| 15 February 2009
On an outing from the OECD's Parisian palace with its fabled wine cellar, Secretary-General Angel Gurria tells us that a 'failure of
business ethics' underlies the global recession, and that 'our societies are
disgusted with business practices'.
Well I'm disgusted with him. What would he know about business? He has spent
thirty years in public service and not-for-profit organizations, and has received
awards for his contributions as a 'global citizen'.
There is no failure of business ethics, except for those people like Mr Gurria
who would like to live in a cooperative in some bucolic Central European paradise
out of Fiddler On The Roof. Business is tough, indeed, and people get hurt,
but a company that fails to understand its market, or to supply what its customers
want, or to reward its employees on all the levels that are necessary will simply
go bust.
Banks have been failing lately, and have become the especial targets of the
wrath of the newly-reimpowered militant tendency, but this is not because of
'disgusting business practices', whatever that may mean, it is because they
lost sight of the rules of their market-place, and specifically they failed
to 'lend short and borrow long', which is surely the first rule for any banker.
Sub-prime mortgages are 'lending long', and such lending should be matched
by long-term borrowing, instead of which the banks relied on the inter-bank
credit market and short-term customer deposits, which is 'borrowing short'.
Therefore they were caught with their trousers down when the credit-default
swap market imploded. That itself was a nice game, in which bankers pretended
to themselves that their liabilities were insured, with the connivance of the
rating agencies, but it was hardly 'disgusting', and certainly not unethical.
It was just plain stupid.
Because of the importance of the money industry to the rest of the business
world, banks are highly regulated. Supposedly. They are also subject to the
law of the market-place. Supposedly. In fact neither of these things is true,
and that is where the problem truly lies. Apart from Lehman Brothers, no bank
has been allowed to go bust, and that is ridiculously bad governance, creating
a moral hazard bigger than the iceberg that sank the Titanic. What banker in
future will ever bother to be prudent? It is a catastrophe of the first magnitude.
As regards regulation, governance has equally failed at its task. The BIS is
a trade union, and could never have been expected to self-regulate in a way
that might disbenefit its members; but what about governments? Are they too
uneducated to have understood what was happening? No, they are just too short-sighted;
they can see only as far as the next election. No politician ever stops a boom,
because that amounts to electoral suicide. Who's left, then, to muck out the
stables? Oh, it's the OECD, and the rest of its scholastic fellows, the IMF,
the World Bank, the United Nations and so on. And where were they when they
were needed? When Wall Street and AIG and the Masters of the Universe were sowing
the seeds of their own destruction? Drinking claret, making speeches and greenifying
their world, that's where they were.
It's a big failure of supervision and law-making, there's no doubt about that,
but calling it 'disgusting' and looking down your nose at business is no way
to cure it. There needs to be a new Bretton Woods, with an institution representing
banks, governments and multilaterals which will create a global regulatory framework
and supervisory body for the financial industry. It won't happen, of course.
Instead we shall continue to get Mr Gurria and his ‘Fairer, Cleaner and
Stronger' dream-world.
Better the devil you know than this angel!
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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