Tag Archives: corporate

The Big Short Reminder: Victims of the Financial Crisis

The Big Short (poster)It’s interesting to consider that we might see this year’s Oscar for Best Picture go to a film about the corrupt underpinnings of the financial sector.  Three years after The Wolf of Wall Street was pipped at the post, and nigh on three decades since Wall Street gave us the personification of capitalist greed as Best Actor, The Big Short is capturing people’s attention – not to mention raising our sense of injustice to renewed heights – and acts as a potent reminder that, behind the numbers, there are real people who suffered.

The fragility of the global economy continues to highlight the precarious position we remain in, almost a decade since the financial sector drove economic growth to a crashing halt.  Attention spans are short and public sentiment has moved on, which is why a popular film that highlights some of the widespread fraud that ran throughout the global financial system is a useful reminder at an important time.  New energy is needed to see through long-lasting reform, momentum for which is dissipating as focuses shift onto issues of migration and international conflict.  The Big Short thus comes at a pivotal time, highlighting the systemic abuses that lay behind the financial crisis and our collective ability to eventually find a way to blame (as the film itself states) migrants and the poor for the majority of our social ills.

The timing of the film (and content of the 2010 book it is based upon), with its novel attempts at imparting financial literacy alongside justified indignation, hits an almost perfect moment that will hopefully restore the issues at its core to the forefront of public discourse.  A more comprehensive debate on what we really want our financial system to do, and how it should be structured to achieve such goals, is still required and we must challenge any notion that the results are a foregone conclusion or already decided.  The lobbying power of the financial sector, and the revolving door between finance/government that helps support it, is well known.  Given its popularity, this film has the potential to provide millions of attentive viewers with the impetus to continue to press for reform to counteract such vested interests.  It could also, interestingly, help decide the future President of the United States, with Democrat candidate Bernie Sanders running a strong anti-Wall Street platform that is resonating with disillusioned voters.

The accepted narrative in many circles is that the financial crisis was caused by short-sightedness and greed, both of which indeed played a significant role.  However, the one-two punch of the film explains that the near junk status of highly rated Collateralized Debt Obligations (CDOs) was followed by large institutional banks trying to cover up their positions until they could limit losses (and in some cases, such as that of Goldman Sachs, even profit) from the collapse of the market.  The reverberations of these actions continue to be felt by clients, investors, taxpayers, everyday workers and global society as a whole.  Ultimately, the common good suffered horribly in the relentless pursuit of money and power by a relatively small but very influential portion of people in the financial system.  Whilst the memory of all this begins to fade, the devastation wrought continues to have an impact on those who were left homeless, jobless, and penniless because of the corrupt practices of some of the world’s wealthiest people.

This is the reminder that the film puts starkly before us.  Not just of the rotten mess that lay at the heart of the financial crisis, nor the fact that little accountability has been charged to those most responsible,  but that real people suffered as a result.  It wasn’t just numbers on balance sheets, in many cases people’s lives were left ruined and destroyed.  A report in the British Journal of Psychiatry in 2014 estimated that there were at least 10,000 more economic suicides in the EU, Canada and the USA that could be attributed to the financial crisis – reversing a downward trend in the EU, particularly amongst males.

Blood Money CC, Damian Gadal)During one of the film’s most poignant moments, we are reminded that those profiting from shorting the markets mustn’t celebrate the potential for widespread economic collapse because, we are told, for every one million jobs lost as a result of such a crisis 40,000 people will die.  In 2010, a joint report from the International Monetary Fund and the International Labour Organisation stated that global unemployment increased by more than 30 million – three quarters of this within ‘advanced’ economies – during the Great Recession.

Of course, the financial crisis that began in 2007 wasn’t just the result of one type of financial product.  Rather it emerged out of a cavalier culture which had come to define much of the financial sector that had embedded itself into a profit-driven, rent-seeking economy and collided with global economic imbalances, government policy environments, and the indebtedness of many sovereign states.  The widespread inability to call out the risks inherent in a rising market, and the refusal to listen to the few who did so, expresses a deep-seated set of damaging behavioural traits that had truly grave consequences.   The World Bank estimated in 2009 that between 1.4 to 2.8 million additional infant deaths around the world could occur by 2015 because of ‘sharply slower economic growth resulting from the current financial crisis’.  It’s impossible to know how many lives were lost as a direct result of the complicated network of failures that caused, triggered and perpetuated the financial crisis.  We just know that it’s too many to accurately count.

This sobering reality reminds us of what is at stake.  A popular film with global attention is a valuable step in enhancing financial literacy and unmasking the dangers of financial complexity, particularly when geared towards the profit-taking of a small minority.  Understanding the issues enables a strong and vocal push for reform, whilst at the same time such knowledge can be used to help create viable alternatives built upon values-driven foundations.

The Big Short is a perfectly timed reminder that, while the worst of this particular crisis may have passed, we have barely begun to help those who suffered the most.  Nor have we yet done enough to create a financial system that won’t lead us down such a path again in the future.

Corporatocracy: Trust and Power (or Surprise, Surprise – Another Corporation Lies!)

Volkswagen Leaps into the Present (CC, SenselAlan)The contagion of mistrust was always going to spread further, but it was an open book as to where it was going to emerge next.  Corrupt and deeply embedded behaviours found in the financial, media and political spheres over recent years have left much of the general public completely disillusioned with those who have been deemed ‘Masters of the Universe’ – keepers of the social narratives that rule our lives, dictate policymaking and direct economies around the globe.

Perhaps nobody was really surprised by the recent exposure of emissions testing fraud coming from Volkswagen, but the brazen and conscious deception enacted in the pursuit of corporate profit was, in the words of one commentator, ‘striking in its apparent villainy’.

Beyond this recent scandal of 11 million fraudulent vehicles, the list of corporate deception and exploitation of people and planet is shockingly comprehensive.  By now we are well acquainted with the generational destruction wrought by global finance (with less well-known examples such as the profiteering of Goldman Sachs in Greece); but add to that systematic hacking by the media; unethical psychological experimentation through social media; demolishing investor value by overstating profits; directly lobbying against environmental policy protections; profiting from slave labour in the supply chain; massive levels of corruption in the world of sport; the list really could go on, and on, and on, and on

There are clearly very good reasons as to why the general public might be losing trust in both the corporate sector and our political representatives who are so beholden to it (the recent surge in popularity of both Bernie Sanders and Jeremy Corbyn’s message of honest politics is a result of this), and so the question that many have begun to ask is: just how do we restore that trust?

A great deal of time and energy has been put into well-constructed regulatory efforts, particularly in the financial sector, and many of these do seem to go far enough to stop to a lot of the potential for misconduct (which, in other areas of life, would be called crime) that we have seen over recent years.  Just as much energy, and even more rhetoric, has been put into the equally important but far more evasive areas of self-regulation that fall under the umbrella of ‘culture’.  It’s hoped that a strong combination of these two things will restore the virtue of the private sector, so that it might once again be a paragon of social infrastructure attached to a clear notion of civic duty.

The problem is, though, that even if these efforts prove successful it’s likely that they won’t be enough to restore trust.  For one simple reason: you can’t restore trust without addressing power.

Power is the elephant in the room that many people are trying to avoid noticing.  Focusing on the technicalities of corporate functioning and the professional conduct of people in business, although certainly necessary, is in many ways overlooking the true root of the collapse in public trust.  The problems that we have seen have been a result of combining ever-more powerful institutions with a market-driven ideology that crowded out the ability for regulatory fail-safes through a ‘cognitive capture’ of government policy and access that placed the collective voice of the private sector above almost every other element of society.

Furthermore, this accumulation of power leaned towards a very small number of entities (80% of global corporate control is held by only 0.61% of shareholders, predominately financial institutions, whom behave as a single economic ‘super entity’).  This has created massive problems with market competition and systemic risk, has placed companies that are supposed to be intermediaries as expensive, publicly subsidised profit takers, and has greatly skewed the policymaking of governments around the globe – often to the detriment of social services and initiatives promoting public wellbeing.

Those with power and authority must prove their legitimacy and be held to incredibly high standards of social purpose, obligation and positive effect.  Many of the current corporate structures have done exactly the opposite in a very clear manner, which is why their authority is being questioned and many are looking for ways to remove them from entrenched positions of power.  This is really what the loss of trust ultimately demands and why many people are so concerned about restoring it, being intrinsically connected to the accumulation of power and the promotion of one vested interest (private wealth) over another (public wellbeing).  You cannot restore such legitimacy in the eyes of the general populace unless this tension is openly discussed and substantial concessions genuinely offered.

Developing a notion of flourishing societal diversity, and how the narrative primacy of finance capitalism is working against such a view, is vital for steering us clear of the insatiable desire for power (manifest primarily through networks of ownership) that the market economy has provided to those who have placed themselves as custodians of its operative mechanisms. This is not ‘banker bashing’ or ‘wealth envy’ but simply to ask that the private sector justify many aspects of its activity that often come at a great expense to the rest of society, and to recognise that its needs are not the only important component of a healthy economy nor society as a whole.

Democracy (CC, Feral78)An important aspect of restoring trust is thus to openly challenge the fundamental assumptions that the private sector has relied upon, particularly over the past half century.  These are found in the form of economic and political assumptions (as Adair Turner famously put it: “a sort of 50 year-long giant intellectual mistake”), but they are also relational and boil down to assumptions about the extent to which each individual has a duty to serve the interests of their community and humanity (not to mention the diversity of life on this planet).  Such reciprocal relationships form the bedrock of our social structures and hierarchies, and they have been torn apart by the dominance of power-driven ideologies that benefit from breaking the bonds between members of society.  Encouraging the accumulation of private wealth over promoting a mature level of compassion for and solidarity with the lives of others we may not personally know.

These assumptions have taken root in the corporate world – they are not inherently of it, but can thrive within its numbers-based abstractions – and we need to challenge their existence.  It’s not enough to respond with slightly repackaged promises of shared prosperity and the irreplaceable nature of access to goods and services, a truly reconciliatory response would begin to explore the areas in which such activities should start to withdraw from the formation of society and would actively begin to encourage innovative alternatives instead.  We need a healthy, functioning private sector for many important things – but we also need to forthrightly acknowledge that the accumulation of power has become counter-productive to our shared wellbeing and human flourishing, and that the fall-back position of acting for shareholder value alone is a corrosive way to operate an economy.

This whole discussion is wrapped up in the urgent context of global inequality.  This was the inherent message expressed globally through the Occupy protests four years ago, which sharply questioned whether a system that consisted of endemic inequality should be heralded as a positive vision of the way society should function.  These protests, and many others like them, were essentially arguing that there is an imbalanced and unfair relationship at the core of contemporary capitalism, which seeks to commodify and instrumentalise for profit as many aspects of our lives as possible.  Secondarily, and importantly here, that financial sector institutions in particular were the ones gaining the most out of this imbalance whilst returning relatively little social value from new avenues of product ‘innovation’.  A large part of this critique also relied on the excessive interconnectedness between money and politics, with the decision-making which results from such self-serving connections effectively shutting out the needs and voices of large swathes of humanity.

Restoring trust is a two-way street, and so it’s vitally important to develop an understanding that social progress is an ongoing process requiring an interdisciplinary and multi-faceted approach – one with no fixed or definable goal beyond the integrity of the transformative process itself.  Anything else is to place a limited perspective that will be heavily biased by historical and ideological forces and primarily serve one subset of people over others.

This process should be reflexive and self-aware, have multiple points of intervention and avenues for change, promote self-expression within a context of mutual benefit, and should not be beholden to vested interests and hidden channels of influence.  The goals will change in response to circumstance and need, with more focus on specific and precise actions, and from this the mechanisms we use to achieve them will emerge accordingly.  As Pope Francis laid out in the recent encyclical Laudato si’: “we are always more effective when we generate processes rather than holding on to positions of power.

Power and Equality (CC, Steve Snodgrass)The importance of seeing the future as a process that unfolds in this way is that it encourages wide-ranging and inclusive conversations to take place that inform the public discourse, and this inclusive dialogue then directs the efforts of technical experts to formulate innovative responses.  In the world today we have gotten this relationship backwards, as those with deep specialisation feel entitled to solve problems often of their own creation without wider consultation with those most affected.

In the context of the private sector, this has approached fantastical levels of hubris – where it is still presumed to be the most productive and inclusive way to achieve the advancement of modern global society as a whole, even though we have seen multiple examples within a single generation that provide us with clear evidence that this just isn’t currently the case.

In the end, you can’t restore trust unless there is potential for restructuring the hierarchy of relationships and systems of power that enabled a betrayal to occur in the first place.  If we’re not willing to talk seriously about more widespread and lasting systemic change that impacts the primacy of the private sector – above and beyond iterative developments around trading rules, product codes and market structures – then ultimately nothing is being done to address the systemic imbalances causing disenfranchisement, frustration and poverty for a large, growing number of people in modern society.

Where this difficult conversation is taking place it is clear that it isn’t yet being taken seriously – as those who are currently benefiting the most don’t really want anything to change at all.  Yet the message is becoming increasingly unavoidable.  If the overseers of the profit-driven status quo don’t begin to embody a more holistic view of what it means to create an inclusive social order, then society will eventually be forced to move forward without them…having waited long enough for promises of change that never truly come.

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