The Root of our Economic Problems

Once again, the Financial Times comes up with an OpEd that so adroitly brings order from the financial chaos swirling around us.  In this case, Kishore Mahbubani, Dean, Lee Kuan Yew School of Public Policy, National University of Singapore, and author of The New Asian Hemisphere, calls out the bankers for their fraud, corruption and criminal behavior.  Our broken social contract must be restored and that is what the people of the #Occupy movement understand.  And unless things change soon, the bankers will learn it the hard way.

What went wrong? The simplest answer is that the rich got too greedy. They either forgot or ignored the implicit bargain that the poor were supposed to benefit too. Sadly, the high rolling Wall Street bankers led the way in destroying the social contract that had served them well. They took full advantage of the mood of the time and found ways to justify the millions they earned. “We are adding value to the world with the brilliant new financial instruments we have created,” they proclaimed triumphantly.

Now we know that bankers produced no economic value. Instead, they produced financial weapons of mass destruction that almost destroyed the world. When they brought the global economy to the edge, governments had to be called to the rescue using taxpayer money. Luckily, it worked. But if Wall Street bankers and their European counterparts had been socially responsible and politically smart, they would have apologised profusely and promised to respect the implicit social contract.

Instead, they assumed that the zeitgeist that had legitimised their greed would continue. After paying off the nominal debts to governments – but not the debt for the social and economic destruction they caused – the bankers paid themselves fat bonuses again.

The nub of the problem is that corruption has become legal in America, and perhaps in Europe too. After the destruction caused by investment banks, power should have been handed back to regulators. But in America, Congress can be bought and regulations to control banks remain toothless. What’s more, it is all legal.