The most recent spat of corporate, personal and government greed is causing many Americans to demand greater oversight and regulation on our financial markets. Unfortunately for all of us, these demands for greater controls will be met. Unfortunately for all of us, the new regulations will merely set the stage for the next financial debacle.
Until we all understand that you cannot legislate morality, we are all doomed to repeat the disasters of the past.
The ultimate breakdown of personal accountability and responsibility is a result of the breakdown in society’s ability to instill a code of ethics that reinforces the values that we need in order to survive and thrive.
The rule of law is not a rule of law at all. It is a willingness of people to adhere to principles which will govern how we deal with one another. Laws are obeyed only because people wish to obey them. If you are on a highway and the speed limit is 65, many are tempted (ok, most) to go over the speed limit. The same is true of laws which govern our financial markets, our tax code, and our dealings we have with one another.
I am dismayed when I hear politicians talk about the "greed of bankers" and "corrupt businesses" as it relates to the most recent real estate debacle. Trust me that there is sufficient blame to go around. Greed takes many forms and has many faces.
Real estate agents and appraisers benefited from higher home values. Banks benefited from the earnings on the loans. Fannie Mae and Freddie Mac benefited as did Countrywide. Homeowners benefited from low interest rate loans when they probably would not have qualified for such mortgages in more normal markets. States and localities benefited from higher property values which resulted in higher real estate taxes and property transfer taxes. Many had the opportunity to benefit when this crisis started and many did. To blame one group is not only wrong, it is counterproductive.
Throughout the real estate bubble few were willing to acknowledge their part in the process of creating the bubble in the first place. Trying to assess blame on one part and than legislating controls on the one part will lead to unintended consequences like never foreseen.
You need to appreciate how the system of laws works in practical terms to truly understand why more legislation will not work. Whenever new laws are created, it is the role of self-interest in which attorneys, accountants, business leaders, labor union chiefs, and government try to find ways to legally circumvent the rules you just put in place. It is a natural tendency for people to find ways around constraints. Children do it all the time and when we parents find out about it, we can either put in more rules or teach self-discipline.
Self-discipline and a code of ethics taught by our families and churches are so important to our society. A breakdown of either self-discipline or a code of ethics will lead to the types of problems that we are experiencing today.
An equally great danger for society is to remove the consequences of our actions from us. Trying to remove the discomfort of having to solve your own financial crisis only encourages others to try it again. In my entire life, I have made many mistakes and have or am paying for them daily. What I have learned from these mistakes is enhanced by the consequences that I have to endure. Taking away those consequences is tantamount to societal disaster.
To allow people to feel as though they are victims is a dangerous precedent to establish. Already, we have a major settlement with Countrywide and Bank of America with 18 states which punishes one type of wrongdoing. I doubt if the Attorney Generals of the 18 states would also seek compensation from homeowners who defrauded the banks because that would be a political disaster. I doubt as well if the Attorney General’s would ask the states and localities to refund the transfer taxes on those misleading real estate investments.
Until our society recognizes greed as the problem that it really is the underlying problems a lack of personal responsibility will never be addressed.
Our very survival depends on us eventually winning this battle. If you think the financial markets are in turmoil now, just wait until the panic sets in when we act individually rather than as a nation united.
Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics and management for the AICPA. He is on the boards of numerous publicly traded companies as well as not for profit charitable organizations. He can be reached at [email protected].