparency. These constituencies were not even in a position to price CDS’ on a “fair market value” basis – especially as markets got ever more illiquid.

There were auditors, accountants, and consultants who were supposed to ensure that companies’ strategy, operations, and finances are up-to-snuff in the face of an ever-changing business landscape. And of course, there were journalists, reporters, and commentators who were supposed to report back on the anomalies they had to uncover in the first place. Were they sleeping at the switch – or more aptly at their computers while the derivatives bubble was enveloping us from all sides? Were they entranced into reporting on nothing but America’s perpetual “war on terror” to the point that everything else happening right under their noses was just a distraction?

Then there were financial and economic policy experts. There were academics who study the performance and behaviors of individuals, companies, industries, markets, economies, and societies in new, involved, and esoteric ways. Prof. Nouriel Roubini at New York University is one of those in sliver thin minority who continually and vocally predicted the collapse of the financial markets thanks to the bubble that the markets were blithely perpetuating.

Of course, there was the government: regulators and bureaucrats and politicians – all there to protect and serve.

All of them together still fell short for this enormous bubble to be allowed to form and then for it to explode in such a disastrous way.

Indeed, the current financial morass has worn thin the collective and individual legitimacy (to varying degrees, of course) of all these constituencies to protect the shareholders on Wall Street – let alone the larger set of stakeholders on Main Street.

Is it that among all of these constituencies, it was only a handful of feeble voices that, ultimately, were not heard well enough by those in power to prevent this crisis?

Erosion of Independent Judgment

“A man of great common sense and good taste is a man without originality or moral courage.” – George Bernard Shaw

Could it be, that America – and for that matter – the rest of the world is losing its capacity to appreciate and exercise clear-eyed, rational, and independent judgment?

Has group-think taken over to the point where critical thinking has become a novelty to marvel at rather than a skill to develop and employ?

Or is it that, in addition to the above, there is something even deeper at play here: We, as a modern, civilized society have stopped valuing values?

Simple, classic, timeless values.

It is societies, after all, that rise and thrive by values – or decay and decline for lack of them.

And therefore, governments, companies, and societies together have to pay the price for the wayward conduct of its citizens – regardless of the industries in which they operate.

Just the monetary price tag on this go-around for our transgressions: $14 trillion and counting…

$8.5 trillion in various US Federal government bailout and stimulus packages (a detailed list is available upon request), $2.5 trillion and counting that governments around the world have infused into the financial services sector to shore up the global capital markets so far, and $4 trillion of losses incurred in capital markets since the current global financial meltdown began starting spring of 2007.

In light of these staggering losses, the question arises: Is moral conduct a naïve and polyannish aspiration for a utopian world, or is it a realistic and practical imperative for a healthy, functional society and economy?

Switching gears, so where does the trail lead us back to?

Blame it on the GOP

“Democracy is the process by which people choose the man who'll get the blame.”

– Bertrand Russell

Politically, much blame has been directed at the current US administration that allowed the US financial services industry to spread this global contagion through the tattered nets of a lax, out-of-date and imprudent regulatory regime. A regulatory framework – with SEC in the center – that was ill-equipped to track, monitor, let alone regulate, these new types of derivative instruments. After all, the current crisis was largely triggered by the unraveling of the US real estate market bubble and the underlying collateralized securities backed by debts such as mortgages taken out on US real estate assets, personal loans, credit card debt, among others. Add to that, the traditional small government, fiscally conservative Republican Party’s GOP (government in power) became the torch-bearers of running massive fiscal deficits on ill-conceived wars and a “pro-business” agenda (read little regulatory oversight originating from corrupt lobbying practices across industries from oil to healthcare to automakers to real estate and, to our very own, lead actors: financial services sector).

It almost seems like the economic policy of the Bush administration was the dog being waged by a tail of narrow, special interest lobbies of the military-industrial complex, oil companies, and automakers, among other big businesses. Alan Greenspan, of course, shoulders some of the blame for his relaxed monetary policies that created years of cheap liquidity – which in turn fostered imprudent lending practices – which in turn gave consumers a distorted view of their purchasing power, and so it goes. In the name of being an “ameliorative government,” the current Bush administration is to blame for concocting the lethal combination of a distorted interpretation of Keynesian deficit spending policies on a doctrine-driven “war economy” – and a perverted and extreme interpretation of Milton Friedman’s Monetarist agenda. Of course, there is a whole different discussion about the burgeoning US current account deficit and US national debt, the sinking US Social Security program, the ravaging “war on terror,” and other spectacularly large and potentially de-stabilizing crises that could have just as easily contributed to a US economic meltdown – and afflicted the rest of the world in its aftermath.

To paraphrase former US Secretary of Treasury and ex-Harvard University President, Lawrence Summers: For the first time in the history of civilization, the greatest super-power in the world is also the biggest debtor in the world.

In effect, there is plenty of blame to go around.

Life Without Consequences

"Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like" – Will Smith

It seems there were a lot of characters in this fairy tale where life was lived without thought given to the consequences of our actions. We, the Main Street (consumers and investors) cannot absolve ourselves of the imprudence that we have exercised to help create the morass that we find ourselves in. There was little individual responsibility for actions. We could buy and consume ourselves out of anything. Anxiety, depression, insecurity, loneliness, inadequacy, frustration, anger, and so it went. You name it and the local mall down the road could solve it. Positive experiences were on sale too: love, happiness, comfort, warmth, friendship, wisdom, and so forth. Credit was cheap, home equity lines were flowing, and having our cards swiped at the counter was our endorphin “quick fix.”

Uncertain Livelihood; Unstable Life

There could also be a lot of stress, pain, and suffering with the millions of job losses. There is unimaginable financial strain one goes through with a job loss and unconscionable insecurity that one experiences – especially in those economies where there is no safety net. Beyond those great misfortunes that no man or woman should have to face, there is a more fundamental loss. The loss of one’s identity that comes from being rendered unproductive and seemingly irrelevant to society. It is this loss that bends, and unfortunately sometimes, breaks the strongest, most resilient of wills. It is this loss that leads to crime. It is this loss that runs against the most basic principles of human dignity and honor. It is this loss that needs to be defeated with absolute resolve regardless of how derisive the label ascribed to the individual, company, or society: socialist, communist, liberal, progressive, and so on.

What often goes unexplored is the socio-economic ecosystem that bred selfish, short-sighted, greedy, and socially deleterious behavior. As Los Angeles Times columnist Tim Rutten eloquently points out: “Long before the financial system melted down, American business' share of the social compact melted completely away.” Long before toxic assets had hit the balance sheets of Wall Street, toxic motivations had begun eating into the fabric of society. The unspoken rules that hold us together in a social compact of honor, decency, and fairness had been discarded to the junkyard of values.

A vast majority of the current bankers’ generation – Generation X – is likely to have experienced first-hand how their families’ economic and social stability came crashing down by the loss of the bread-winner’s job. The beneficiaries of this disruptive market mechanism extolled the virtues of its “Darwinian” ethos. As the Austrian economist Joseph Schumpeter called it: the “creative destruction” of capitalistic forces. But there was a cost – a heavy cost borne by the families and their young, impressionable ones – who went on to live by the cynical interpretation of the Darwinian code of “survival of the fittest.” The interpretation was one of a twisted, brutal, and severely political ethos covered by a thin veneer of civility and political correctness. The moment they stepped out into the public domain, it was each man for himself, each woman for herself.

Such an insecure, uncertain, and unhealthy environment gave rise to the toxicity that we live and breathe today.

One may wonder: where is the civility in this value system?

Where is the humanity?

In a setting like this, where there would be only negative consequences for not being a “team player” – regardless of how morally vacuous the “game” was, voices of integrity would not have much of a chance. The reward of “fitting in” was too alluring, and the price of not doing so, too heavy.

And hence, here we are: In this global financial and moral crisis.

What could happen next?

“Brother, can you spare a dime.” – Yip Harburg (sang by Bing Crosby), 1932

Business is the lifeblood of an economy. However, capital is the oxygen of an economy. Capital is what oxygenates business – which in turn ensures economies survive and thrive. As we speak, the world financial markets are sucking out oxygen, i.e. capital of the markets. And out of businesses. They feel wronged and, therefore, are in a punishing mood. It doesn’t matter whether they punish Main Street for the sins of Wall Street or vice versa. After all, it is hard to single out any impeccably innocent party to this party.

Looking beyond the debate over the extent of their impact, it is entrepreneurial businesses that are one of the prime engines of economic growth in Western-style capitalistic economies around the world. In the ensuing corrective process that is already underway across the globe, the thriving market for ideas and innovations is getting squelched. In a knee-jerk reaction, the capital markets that trade in “paper” may intentionally or unintentionally stifle real entrepreneurship (regardless of whether it resides in a large enterprise or small). As it turns out, real entrepreneurship creates real value for the real global economy. And by the way, that real value produces real jobs and generates real wealth.

So, how do we get out of this mess? What should we do now?

"Get busy living, or get busy dying." – Ellis Boyd “Red” Redding (character played by Morgan Freeman in the movie Shawshank Redemption)


Keeping people employed is socially responsible. Utilizing their talents and skills optimally is economically profitable. Natural resources are scarce, human ingenuity is not. Zero sum games are applicable to the alternately dour, toxic, ruthless and vacuous world of politics. In sharp contrast, the world of economics is alive: pulsating with creativity, energy, and vitality. It is ever growing, morphing, and enriching.

It is time to go to work. We do not have a choice.

In this great adversity, there is great opportunity. It is an opportunity to re-evaluate and re-adjust what we value and what we reward as a society.

As a global society.

We, as a global society, are at a crossroads. Big and far-reaching as the current global financial crisis is, the threat to the ecology of our planet dwarfs anything on the horizon. It is, quite simply, a matter of our long-term survival as a species.

The good news is, there are also many time-tested ideas, frameworks, and philosophies available for us to seek our collective salvation (in a purely secular sense of the word). They range from financial to economic to political to sociological to psychological to philosophical to religious, and of course, to ethical. Given how enormous and sweeping our challenges, we may have to employ all of these levers to varying degrees across different peoples and nations. All of these choices as independent organizing philosophies, or in some combination thereof, will most assuredly have different intended as well as unintended outcomes. A fair, steady, and dispassionate approach to arriving at a consensus is paramount. Intellectual honesty, therefore, is also imperative. Each nation, town and community would have to come up with their unique, grass-roots recipe that works for them. And at the same time, due to our ever deeper global inter-dependence, each of them would have to ensure that their governing social, economic, political, and religious ideology integrates in some way, shape, or form within the larger global community.

Curiously, the moment the discussion veers towards policy (and heaven forbid) ethics and morality – some of us tend to tune out. One cannot blame those who do tune out. We live in a cynical world.

Nonetheless, we must make any number of policy recommendations to fix the global economy or to resolve the “clash of civilizations” or to regulate the capital markets or to clean up the housing mess or to reduce uncertainty in the job markets. One could even offer socio-economic frameworks to sort out the world’s moral bankruptcy in the private and public domains. As Newsweek International’s editor, Fareed Zakaria, explains: we are gradually shifting to a period of the “post-American world,” where the “rise of the rest” will create new ethical, environmental, commercial, political and diplomatic opportunities and challenges. America, however, would still have the unique opportunity to set the agenda for powers across both the developed and developing economies. Despite the gradual shift to a multi-polar power structure, what America thinks, says, and does in the forthcoming decades would continue to profoundly impact the rest of the world.

And therefore, as the current crisis has made it all too clear, American public policy and personal ethics would play a central role in getting not just America, but due to its inter-linkages, the rest of the world out of this current economic crisis and moral squeeze. The solutions to these complex and long-term problems, however, begin with a reminder of something much bigger yet simpler.

Back to Basics

“Leadership cannot just go along to get along. Leadership must meet the moral challenge of the day.” – Rev. Jesse Jackson

Progress has come to the world wherever the ennobling pursuit of one’s destiny has been rewarded.

Progress has come to the world whenever people have been proven right for believing “anything is possible.”

Therefore, it is time to ask broad and sweeping questions about whether we are achieving progress in a larger sense of the word; in a civilized sense of the word.

It is time to re-visit some of our long-held assumptions, hypocrisies, prejudices, and values by which we understand and respond to the world.

Now is the time to re-discover an idea.

It is a basic idea. But a very big idea.

It is an idea for a fairer and more just world.

It is an idea about leadership in thought and leadership in action. And leadership in every other sense of the word.

A world that leads by a sense of purpose rather than being led by a sense of convenience.

A world that not only confronts tyranny but also embraces justice.

A world that not only fosters unity but also promotes diversity.

A world that not only has a taste for success but also an appetite for failure.

A world that not only reaches up for the pinnacle of power but also reaches down to the depths of compassion.

A world whose nations set their agendas – not just due to their military might, or financial strength but more so, because of their moral authority.

A world whose nations not only protect their land, sea, and air but also open their hearts, minds and souls.

A world that not only commits to a level playing field but also delivers on mobility for those who score a goal.

And most of all, a world whose nations are not only honest to their peers but also to themselves.

A world where our sustenance is not at the expense of the planet’s sustainability.

It is time to re-discover those classic values…of merit, courage, hard work, enterprise, innovation, self-reliance, collaboration, thriftiness, tolerance, resilience, perseverance, unpretentiousness, candor, decency, trustworthiness, generosity, loyalty, honesty, and sustainability.

It is time to value values again.



About the Author: Sahil Alvi is a management consultant and a writer. He presently works with a global management consultancy in Dubai, UAE. Previously, he has held management consulting roles with Ernst & Young and PricewaterhouseCoopers in the US. He can be reached at:

Disclosure: Not Applicable