The collapse of the pyramid of greed

The current global financial crisis somehow brings to my mind a glamorized pyramiding scheme. The only difference perhaps in the pyramiding schemes is that it is undertaken by common people defrauding their “downlines” in a predatory selling of worthless promises of high-yield investments. For some reasons (or lack ), people do invest even their lifetime savings on this kind of fraudulent system only to realize to their remorse that they have lost everything. Some are even left hopelessly drowning in debts because they mistakenly gambled that they can earn greater margins in investing in this scheme.

In a not-so-distant past, the series of these pyramiding scams included among its victims even the seemingly reputable and respectable educated members of the society. There are even professionals and generals who had fallen victims to this. This seems surprising for these respected members of the society to engage in but, in the end, the system can be summed up as greed feeding upon someone else’s insatiable greed. Somehow, the adverse effect of this financial scam has been localized for some time, affecting a fairly significant number of people but not enough to shake or destroy a country’s financial system.

Unfortunately, greed has a way of spreading like a contagion as well.
Reason: Somehow, investment bankers have mastered the sophisticated way of selling worthless bonds with the promise of higher yields. And this scheme was replicated a number of times, within countries and beyond them, until we get to the point where the global financial system is now.

The collapse of the global financial system gives an international face to greed. How to moderate such greed becomes the greatest challenge of the present capitalist structure.

While there is a call for stronger regulation, the failure of the rating agencies that are supposed to provide accurate and truthful information on the worth of these financial instruments may be an argument against it. There is no assurance that a regulator may not be afflicted with a temptation to please regulated entities for a pound of flesh.

With the way the global financial leaders are reacting by bailing out banks with pampered executives whose greed brought us all to this stage of despair, I came to believe in the “theory of un-punishable impunity” such that the greater the damage your misconduct is, the better the chances that you can get away with it or, at most, you only get a slap in the wrist. Simply because they do not have a better choice. If you have doubts on this theory, trace the history of our most famous criminals in the country.

With or without their consent, taxpayers suddenly found themselves owners of these banks and insurance companies. But it seems that AIG executives have to rub it in by vacationing and ostentatiously pampering themselves with luxurious accommodations in a rich resort somewhere in California. Indeed, they must be saying that borrowing billions of dollars is such a stress and they needed to relax. Hence, taxpayers and shareholders must treat them to such a vacation. Clearly, no lesson was learned in the past few weeks by these so-called financial wizards. If there is, then it is the way they are giving the phrase “moral hazard” a synonym for greed and callousness or—to use a popular phrase for corporations now—corporate social irresponsibility.

Perhaps, the most glaring flaw (aside from greed) that brought this financial mess is the lack of real value creation in its foundation. Investment bankers simply preyed on each other’s appetite for higher returns and upon the borrower’s lust for nicer houses without the capacity to pay.

When an economy is driven by sheer consumption without the necessary entrepreneurial spirit that sustains it, then this kind of situation happens. It is the entrepreneur that creates real value in an economy. Thus, in order to bring the global economy to stability, financial bailouts must result to the resuscitation of enterprises. This financial pyramid is consumed in its foundation by greed and without the value that is supposed to hold it strong. Its eventual collapse is, therefore, not much a surprise. How we get out of this is another story.

Send your comments, suggestions and reactions to arnel_casanova@post.harvard.edu