Hundreds of thousands of Australians in every corner of this country are suffering real emotional hardship as they watch their retirement nest eggs dwindle. Others have lost even more and they are suffering the cruel fate of physical hardship as their lack of income curtails the lifestyle they had thought was theirs forever. Both groups are no doubt bewildered by why fate has been so unkind to them and what, if anything, they had done to deserve such a slap in the face. There are no easy answers – but quite a few lessons to be considered. At face value you could suggest the global financial crisis (GFC) and all its attendant business failures was simply fate and that all those caught-up in the maelstrom were merely unlucky. Who knows: it might be true. But if we probe a little deeper some other interpretations might emerge.
The most inescapable characteristic of the GFC is greed. Too many people tried too many ways to get too rich. Pure and simple. Now, there are many who would argue that our capitalist system encourages – perhaps even depends on – people maximising their wealth. Doing so is certainly legal and, in most circumstances, it is also ethical. So, where does this notion of greed come in? There are many examples. We can start with the Flesh Eaters. These nasty creatures crawled out of the woodwork some two decades ago with a credo that they could maximise the value of under-performing conglomerates. It was a seductive spiel and captured the world’s imagination by the sheer volume of capital they were realising. It was done by acquiring large groups of companies and selling-off what were termed under-performing subsidiaries. The corporate raiders as they became known were nothing more than pirates: macho braggarts swaggering around boasting that they were wealth creators. In fact they were nothing of the sort. Like piranha, they stripped all flesh from the carcass and left the bones to bleach as sad reminders of what once had been.
The silly thing is, we should have known. After all, these corporate raiders were attempting to overturn a venerable adage: that the whole is greater than the sum of the parts. These financial jackals, however, wanted everyone to believe that the sum of the parts was worth way more than the whole ever had been. Tragically, it appeared initially as if they were right because the entities they flogged-off brought astounding prices. The doubters were quickly shunned as the rest convinced themselves that, at last, lead could truly be turned into gold. Hordes of eager investors started to line-up behind the raiders and commit their investment capital to plundering more and more established giants of industry and commerce. With the wisdom of hindsight we can now see that not since the mindless slaughter that characterised trench warfare in the World War I has so much needless damage been caused to the fabric of our society.
Excitement became exuberance became excess as a new and even deadlier phase of this game came to light. By now, this was starting to resemble a global Ponzi scheme where ever-more investment capital was needed to keep the game going. Breaking-up the engines of wealth creation required vast sums of capital to purchase the discarded offshoots – at valuations far greater than when they formed part of the original business. Yet it was becoming obvious that corporate break-ups could only be implemented so many times. After all, there were very many large conglomerates but the number was still finite. The plundering and pillaging continued until the landscape of the world’s industrial, commercial and financial infrastructure was changed beyond recognition. Think of how many major companies – global businesses – have now disappeared forever. The smart guys by now knew that this rape of productive resources was ultimately unsustainable and some started cashing-in their chips. These were the really clever ones and the payouts they gouged still leave mere mortals shaking our heads in amazement. Despicable, perhaps, criminal in some cases and verging on evil in others, given the untold suffering they would cause to employees, shareholders and investors, many of them got away with it. Not all, but enough to provide a parallel with the shadowy remnants of Hitler’s Nazis presumed to have flitted into the jungles of South America.
The original sinners were dubbed Masters of the Universe and their type was immortalised by Tom Wolfe’s best-selling novel, Bonfire of the Vanities and the character Gordon Gecko in the movie Wall Street. Like salmon spawning in the spring they ensured their progeny would live on by sheer weight of numbers and so we became accustomed to the second wave of these creatures. They were the traders and screen jockeys until they, too, ensured the survival of the species by procreating until they were as numerous as krill. And we called them investment advisers and financial planners. As the game unfolded, the insiders knew something had to give or the music would stop and there were far too few chairs to seat everyone. To keep the game going required a truly sinister innovation. It came in the form of derivatives. There is no strict definition of what this term means in respect of financial instruments or the kinds of investment products that started to flood the market. However, they are sometimes referred to as synthetic derivatives and therein lies the key to this conundrum. Synthetic means not genuine and it surely is an accurate definition for the kinds of ‘opportunities’ that were starting to be offered to an unsuspecting public.
There were a multitude of strange new creatures that investors had the chance to check out. Like exotic animas in a zoo, these creatures had names like Collateralised Debt Obligations (CDOs), Credit Linked Notes (CLNs) and Credit Default Swaps (CDSs). While they were all strange they shared a couple of characteristics. They were new (they had never existed before); they were complex; and they most assuredly were not for the unsophisticated investor. Yet, the worst of all these characteristics was that these financial instruments were not only tolerated but were in many ways actively encouraged by those we mug punters trust to keep our world safe: the stock exchanges, the banks, the credit ratings agencies and even our governments. Yes, they were all complicit. As guilty as sin. Even if governments did not endorse these derivatives, they condoned them. And, worse, they stood idly by while scams such as short-selling and other contrivances proliferated. So, we watch with horror as the carnage of the global financial crisis continues to unfold, and ask why did all these ‘protectors of our freedoms’ – the regulators in whom we were supposed to have faith and trust – stand idly by while Rome was set alight? The answer is the same one for all those who participated, either willingly or unwittingly. The ineffable sadness of this whole ghastly escapade is that it was constructed entirely from greed.
It is easy to point the finger at those whose guilt and complicity are beyond reasonable question. Not so straightforward is considering the role of mum and dad investors. Many will argue long and loud that they were – at worst – suckers. But if we are honest – and, yes, this is painful – we may find that an alternative viewpoint is valid. This view suggests that those who committed their available funds or, worse, borrowed to reap even greater perceived rewards, share a portion of the guilt for all this. These people willingly gambled to earn rewards that just a skerrick of commonsense suggested were unsustainable. And even if the rewards were predicted at a reasonable level, many of the investments skirted the cliff-top edge of legality by exploiting tax loopholes. If the aim is to salve a conscience then there are a million shades of grey to accommodate fragile sensitivities. Unfortunately that won’t rebuild our world. It was one-eyed self-deception that created this mess and we can only claw our way out of it by frank appraisal.
Where were the values of thrift; of contentment with ‘enough’; of prudence and probity; of decency and commonsense? They were rudely cast aside as whole societies grasped greedily for a larger slice of the pie. That we didn’t check the pantry to realise there were insufficient ingredients certainly makes us look foolish. Yet pretending it didn’t happen at all is far worse. The core lessons from the saga of financial foolishness that has defined the past two decades are brought into sharp relief when we consider how many sound values were set aside during that period. We used to smile when the term ‘keeping up with the Joneses’ crept into our lexicon but while it amused us we did not learn its essential lesson: contentment cannot come from comparison or contrast. It can only come from within. Our happiness can never be sustainably dependent on our possessions. Sure, they can provide us with satisfaction but that’s not happiness.
We set aside commonsense and were seduced by a series of snake-oil salesmen who conned us that exceptional returns on investment were readily available as a matter of routine. Yet, as the saying goes: if it seems too good to be true, it usually is. Nor can we blame capitalism. It is a deeply flawed system but it is the best one we have been able to evolve. Our challenge is to understand and acknowledge that none of the mess we all find ourselves in today could have happened without the complicity of most of us. Accepting that our societal and personal expectations have become unrealistic is the key to discerning the ways forward. Being satisfied with our lot does not mean we sacrifice the pursuit of achievement or advancement. It simply requires a tone-up of our values.