Mad Finance Must Not Rule Us | Wednesday 21 May 2008 | by: Jacques Delors, Jacques Santer, Helmut Schmidt, Massimo d'Alema, Lionel Jospin, Pavvo Lipponen, Goran Persson, Poul Rasmussen, Michel Rocard, Daniel Daianu, Hans Eichel, Par Nuder, Ruairi Quinn, Otto Graf Lambsdorff, Le Monde
This financial crisis is not the product of an accident. It was not impossible to foresee, as many of the world's top financial and political leaders today allege. The alarm had been sounded, years ago already, by clear-mined individuals. This crisis, in fact, incarnates the failure of little- or poorly-regulated markets and shows us once again that the markets are incapable of self-regulation. ...
Financial markets have become more and more opaque and identifying those who bear and evaluate their risks has been revealed as a titanic challenge. The so-called "shadow" banking sector - barely or not-at-all regulated - has only grown during the last 20 years. The big banks have participated in a "creation and distribution" game of extremely complex financial products and embarked on the sale of debts - wrapped in rather questionable packaging - linked to high-risk real estate loans. Defective bonus systems, excessively short-term vision and obvious conflicts of interest have encouraged speculative transactions.
Unsound mortgage loans wrongly based on the idea that real estate prices would continue to climb forever, thus allowing the debt contracted to be reimbursed, are only a symptom of a broader crisis in financial governance and commercial practices. The world's three top rating agencies rated these phony assets as relatively riskless. An investment bank earned billions of US dollars speculating on subprime securities' reduction in value, even as they were selling those securities to their clients, which more than eloquently summarizes the loss of any ethics in the business world!
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Growing income inequality has occurred in tandem with the continuous growth of the financial sector. It's true that technical progress has contributed significantly to the ever more significant differences in income that benefit highly trained personnel. Nonetheless, imprudent policies have also had a major impact in this domain. Financial capital currently represents 15 times the gross domestic product (GDP) of all countries. The cumulative debts of households, financial and non-financial companies, and American government at all levels represents over three times the United States's GDP, or twice the level recorded at the time of the 1929 stock market crash.
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Free markets cannot make a mockery of social morality. The father of economic laissez-faire, Adam Smith, also wrote the "Theory of Moral Sentiments," while Max Weber established the connections between hard work and moral values on the one hand and the advance of capitalism on the other. Decent capitalism (that is capitalism which respects human dignity, to re-echo Amartya Sen's remarks) requires effective government intervention. The pursuit of profit constitutes the essence of the market economy. But when everything is for sale, social cohesion disintegrates and the system collapses. ...
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Jacques Delors and Jacques Santer are former presidents of the European Commission.
Helmut Schmidt is a former German chancellor.
Massimo d'Alema (Italy), Lionel Jospin (France), Pavvo Lipponen (Finland), Goran Persson (Sweden), Poul Rasmussen (Denmark), Michel Rocard (France) are former prime ministers.
Daniel Daianu (Romania), Hans Eichel (Germany), Par Nuder (Sweden), Ruairi Quinn (Ireland), Otto Graf Lambsdorff (Germany) are all former economics and/or finance ministers.
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