Ethics and financial crisis

Beyond any doubt, during 2009, nations big and small will be struggling to find ways and means of coping with the financial crisis that is threatening them.

Much has been said and written about the disastrous effects, such as recession, unemployment and rampant poverty, that the crisis may bring.

However, it is no less relevant to discuss what caused it in the first place. One could not only mention the lack of foresight, miscalculations and other mistakes, but also the failure to respect the ethical norms that should regulate every human act, including financial activity.

If we compare the current global recession to the Great Depression of the 1930s, we cannot fail to notice both the similarities and contrasts. This parallelism may serve as an eye-opener in the quandary we find ourselves in.

In the first case, the effects of the World War I were mainly to blame for the disastrous situation of the European economies; in the present crisis, the race for rearmament, and the wars in Iraq, Afghanistan and other places, have wreaked havoc in no small measure on the US and European economies.

In 1929, Europe's still shaky prosperity was jeopardised when funds were rushed from the Old Continent to the new one, in the scramble for liquidity which came after the great crash. This time, the tide which overran most countries travelled in the opposite direction. It started from the US with the demise of investment banks, following the accumulation of debts (due to the inability of people to make payments) in the home loan market.

Several attempts to find a way out of the financial chaos of the Great Depression made matters worse. The US government, in 1930, imposed very high tariffs, while Britain, in accordance with the Ottawa Agreements, resorted to preferential tariffs for the Commonwealth and introduced other protectionist measures. In 1931, the UK dropped the Gold Standard, and other states followed suit, thereby creating new hurdles for international trade and driving the world into hermetically sealed currency blocks.

The only industrial country which registered growth in production was the Soviet Union, with its State-controlled economy and a workforce on starvation pay.

The domino effect which ignited the present global financial crisis is heading towards the same perverse scenario which characterised the Great Depression, when sales and wages fell, industrial production shrunk, mass unemployment became the order of the day, living standards of middle class citizens deteriorated, and pensions dwindled, leaving the recipients below the poverty line. For everybody, a bleak and gloomy future loomed on the horizon.

There is one big difference from the situation in the 1930s: the onset of globalisation. But few would disagree that in the present crisis, no less than before, the most basic requirements of truth and justice have been blatantly neglected.

Let us take mortgages, for example. Debtors who failed to pay back the loans transgressed commutative justice, but the money lenders and bankers were not without blame when they increased the rate of interest without the free and informed consent of their clients.

Several financial institutions, including commercial and investment banks, set out on very risky projects which more closely resembled a gambling adventure than a wise banking operation. In additions, periodic reports of the assets and liabilities published by those responsible for financial dealings, lacked due transparency.

In short, a number of financial institutions were more eager to make ever increasing profits by hook or by crook than to strike fair and just deals. All this, and other practices such as overdrafts and astronomical bonuses granted either openly or slyly, infringed ethical norms.

In some cases, Central Banks were half-asleep or slow to fulfil one of their primary roles - keeping prudential watch and monitoring banking practices in their countries.

A new global economic order, which everyone is calling for, will not be sound and durable unless it is built on the sure foundations of truth and justice.

However, there are already signs that bankers have not learnt from the lessons of recent months. On the contrary, after being saved by the taxes paid by honest citizens, they are continuing to line their pockets with gold and seek out opportunities to make profit. As Benjamin Disraeli said, "Justice is truth in action." And that is what we need at the moment.