It has been like a rerun of a movie I saw years ago called White Wilderness. In this, masses of little furry rodents called lemmings jumped off a cliff in Norway into the ocean and swam away until they died from exhaustion.

Apparently this was not deliberate mass suicide, but the effect of overpopulation and competition for food, shelter and natural resources driving the creatures into a massive migration. They came to a cliff. Then, pushed on by compulsion for a better life and the press of others behind them, the lemmings leaped off terra firma into deep water and swam to their deaths.

It’s hard not to see parallels with the financial situation in the U.S. these past weeks. For food, shelter and resources substitute money and market share. There has been long-term, tough competition for these and a compulsion to avoid missing out on the rich gains to be had. This is not unnatural, but some of the consequences have been.

For terra firma substitute sound financial principles. Financial institutions have forgotten some basic rules. For example, do not lend money to someone who cannot repay you. And, among those “investing” in derivatives, do not buy into something you cannot understand.

Perhaps these old maxims were seen as fuddy-duddy and not fitting our sophisticated 21st-century world.

The customers – you and me – have not been blameless, either. What about, do not spend more than you earn. Have we forgotten that?

We have had plenty of inducement to do so. Endless advertising for more and more consumer goods; banks offering easier and easier credit (at alarming credit-card interest rates); retail outlets offering initial interest-free periods to pay off the new purchase: yes, we have been under plenty of pressure to spend.

In the 1990s here in Australia, I recall a major bank running an advertising campaign specifically targeting the idea of saving and spending only what you could afford. In the TV ads, a fussy, irritating, older woman with a strident voice was shown as the one who championed saving and thrift. She appeared ridiculous and out of touch as her younger family members happily bought more consumer goods on extended credit.

In another bank advertisement, if you had managed to pay off some of the mortgage on your house, you were urged to borrow more money for a recreation room or a home extension. The messages were that more debt equals more fun.

Now, suddenly, we find ourselves in a new situation. We’ve jumped off terra firma. At the head of this “lemming leap” have been the nabobs of Wall Street and other world financial centres. Of course, some executives have got out ahead of time and retired on their obscene earnings. Some, however, have been caught, along with the many financial-sector employees who did not make the decisions but simply carried out unsustainable policies. The innocent and the guilty alike have boxed up their personal effects and marched out of their sky-scraper offices into an unwelcoming world.

Guilty? Yes, the financial Great Ones have been guilty of ignoring long-established financial principles. In the U.S., they have resisted financial regulation on the grounds that they were grown-ups and knew how to self-regulate. They successfully argued that nothing must stand in the way of capitalist free enterprise.

Freedom, however, has always brought responsibility. I mean the responsibility to be rigorous in making sustainable loans, not unsustainable ones. Not to entrap other financial institutions by on-selling risk that is “packaged” beyond reasonable recognition. And not to endanger your own financial institution by buying such risk from others. It is plainly unfair that innocent tax payers should have to pick up the tab for these gross errors. Yet we are told that, in the U.S., such is the financial mess that there is no alternative. Pity the poor tax payers, they deserve better.

Certainly, they deserve new laws regulating the activities of financial institutions. And that these laws should be enforced.

In Australia, we are in much less of a mess because financial regulations already exist. Our banks have lost money, but we are not watching them teetering on the brink of collapse.

In the wash-up to the financial storm of the past week or so, we can only hope that the mistakes of the recent past are recognised for what they are; that cracks in the edifice of financial stability are not merely papered over; that cowboys in the market will not simply say to themselves, “Oh well, the tax payer will carry the loss.”

We need the terra firma of Honesty and Fairness in business. What? Remember them? Grandparents used to talk about honesty and fairness as sound principles for life. We all have a God-given conscience and sense of natural justice. We should listen to it. Because when you abandon soundness, you have unsoundness. And when you have unsoundness, then unsustainable practices, exploitation, greed and deceit will creep in.

These unsound forces have been at play in the recent past and have brought on catastrophic sequences.

We should not let this happen again.

Image Courtesy of http://ftloveblog70.wordpress.com/2007/09/

Artwork by: Josh Neuman - www.SurrealArt.com

---

Add this page to your favorite Social Bookmarking websites