A Moral Crisis In The World Of Finance

It must, I think, have been that second glass of sherry, taken before dinner in the Master’s comfortable sitting-room that put the Chaplain in a contentious mood. ‘You know, Roundabout,’ he began, ‘I cannot help but think that the Pope has got it right.’

‘Well!’ answered the economics Professor jocularly, ’one would hope and indeed expect the leader of the Catholic Church to have a sense of righteousness! But to what specifically do you refer?’

Sounds words about money from the Pope

‘I refer,’ said the Chaplain, his eyes twinkling behind the round frames of his spectacles, ‘to Pope Benedict’s view of the global financial system. And I must agree with his words… now what exactly were they?’

As he paused for recall, I glanced at the splendid dining hall of Chadlington College, to which the Professor had so graciously invited me. I surveyed its oak-panelled walls hung with sober portraits and the long tables, lit by small lamps, at which sat the students in their gowns. I was admiring the coats of arms and the stained glass windows, when the chaplain resumed.

‘Ah, yes,’ he said. ‘I have it now. The words of the Pope: “He who builds only on visible and tangible things like success, career and money, he builds the house of his life on sand. We are now seeing, in the collapse of major banks, that money vanishes, it is nothing. All these things that appear to be real are in fact secondary. Only God’s words are a solid reality.” Our appreciation of these fine sentiments was interrupted by an abrupt ‘Tsch!’ to my right. It was the voice of Dr Susan Swings, who that very day had been reporting upon the college endowment funds, so carefully invested by her bank Floggit Burnhem. The meeting had not gone smoothly and the mood of Dr Swings was not sweet.

‘Tsch,’ she said again, turning away from the Master to her right to join our conversation. ‘I suppose that this college was provided by the word of God, and not by the efforts of people rewarded and motivated by money.’

A moral crisis in the world of finance

‘You have a point there,’ conceded the Chaplain. ‘But still I detect in the world of finance today a moral crisis. Why, our own Archbishop of Canterbury has argued that the ‘the biggest challenge is whether we can recover some sense of the connection between money and material reality — the production of specific things, the achievement of recognizably human goals that have something to do with a shared sense of what is good for the human community in the widest sense.’

‘Whatever that means!’ chuckled Professor Roundabout.

‘And the Archbishop of York, John Sentamu – for whom I have much respect,’ the Chaplain divulged, ‘has said that the market takes its rules of trade from Alice in Wonderland and that speculators and short-sellers are bank robbers and asset strippers.’

‘Which just goes to show how little he understands about finance,’ opined Dr Swings. ‘Whatever has been going on recently it has nothing do with asset stripping which describes the practice, perfected in the 1980s by Lord Hanson, of buying a company and then making a profit by selling off all its best assets.’

‘Which I suppose makes it alright?’ responded the Chaplain, and a swig of the college’s fine claret brought a glow to his cheeks. ‘Now listen to this!’ he cried. ‘He fumbled in his breast pocket and produced a page torn from the Times.’

‘Here we are,’ said the Chaplain and he began to read.

“I lost my home in February”, said Iris Salamanca, aged forty. “The banks gave me a 100% loan for $250,000 four years ago. I was only earning $10,000.” Sitting in an empty Laundromat in a typical American suburb of northern Virginia, she smiled as she remembered the lure of easy credit and oversized dreams. “It was my first house”, she said, “I was so excited when the banks lent me the money that I didn’t think about meeting the payments.”

‘Surely,’ said the chaplain, ‘it is reprehensible that banks should take advantage of such unfortunate and, I am afraid, ignorant people?’

‘Oh really!’ said Dr Swings, clearly nettled. ‘Why blame the banks for everything? If people borrow money that they can never hope to repay, then why blame the banks for their foolishness? It is high time that people bear the consequences of their own behaviour.’

‘I dare say then,’ said Professor Roundabout, turning to Dr Swings, ‘that you would accept that the banks should also bear the consequences of their own behaviour and that, therefore, you disapprove of these banking bail-outs – from which I note that your own Floggit Burnhem has benefited?’

‘Touché!’ interjected the Chaplain, by now hugely enjoying himself.

Who’s really paying for the great banking bail-out?

‘Now come on,’ said Dr Swings. ‘You both know that the banking bail-out is indisputably necessary. The alternative would be a swift descent into a deep economic recession.’

‘Instead of which,’ said the Professor, ‘we choose to sustain today’s level of economic activity and wealth, but only by borrowing huge sums of money that must be repaid by future generations.’

‘Quite!’ agreed the Chaplain. ‘And why should those who do not live in this day and age, who have no vote and derive no benefit from the world today be expected to pay for it? Surely, surely,’ he repeated, his voice rising to a crescendo, ‘It is morally indefensible to expect one generation to subsidize the indulgent lifestyle of another‘.

And with this coup de grâce he drained his glass and replaced it with a noisy thump upon the table, a sound that attracted the attention of the Master. He turned to us with a hospitable smile. ‘I do hope you are enjoying this fine wine,’ he said. ‘It was left to us by one of our wealthiest benefactors. We are so very fortunate with our endowments.’

Look out for more thoughts from Dr Swings and Professor Roundabout next week…

In the meantime, UK share indices across the board are in fine fettle this morning, following the government’s laudable initiatives to get the banking sector working again. The FTSE All Share is up more than 5% as I write, with the Small Caps and Aim indices adding 2.5% and 2% respectively.

Of course, it’s way too early to suggest that the bottom has been reached yet and that markets will move significantly higher from here. But there are certainly signs of optimism in the air – and I remain excited about the prospects for many of the shares on my watch list.

When things do get moving again, some of these unfairly battered penny shares could be stellar performers. In fact, my “Leinster Profit Secret” share “popped” 42% higher this morning. It could have a lot further to go, especially if the coordinated efforts of the world’s governments succeed in greasing the wheels of the financial sector and allow this great little company’s strategic plans to come to fruition.

You can read about what this company’s up to and why I’m so bullish on it here.

Regards,

Tom Bulford
for The Penny Sleuth

P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

^ Back to top

LinkedIn
Twitter
Del.icio.us
Digg
Facebook
Google Bookmarks
Livejournal
StumbleUpon

A Moral Crisis In The World Of Finance

Banking and the Moral Maze