Who’s been swimming naked?
A 2003 Silicon Valley bumper sticker once implored, ‘Please, God, Just One More Bubble’. Unfortunately, this wish was quickly granted, as just about all Americans, and many others in the western world came to believe that house prices would keep on rising. Against that belief, a borrower’s income and cash equity seemed increasingly unimportant to lenders, who ‘gambled’ their lending policies, confident that house price appreciation would resolve all problems.
As we now know, this financial stupidly and incompetence is being exposed. As the saying goes: ‘you only learn who has been swimming naked when the tide goes out’ – and it is not a pretty picture!
The way that some financial lending and investing policies have been carried out is rather like Oscar Wilde’s novel; ‘The Picture of Dorian Gray’. As with the fabled portrait of Gray sequestered in the attic to hide the degrading image of his ruinous lifestyle, some of our ‘beautiful’ financial institutions have hidden their own debauchery [toxic debt] in supposed mainstream investments.
There is a groundswell of opinion that the solution is for there to be better regulation. However, despite my own background in regulation, I believe that whilst this may well be necessary, it is only part of the answer. Yes, we could construct rules and processes that help to protect customers [more], but as we have seen already, the industry pays large sums of money to very clever people and they will apply their inventiveness again in order to find legitimate ways of working the rules to their advantage. Let us not forget that much of what was done, had not broken the rules that existed. There was, and there still remains, the fundamental problem that some of these people are disciples of Gordon Gekko (from the 1987 film Wall St), who coined the phrase ‘Greed is Good’!
So, regulation can help, but it could create a false sense of security with people believing that regulation is a universal panacea that – once imposed – will remove all risk. Frankly, ‘attitude’ aligned to a strong ‘moral compass’ is equally, if not more important! The lending policies and investments made so far, are the results of the ‘attitude’ problem, not necessarily the cause. Corporate organisations make much of their ‘Company Values’ and I suspect that ‘integrity’ appears on the list for most. Companies have to find a way of ensuring that their senior management understand what these values mean to them and their own behaviour, not just what they want them to mean to their staff. Failure to independently assess attitudes, and educate and reward peoples application of the correct values and ethics will leave us all open to similar if not the same problems in future years – future ‘bathers’ beware!
Written by Mark Thelwell - Visit Website