The Unbounded Greed and Decline of Capitalism

The death march of mighty financial institutions in US continues sending shockwaves throughout the world and the loud murmur of socialism saving the ass of capitalism gaining momentum. Lehman Brothers may be dead for good, Merrill Lynch is swallowed for the price of breakfast by BofA, Morgan Stanley is struggling and nearing collapse and the likes of Bear Sterns, Fannie Mae, Fraddie Mac and AIG saved from demise through a socialist move of nationalizing them. And who will pay the cost of the act of nationalizing the fall guys? Of course the American tax payers – they have half a trillion dollar more debt to pay for the unbounded greed for some of the fellow brethren! How come people who run multi-billion dollar investment banks became so naive to forget the basics of banking? The reason is simple – greed under the garb of optimism took over the common sense (usually happens when you get to risk other people’s money for your personal high rewards – the new definition of high risk/high reward) and this phenomena today pushed back America at least 10 yrs behind on economic growth curve and rest of the interdependent world at least 3 yrs.

The collapse of these institutions is a déjà vu of the demise of companies like Worldcom and Enron at the start of this century and looks like we have not learnt many lessons from history. The external cause of the phenomena may look different but the philosophical reason is the same – human greed gone wild! Any Sarbanes Oxlay like reactionary legislation cannot bound the greed nor do events like imprisonment of errant office bearers. The greed is like inflation – economic lubricant if within bounds and a massive retardant if goes beyond. And all these failed institutions are victim of people running the forgetting basics of banking economics for fast buck and thousands of people who are loosing their livelihood will pay for their willful ignorance (I am sure all the top executives of these failed institutions are millionaires multiple times over and have nothing personal to loose and they know they will be back again playing the same games within a few yrs.)

This interesting interplay between greed and fear seems like a natural phenomenon with no permanent escape – whatever goes up goes down and vice versa. We can learn few lessons from it and move forward with some more wisdom. Is that wisdom enough to keep the lure of unbounded greed away? Probably not because that’s how the natural dynamics of human inner world works and rise and fall of enterprises is a mere reflection of that. The world economy will rebound – no doubts about that. When will it rebound might be a moot question for economists to answer.