Time to stand up to the bullies

A highly disturbing report released today may go to the core of the financial mess we find ourselves in. According to Reuters, “a quarter of Wall Street (and UK) executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow.”

The “survey of 500 senior executives” also found that:

  • “24 percent believed financial services professionals may need to engage in unethical or illegal conduct to be successful”;
  • “sixteen percent. . .would commit insider trading if they could get away with it”;
  • “30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.”

And these are just the people who actually were brazen enough to admit to such beliefs.

It made me think of the lender-borrower relationship as it applies to the bondholders who lent money to Irish banks and the government itself, and the lack of morality and ethics of it all.

Who you borrow from is just as important for a borrower as it is for a lender who it is that she lends to.

When I was in the commercial banking business - and please don’t hold that against me; I got out of the business in 2004 after a 30-year career because it no longer made sense to me - one of the most important criteria in lending was the issue of the character of the borrower. Knowing your borrower was as critical, if not even more so, than the other standards: credit history, source of repayment, collateral and ability to service the loan.

In other words, does the proposed borrower have the character to honour his commitment to properly service the loan; and if difficult circumstances arise, will he do whatever is possible to meet his obligation?

But lending is truly a two-way street. What is just as important is: will the lender work with the borrower?

Ireland finds itself as a borrower under distress; and as such it needs the same consideration from its lenders. But the problem is that its lenders - the bondholders - are not holding up their end of the bargain.

There is no question that Ireland needs to once again live within its means; and the country has shown over the past two years its willingness to adjust budgets accordingly toward reaching that goal. In other words, it’s doing its part. The country is acting responsibly by reigning in certain expenses associated with running the State; although there is a need to have more worthy debates on what programmes to cut so that the poor and middle class do not suffer disproportionately.

But the problem is that its lenders - those bondholders - are not doing their part. With minor exceptions they’re demanding that Ireland adhere to the imposed ‘Austerity Programme’ as a means to ensure that they get paid back, no matter what. And if means that citizens have to suffer, then so be it.

There is sufficient evidence to declare the imposed “Austerity Program” an absolute failure in restoring confidence in the markets, unless it’s really about defining “confidence” to mean the financial barons get their tribute no matter how they do it.

So, where in the world is the ‘character’ of our lender(s)? I know of no good banker in the days when banking made sense who would ever lend money to a borrower with such a lack of conscience.

The bondholders - our lenders - are doing nothing more than holding a gun to our heads. They tell us that if we don’t pay them “as originally agreed” the whole financial system could collapse.

That is, obviously, rubbish, and we ought to call their bluff; to tell them to act as responsible lenders and work with us for the simple reason that we’re the only ones who can, and will, eventually pay them back. They really have no choice. And they know it.

So here is what can be done.

For starters lower the interest rate, rewrite the debts on a 30 or 40-year term and put some of the debt on what’s called accrual - meaning they make provisions to wait for full payment until we can get our financial house in order. In the meantime we use the money we can’t realistically pay them now for capital projects that will create jobs and stimulate the economy toward recovery.

The financial crisis that began in 2008 is something I’ve always seen as more a moral and ethical issue than just a money issue.

It never should have been only about money. But unfortunately it was and continues to be. When you’re a high ranking technocrat working for the troika and have job security, perhaps the human factor doesn’t enter into the decision making process. For them it’s all about numbers.

When you put a nation under so much debt and make it borrow even more money to service those debts, you own that country. And that is just not acceptable and never should be.

From an old-time banker’s point of view, it’s time to get tough. The bondholders and their minions working for the troika are acting like bullies; and the only way to deal with bullies is to stand up to them. Either that or we can just give up and face a life of servitude; not just for ourselves but also for our children and grandchildren.

And to our nation’s leaders, how will you answer your own grandchildren when they ask: “Granddad, what did you do to end the financial war?”  {jathumbnailoff}

Image top: PeterJBellis.