Does the devil exist? Former Federal
Reserve chairman Alan Greenspan persuades me that
he ought to. The much-discussed global credit
crisis offers a singular sort of object lesson in
the nature of evil. The world needs a devil of
sorts to address such problems.
I refer to
Greenspan's September 23 comment to the
Frankfurter Algemeine Zeitung casting the first
stone at the credit ratings agencies for causing
the crisis in which the financial world finds
itself. Greenspan reportedly said, "People
believed [the credit
rating agencies] knew what
they were doing. And they don't." Greenspan was
speaking about the agencies' claim that packages
of risky securities such as subprime mortgages
were effectively risk-free, when they weren't. The
ratings agencies, as any casual reader of the
financial pages knows by now, caused such damage
only because Greenspan and his fellow regulators
allowed them to.
Who is to blame? This may
be the first systemic crisis of the world economy
in which everyone is to blame. As US Senator Jim
Bunning said last week, "Numerous groups
contributed to the mess, though some contributed
more than others. At the top of the list is the
former Federal Reserve chief ... and now author,
Alan Greenspan." The American Securities and
Exchange Commission is investigating the big banks
to determine whether they bribed the rating
agencies, in effect, to bias their judgment in
order to help the banks peddle a tainted product.
As Pish-Tush said to Nanky-Poo [1], "I am right
and you are right all is right as right can be."
Everyone blames everyone else, and with
good reason. The ratings agencies pronounced
riskless a trillion and a half dollars' worth of
derivatives that turned out risky after all. The
banks sold it, and the Federal Reserve and other
regulators let the world apply vast amounts of
leverage to it. That leaves the rest of us waiting
to see whether the house of cards will come down.
The world slid to perdition down the path
of least resistance. Until the subprime scandal
blew up in June, no one thought that he had done
anything wrong. No one robbed the till, as in the
case of WorldCom, or used corporate funds for
personal indulgence, as in the case of Tyco, or
cooked the books, as in the case of Enron. No one,
in short, sold an unencumbered soul to the devil.
All the ill was brought about by self-seduction of
institutional corruption, in which feckless little
men in corporate cubicles managed to destroy more
wealth than the marauding hordes of ages past.
Truly satanic evil does exist, in the
precise sense of rebellion against God. Nazism
proposed a diabolical parody of the Biblical
concept of election, in the form of a "master
race" in the place of a "chosen people", which
explains why Adolf Hitler was so keen to
exterminate the authentic article. Lesser orders
of evil in the form of official kleptocracy,
thievish monopolies and ordinary corruption plague
most of the world. But the present crisis, which
yet may prove more damaging than the outcome of
many acts of deliberate evil, was executed by
corporate types who did little more than cut a few
corners and assume that someone else would take
responsibility for the problems they were
creating.
In a broader sense, neither the
regulators nor the bankers nor the ratings
agencies are to blame. They conspired to turn
risky subprime mortgages or corporate loans into
supposedly riskless credit derivatives at the
behest of the savers of Asia, who want to put
their savings into riskless assets. They
accommodated the requirements of American
households, who wanted to build a retirement nest
egg without saving, by trading houses back and
forth to each other at endlessly higher prices
financed at low interest rates through a trillion
dollars a year of imported savings.
What
could they have been thinking? The housing bubble
in the United States and many other parts of the
world could not continue forever, and could not
forever permit Americans to save none of their
income, as has been the case for the past decade.
Chinese and other Asian savers cannot indemnify
themselves against the risk that China's economy
might fail, except, as usual, for the very
wealthy. China and other emerging economies
desperately require investment in infrastructure,
and the return on such investments is likely to be
very high. That is where Asian savings should be
directed. But the fear of Asian savers, and the
lack of vision of Asian governments, diverts their
savings to the United States and other industrial
countries.
What we have witnessed in the
financial markets is not so much the mediocrity of
evil, in political theorist Hannah
Arendt's infelicitous phrase, but rather the evil
of mediocrity. Most people have no special gifts
or insight, no skills or powers that distinguish
them from the mass of their fellows about them.
They hope that the institutions to which they
belong will care for them, and that if they do
more or less what everyone around them does, they
will not be singled out for ill fortune. Ordinary
people are capable of great things under
conditions of adversity - but for this to happen,
someone must arrange the adversity.
The
operative deadly sin appears to be not greed, but
rather sloth. It was Johann Wolfgang von Goethe
who made sloth into the first and greatest of all
sins. In emulation of the Biblical Book of
Job, the Lord says to Mephistopheles in
Goethe's Prologue in Heaven:
I never have hated your ilk; Of
all the Spirits who deny, I find the scamp
the least tedious. Man's endeavor tends all
too easily towards slumber; What he wishes
for first of all is unconditional
rest. Therefore I am wont to assign him a
companion Who provokes and must act and
appear as a Devil.
The devil somehow
fits into the great scheme of providence. The
world deserves just that sort of imp for its sloth
and complacency and humbug. If the devil is loose
in the credit markets, at least one can say that
they had it coming. Of the other diabolical
variety, the rebel angel, we had quite enough in
the form of communism and fascism, and I shudder
to think of its return. Hitler and Joseph Stalin
were anything but mediocre. They very nearly took
over the world. No one deserved that.
If
Americans have to learn the hard way that they
cannot surf the wave of the world's savings
forever, it will be a painful but beneficial
lesson. If Asians learn that they cannot avoid
risk by placing their savings in America, it is
worth the cost, although it may be substantial.
The fate of 3 billion Asians is the risk to
the world economy, and it is delusional to think
that it can be insured. Asians must find the means
to invest in their own future and buy their own
risk.
Who started the global credit
crisis? I don't mean to wax mystical over mundane
issues in the markets, but I think that the devil
did. He is just doing his job.
Note 1. In The
Mikado, a comic opera with music by Arthur
Sullivan and libretto by W S Gilbert.
(Copyright 2007 Asia Times Online Ltd. All
rights reserved. Please contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
