Almost all of the liberal and conservative commentators on the Great Recession and Financial Collapse/Bailout of 2008 have neglected the cultural and moral reasons for this economic mess. Unless those causes are addressed, all the finger pointing and all the proposed “solutions” will be like putting band-aids on a tumor. Let me be as specific and concrete as I can.
In the 1980s, Michael Lewis wrote a comedic book called Liar’s Poker that depicted the excesses of Wall Street at my old firm, Salomon Brothers. He recently updated it with an article entitled, “After the Fall, Greed, Stupidity, and Really Bad Luck: How Wall Street Did Itself In.” The bottom line is Wall Street learned next to nothing, from the past, the scandals, schemes, downturns and the criminality. The materialism and culture of greed was just too addictive. To quote Lewis’ last line, “Something for nothing. It never loses its charm.”
Certainly macroeconomic weakness, heightened economic imbalances, over-leverage and extreme credit risks have contributed to the unbelievable levels of market volatility we have witnessed in this downturn, now become a near collapse. Almost all financial experts and many policymakers have started to cry out for financial reforms, greater financial transparency and measures to rebuild confidence. Trust is needed in the financial architecture and institutions, regulatory agencies among them, that underlie our now highly interconnected global economic system. Yet this is why the sage market advisor, David Smick spells out so explicitly in his book, The World Is Curved, “The distasteful reality, is that there are no quick fixes for the global credit system’s dilemma, which is why the world has become a dangerous place with so much economic heartache.”
Let’s be completely honest since so much is at stake. Why did the financial giants: investment banks, hedge funds, ratings agencies, large investors for that matter, get us into this “risky business” and dangerous situation in the first place? The answer in a word, actually a deep-seated and virulent vice, is greed.
The outcries for punishment, heads rolling, massive government regulations and bureaucratic solutions are only now beginning. There will be dozens of plans and much hand wringing. Congress will over-react and yet more firms and perhaps half of all hedge funds will fail, hurting yet more people and dragging down the economy as a whole. No one can even predict what will happen to the credit default swap market, which totals just shy of a quadzillion dollars (do the math).
It is characteristic of the age in which we live to see the “moral dimension” as a matter of following yet more rules or dictated regulations. The ancients, however, seldom referred to rules or even principles. For them a moral life was not a matter of what you do but of what you are. The fundamental notion was not duty but virtue (Latin virtus, Greek arête) and the task of the moral person was to describe the virtues that we should emulate and teach. This is how Socrates, Plato and preeminently Aristotle conceived of the moral life. St. Thomas Aquinas synthesized it into Christianity. The words of the Roman, Cicero closely correspond, as do those of the great sage Confucius, in China. Like him, the Greeks, Romans and Christians all attempted to find a basis for moral conduct in human nature. They all believed that the core idea is virtue.
Today “virtue” is literally and figuratively missing from our public vocabulary and the idea of “the moral” has been either trivialized or totally relativized. No training session or quick executive briefing can revive ethics and morality because they are habituated over years and years not in some late afternoon consultants’ PowerPoint presentation or a touchy feely weekend retreat. At the very root of our financial crisis is a moral vacuum, which can only be filled with true virtue. Virtue can be defined as “moral excellence,” which is gained on the grounds or basis of reason. It is a core positive quality that advantages both individuals and society.
Capitalism, the goose that laid our golden eggs over the past decades, brings about immense transformation, particularly in its globalized form. It is in nature as Adam Smith reminded us in his first book, The Theory of Moral Sentiments, written long before his better-known work, The Wealth of Nations, all about what he called “the moral sentiments.” He himself distinguished between self-interest, which he promoted, and greed. Self-interest is both good and essential. Greed is always wrong and bad. The key difference is the former uses self-restraint, which obviously requires a moral code and a moral compass. There are moral preconditions in a market economy: the sentiments of sympathy, benevolence and compassion, of approval; disapproval and indignation, which underpin the social order and make it possible to engage in business in the first place. Human beings are not just profit-maximizers. They have moral scruples, personal commitments and the desire for happiness. These set limits to their plans for personal profit, and also stimulate them to pursue profit in ways that honor their higher values and generosity. Many companies, large and small, exhibit these; they live and conduct business by these values, in every industry and on every continent. I collected sixty examples in my recent book but there are thousands upon thousands.
Those nations, peoples, and businesses that neglect the moral ecology of their own cultures, especially corporate cultures, and financial firms’ cultures are most noteworthy, cannot enjoy the fruits of capitalism. Because that system must essentially be moral or it falters, declines and fails. What we need to rediscover and renew today at this time more than any other in modern memory is spiritual enterprise, which is capitalism in its most profound and important virtuous form.
Spiritual capital is the fund of beliefs, examples, and commitments that are transmitted from generation to generation through a religious, moral or spiritual tradition, and which attach people to the transcendental source of human happiness. Without rediscovery of the virtues we cannot understand or resolve the deepest roots of this financial and, ultimately, moral crisis.
That moral crisis cannot be dictated by governmental power or throwing money at “problems.” One of the paradoxes of the “progressive movement” is that it has spawned public policies that have had as their collective consequence an end totally opposite to the one intended. Instead of offering temporary help to a needy few, we have expanded the ranks of those perpetually in need. Where communism failed to create “new socialist man” behind the former Iron Curtain we are succeeding in America. Instead of creating a society of free and responsible individuals, we have created the entitlement generation(s). Ever since we proclaimed that we should be free from fear, we have been afraid to be free.
There is, lest we forget in this era of Obamanomics, a very corrosive and morally corrupting influence of government which stimulates the “something for nothing” mentality more than anything else in our present culture. The latest episode in so-called “stimulus” is mostly a series of government giveaways or payoffs to interest groups now in power. There is nothing virtuous about such bailouts to any and every constituency that screams loudest or turns out the vote. Quite the opposite, such actions inevitably destroy freedom, cripple the market, and like drug addiction lead to a need for more and more without regard to effect. At some point we will wake up and there will be hell to pay, i.e., hyperinflation and a worthless currency.
