Arrogance, Greed, No Accountability and Irresponsibility Leads to 1 Trillion Dollar Disaster
THERE was a time, in my childhood when I was hungry, abused, forgotten and wrote off as a human being. I was fortunate that I was born with the survival gene and a strong sense of right and wrong, a strong work ethic and the ability to make the invisible visible. By necessity at the age of 6, I was running my first business collecting and selling coke bottles so I could purchase food for me, my sister’s and brother. Many decades have passed since I was that 6 year old boy, in fact, it has been 54 years as I am celebrating my 60th birthday today.
From my humble beginnings I have been able to purchase, turnaround and sell 22 companies which I operated in 43 countries and generated in excess of 1.8 billion US Dollars in revenue.
I have been truly blessed, and in 1991 I decided to commit the balance of my life to helping individuals and organizations worldwide to define, implement and live a life on purpose. I am pleased and honored to report that we have worked with over 100,000 individuals, entrepreneurs and corporate CEO’s worldwide. We have accomplished much over the past 17 years… our coaching, consulting, teaching and mentoring programs touch hundreds on a daily basis.
However, I am very concerned that the fabric of our free enterprise system has been pushed to the limits by arrogant, greedy, and irresponsible Wall Street Executives and Washington Politicians.
What happen to the words truth, honor, character, integrity, accountability and responsibility and why are they important to this discussion?
In my mind they are extremely important, especially in light of the current negotiations creating this huge bailout plan being hammered out in Washington in order to avert an economic meltdown. The men and women leading these large enterprises have forgotten the meaning of these words. It is the spirit within these words that is critical if this bailout plan is to work.
Unfortunately, the bailout plan is needed, and it needs to be put in place quickly. At the same time, we need to ask how the financial system came to require a rescue of this magnitude.
This time around, assets are evidently rotten in so many places that no financial institution wants to risk doing business with any other financial institution without government backstop.
Such fear recently threw a huge wrench into the wheels of commerce because business cannot function without credit, and banks cannot function without the ability to draw on one another’s resources as needed. Some radical, comprehensive step from government was necessary, or else outcomes as bad as — and perhaps even worse than — those of 1931 and 1932 would have been inescapable.
Naturally, a plan of this magnitude has stirred a storm of commentary, but two important potential results deserve more attention than they have received.
The first is the risk of moral hazard within the bailout itself. That is, if government is going to make good so many losses throughout the system, why would anyone set limits on future risk-taking? The situation could turn into a free-for-all that makes the recent disregard of risk look like child’s play.
The second problem is more philosophical, involving what the bailout plan reveals about the functioning of the free enterprise system. This raises disturbing questions. Although I must say I agree with President Bush’s observation that “the risk of not acting would be far higher,” we should be aware of the secondary effects of what we are getting into.
My position on government bailouts of institutions on the verge of failure has been clear ever since the procedure was formalized in the savings-and-loan crisis in 1989, under the first President Bush. I have favored these steps, even though such rescues reward those who took more risks than they should have and are ultimately paid for by those more prudent.
FROM this viewpoint, government bailouts create moral hazard and therefore might seem a mistake. If the government always comes to your rescue when the chips are down, why limit your risks? Why be responsible?, why operate with character and integrity? Why be accountable?, Why not go for the home run every time? What does it matter if you put the system over the edge, so long as you have a chance to make money by lying and cheating while Uncle Sam takes care of everything if you lose? How could any rational individual pass up those kinds of opportunities?
We could avoid this conflict of interests by refusing to bail out the irresponsible, arrogant risk-takers and letting the financial miscreants squirm in their own juice. That might provide satisfaction to moralists, but life is not so simple. An epidemic of unpaid bad debts would devastate lenders and ignite a conflagration that could pull down the economic and financial structure, ruining everyone.
We were on the verge of such an outcome in the last few weeks, as banks froze up in fear of every piece of paper being tainted. As a result, they refused to enter into the most routine transactions with one another. The choice is between two cruel outcomes: the high probability of an irreparably damaged financial system, or an overload of moral hazard. I prefer dealing with moral hazard now as well; but preserving the system — and society — must now have top priority.
My views have developed over the years, from the bailouts of single entities like Chrysler 1980, U.S Airlines 2001, Lockheed 1971, Penn Central 1974, New York City 1978, and other groups of companies like savings institutions in 1989 and over the years. But these relatively simple transactions have only a distant family resemblance to the Paulson-Bernanke plan for a huge bailout of countless financial institutions, to say nothing of possible help to households that took on mortgages that would work out only if the home price kept rising.
There is an immense difference between a plan for a comprehensive bailout and the far simpler process of bailing out Bear Stearns or even a dozen or so Bear Stearnses. The justification is the same, but the grim consequences in terms of moral hazard are of an incomparably greater order of magnitude.
Hence the federal government declares, “Thou shalt not fail,” there are no limits to how far future risk-takers will go. Who will see any need to pay attention to the possible consequences for the government’s budget, the market for its bonds, the taxpayers, its creditors and, indeed, the whole economic structure?
Furthermore, there are limits to how freely Washington can dispense largess. We no longer owe the national debt to ourselves, as we did in the 1930s, when deficit financing was first proposed as viable policy to overcome the Depression.
Financing the government today depends heavily on international entities’ willingness to buy our bonds, but some accept our obligations only when they see some kind of control over the volume of issuance. They will perceive very little control in plans whose limits are porous and uncertain.
My second issue goes to the foundations of the economic system in which most Americans believe, and take for granted. Though we sometimes give it more lip service than respect, it is rooted in individual decision-making in free markets. In theory, at least, the less government intervention, the better; the mantra is that markets know best. Huh! The Mantra should be markets know best when they are lead with integrity and accountability!!
We often hear this refrain, and history confirms its importance in the most profound issues of economic policy. It justifies our revulsion with Communism, our philosophical distance from the current Chinese system, and when greedy Wall Street Executives and Politicians, not markets, try to shape our system.
Faith in free markets made icons of Ronald Reagan and Margaret Thatcher, who made deregulation a policy cornerstone. An echo in our own time was the 1999 repeal of the Glass-Steagall Act, legislated in 1933 to separate investment banking and commercial banks. Its repeal was a key contributor to the calamities now gripping the banking system.
TODAY’S crisis thus emerged from a combination of disasters operating in free markets with no integrity or accountability, but wreaking ruin as they developed. The sub prime mortgage mess, the huge leverage throughout the system, the insidious impact of new kinds of derivatives and other financial paper, and, at the roots, the vast underestimation of risk could not have happened in a planned economy. A super jumbo bailout is the inescapable result, but at some point we must confront its more profound implications.
As we move into the future, and as the crisis finally passes into history, how will we deal with this earth-shaking blow to the most basic principle of our economic and free enterprise system?
I will be announcing my solution to a sound recovery on October 4, 2008. The foundation of my solution will be rooted deep in my belief system and 40 years of international business experience which has allowed a poorer than poorer southern boy to achieve huge success.
Join me on October 4, 2008 at 10 am PDT as I lay out my Tribe of Five Plan.
Register at www.whatsmypurpose.com/tribeoffive
With appreciation,
Jim White PhD
Author and Creator What’s My Purpose, A Journey of Personal and Professional Growth, What’s My Purpose Life Mastery Course
September 29th, 2008 at 1:38 pm
Dear jim
Your article is bang on to quote a british term.
I’ve seen this coming for months now
and as such with the current british and
worldwide meltdown, i lost my home due to this
Damn fiasco, the massive interest rates finished
me off, who’s getting Super Rich from all this???
These G7 world leaders have done absolutely
nothing to cure the worlds problems only make them
far worse, I’m not trying to spread a doom and gloom
comment but fact remains fact. it REALLY IS TIME FOR
CHANGE…..
Paul…
September 29th, 2008 at 1:54 pm
I totally agree with you regarding the 700 Billion Dollar Bailout and decisions leading up to it. Add to it the FEAR factor. I am sitting North of you in Canada and our stock market today dropped 800 some points. Nothing changed in the performance of our banks and we don’t have a housing crisis-we just have PANIC!!!!
September 29th, 2008 at 1:58 pm
I am very excited about how you were able to fight your way through abject poverty to a pinnacle of
prosperity. And for deciding to spend the second-half of your life to positively impact the life of countless thousands - may God bless you. I am a 42-year-old Nigeria and I cannot possibly estimate what arrogance, greed, no accountabiliy & irresponsibility has caussed our individual lives as a people & a nation. Whether a people or as a nation these negative qualities are like cancer…it kills you slowly - you will DIE at the end. I’m presently receiving a one-on-one coaching from Jack Canfield, I will be grateful if you will offer me a mentorship program. To say the least, I’m impressed by your achievements because we have similar story-line. Please attach a coach to me. In my next mail I will give you a brief of my background.
Regards,
Happy James
September 29th, 2008 at 4:07 pm
Thanks for you comments. I think that if the government is
going to bail out these companies-and I think it needs to-
it should be done in an extremely business-like way. First ,
the money should be given either as low cost loans or in
exchange for shares in the companies. Second, the companies should
only be able to sell a certain percentage of their bad debts
to the government: just enough to allow them to survive. The
rest they should write off themselves. Third, the government
should enact regulations that will prevent this kind of problem
from reoccurring and create an independent entity to review
and update the regulations as needed.
September 29th, 2008 at 4:53 pm
I agree with this whole heartedly. What a mess. I am trying my best to focus on affirming peace and success for myself and the rest of the world, and trying not to buy into the fear. I drove around for an hour today looking for gas as all the pumps here are “dry” so that doesnt help when I am working overtime to control my fear, but when you can see that others are not buying into the fear it makes it alot easier to see that it is not a requirement and that you are not a fruitcake if you believe in happy endings. So stay positive everyone, that is what will help us through, the fear will just create more of the mess. (I even think thats what they want, so dont give it to them!)
September 29th, 2008 at 5:22 pm
I agree the bailout in some form is necessary to
calm the fears of the investing community. However, it
is MORE important to learn the lessons on WHY it
happened so it won’t happen again. But that lesson is
getting buried in the rhetoric and politics!!
What angers me is the self-righteous finger-pointing by
the very people who caused the melt-down. Some of
it is good intentions gone bad. The original intent of the
housing bills in the 1990’s was to stop “red lining” and
encourage more home ownership. Unfortunately, it turned into
a lawsuit machine where lenders were forced to show
how many “low income” loans they had regardless of qualifications
to receive those loans. They had to offer creative rates
to qualify these otherwise unqualifiable borrowers!
This lead to manipulation and desire to dump underperforming
and high-risk loans onto someone else. The dominoes then
began to fall when no one wanted to stop the practices because
it looked politically incorrect or HORRORS, racist to
check someone’s credit risk!
What angers me now is no one is taking credit for their
mistakes — even if the mistakes were well intentioned.
When you blame me for something I was forced to do by your
rules, I’m sorry, I balk and fight back. So everyone shut
up about the blame game. NO MORE POLITICS. If you can’t
admit you had a good idea that went wrong, you are NOT
honorable enough to fix it.
Not sure how they same politicians who created the mess are
going to have the wisdom and integrity to fix it so it
stays fixed.
My two cents . . .
September 29th, 2008 at 5:39 pm
I was wondering only this morning about the word “character” -
NOBODY uses this word anymore - so many seem to be focused
on “what’s in it for me”, without regard to consequences.
I thoroughly enjoyed this article; it is refreshing.
September 29th, 2008 at 5:40 pm
This is good comment but I feel stating the obvious. Bill Bonner of The Daily reckoning writes about the financial system in his book “The Empire of Debt” its a must read. I am intersted to know your solution I have some years thought the way cannot last the way we do business the wat we waste we consume and don’t put back. It takes time but a crisis like this brings into focus the real situation we all face which is rising population and limited resources. Ask yourself what can I do to help today no matter how insignificant you feel it is do it, do one thing today that helps. Then do another thing tomorrow and the next day till it becomes your attitude to contribute to the answer. The answer is in The first will be last and last be will be first.Look at the those who have to survive or the cultures that have survived regardless of the power brokers they are self sufficiant communities that care for the well being of eachother.
Together
Steven (Australia)
September 29th, 2008 at 9:59 pm
I was raised as much by my grandparents as my mother, and inherited their values. Integrity and character–and honest hard work–are what I respect. Yes, you don’t hear much about character any more–but it means far more than title or social status, in the part of Appalachia my folks came out of!
Like the poster from Canada, I am frustrated by people’s reactions. I am reminded by the line from “Men In Black” [of all things]: “A person is smart. People are a bunch of stupid, panicky animals.” Yes, there are rotten decisions and opportunism at the bottom of a lot of this mess. But every single one of us could listen to the voices of reason and the history. There is *proof* that The Market Always Comes Back. Even from the ‘great depression.’
I feel like making and wearing a t-shirt that says “I am a person–not a stupid panicky animal.” And no, I am *not* well off; I don’t have a cushion; I make about 25K a year, period.
It frustrates me to see profiteers injure people, but the extent to which they injure themselves, or, worse, others, by thinking with something other than logic or about facts, also bothers me. Some of this just Doesn’t Have to Happen!
Anyone for starting a movement?
September 29th, 2008 at 10:26 pm
Maybe I am a Moralist . Maybe I am just tired of massive greed for many peoples life purpose in life . I do not wish anyone to suffer finacially but maybe it is time to purge the system ,like one would purge thier body ,by fasting . Many of the enities that have caused this melt down will end up getting rewarded with the bailout as it stands . I also see the 700B as more of a bandaid on a festering soar and till the wound is fully cleaned this amount of money will only be a temperary fix My bank is one that went under(with the CEO on the job for 3 weeks get roughly 17m$) and my business is already feeling the effects and I know the bail out will not be dirrected to the people or for the people . I also know for a fact that if I fail ,I will not be getting any bailout and neither will many small businesses.With the government slowly having a share of all the banks,housing and many corperations we may soon be the Socialist Republic of America and that is not what our forefathers died for .
September 30th, 2008 at 12:03 am
I agree with your analysis Jim. A culture of corporate
irresponsibility has grown up aided and abetted by a hands
off attitude from government.
As a Brit it seems odd to say this - that the French seem to have
got this right!
They criticise our “Anglo Saxon” model and we laugh! Partially
for the misnomer - we did read about “Anglo Saxons” in history class
and we left them there.
What we are talking about here is “laissez faire” capitalism - a market model where we leave the market to sort things out with a minimum of regulation
Well we have seen the death throes of Reaganomics or Thatcherism
or laissez faire - what ever term you wish to use.
A rather more grown up approach is needed where we recognise the strengths and the weaknesses of the markets.
And we need to deal with the bonus incentive system that seems partially responsible for the bad judgements and decisions that lead to all this.
September 30th, 2008 at 5:38 am
Hello Great take on what is happening today in this country. Forgotten is the morals that this counrty was founded upon truth, justice, and God! “In God We Trust” is written all over our government. Our forfathers dreamed of a place that one’s “true foundation” of love, honesty, integrity, and the freedom to prosper, would flourish. This set off the “American Dream” and is what we have sold to other countries. But what we sell to other countries now is how to not honor a higher power (God), lies, backstabbing, that crime pays very nicely! This is now the “foundation” of our country and those who lead us. The truth will always come out in the end, and truly “what goes around comes around!” except all of these financial institutions are giving each other and the public the “deer in the headlights” look. It is funny how the universe looks after those who practice honesty, faith, love. Those who placed greed high on their agenda as a goal will get what they deserve eventually. But in the meantime, we are all critics about the solutions to this problem that will not go away anytime soon. Now, as a nation, we can survive and “recession proof” ourselves with new goals for the future, and the elimination of fear. And that “God” that so many have taken out of the American equation will provide! We are in desperate need of authority figures that know about integrity and the like; Where are they? And will they please take a stand!
September 30th, 2008 at 8:24 am
Much of what you wrote is right on. However,I see a need for a change in fundamentals. For decades, our leadders have been extolling the virtue of shapping with credit. If the economy is slowing, in fact Pres. Clinton before Christmas urged the citizens to go out and shop. If individuals acted as the insitutions looking for a bailout have, we’d be on our own. The U.S. is a nation of debt. We’ve become a consummer economy instead of a producing economy. It’s time we stop urging people to go further in debt to solve their problems. It seems to me that the purpose of buying a house is to purchase a home, not expect the value to go higher so you can then borrow against it. My parents, who lived through the Depression, never used credit, except for an American Express card paid off each month.
I’m not sure what the solutions is (looking forward to your call Sat), but we do HAVE TO MAKE SOME FUNDAMENTAL CHANGES in how we view finances and the economy.
Richrad
September 30th, 2008 at 9:58 am
One more reason, in addition to the ones you have given, for the foul
financial fiasco is that the so-called experts forgot to keep it simple.
The newer derivatives that they used for hedging etc. are so complex that it would require high calibre mathematicians to unravel them. And the fat cat bankers, being no mathematicians, traded in those derivatives without any idea of the incalculable risks they were exposing themselves to in the process. Now that the inevitable has happened the same international bankers, showing the herd mentality typical of their tribe, are not touching even legitimate risks unless they can’t unload them onto the U.S. government in one way or the other.
The government will ultimately have to bail out the defunct banks and other financial entities because it can not allow a repeat, only much worse, of the early nineteen thirties - the Congress will come around after sounding sanctimonious and silly by turns - but it must extreme discipline on the top functionaries of the outfits it would prop up. Till such time these companies are not able to fully pay back to the government, salaries should be regulated and no obscene bonuses, signing bonanzas or golden parachutes be permitted.
September 30th, 2008 at 6:57 pm
I don’t think this bill should be done. I am sure if our goverment would get out of the way, in time the problem would fix it self over time., But if there must be something done why not give everyone
who have lost their home because of housing value going down or equity lost or who have been forclosed give them the money. Give the money back to the people who have and are losting. That makes as much sense and it may cost less.
My husband and I have lost one hunderd thousand in equity and we need to sell and move but as you know selling isn’t happening. But if each person got back what they have losted could buy another
home prices would start going up and the problem would fix over time. Why not just give the money
back people that have been used by the big guys. You do know that even if the people who have lost know has a bad credit report and couldn’t buy even if the money was their. That sounds smarter than giving the money to the vary person’s that made this mess and all well knowing what they were doing. There is a saying “fool me once shame on you, but fool me twice shame on me”. This is or it looks like what our goverment is going to do. Shame on them, and don’t vote for any one person that’s vote’s for the bill that doesn’t have a bailout for the people that have lost their homes. People work very hard for years to get their homes and the equity they have build. Why should they lose?
October 16th, 2008 at 4:40 pm
I think the above comments have salient points; however, in my mind the common factor in the actions and reactions that have brought us to this place is FEAR— America has become a fear-based, what’s in it for me society and the big guys know this and have capitalized on it…they BANK on it! I am sadly in the same boat as much of you. I’ve lost my job and am living on what little savings and investments I have. It is understandable to be disheartened, but in the midst of our despair I think it important to remember who we are. We must demand integrity from the leaders of our country and also practice it for ourselves by becoming proactive in who we support as leaders, where we spend our money, who we spend our time with and how we live our lives.