Four Lessons from the 2008 Financial Crisis

Politicians who refuse to recognise the causes of the disastrous global financial crisis of 2008 are likely to allow them to happen again.  Here are four key lessons which must not be forgotten: 

[1] Bankers’ Greed & Irresponsibility

When savers deposit their money with banks, the latter are supposed to hold that money plus any agreed interests until a withdrawal request is made. But in the period 2006-2008, many banks (in the US and in a number of European countries though, as we will see below, with notable exceptions) increasingly used their savers’ money to make high risk investment which would inevitably collapse.  When they were hit by the colossal losses (stemming from deeply flawed subprime mortgage packages), millions of people across the world were in danger of losing their life savings, and different national governments had to step in to provide funds to prevent that from happening.  It was covering the losses made by irresponsible corporate gamblers in the banking sector, and not funding much needed public services, that led to the crisis and subsequent drain on public resources.

[2] The Need for Regulation

Is the problem of allowing financial companies to risk savers’ money an unforeseeable one?  In the 1920s, American banks used savers’ money to gamble on the stock bubble which burst and led to the Great Depression of the 1930s. To prevent this kind of disaster from recurring, the US Congress passed the Glass-Steagall Act of 1932 to bring in safeguards which would, amongst other things, stop financial companies from risking the loss of savers’ money in making investment that could fail.  In the UK, institutions licensed to accept savings were kept from being able to use those deposits to invest in deals that should be left to merchant banks.  However, by the 1980s, ideological deregulators were pushing to give bankers the freedom to make money irrespective of the risks to the general public.  In 1986, Margaret Thatcher’s Conservative government lifted an array of British banking regulations in a move hailed as the ‘Big Bang’.  In the US, the Federal Reserve Board (under Ronald Reagan’s administration) began to reinterpret banking regulations as loosely as possible, until the Republican Congress passed the Gram-Leach-Bliley Act of 1999 to formally repeal the Glass-Steagall Act. By 2000, it was wide open for banks in the US and the UK to gamble with their savers’ money – since they either make even more profit for themselves, or they make huge losses and ask to be bailed out by their government.

 

[3] The Problem with ‘Free Market’ Regulators

‘Free Market’ advocates like to argue that the 2008 financial crisis had nothing to do with deregulation, but with poor handling of issues by regulators.  What they would not admit to is that, not only had a robust regulatory framework been largely dismantled, but what was left was overseen by people who subscribed to the deregulation mantra.  In the US, without explicit legislation to stop the Ponzi-scheme-like subprime mortgage deals, it was down to those with statutory responsibility to make the case for intervention.  But in that time, who was the Secretary of the Treasury? It was none other than Henry Paulson, former Chairman & CEO of Goldman Sachs, brought into government by George W. Bush.  Paulson, who was able to save himself $50 million in tax payment thanks to a provision passed under President Bush, repeatedly insisted in the years and months leading up to the financial crisis that all was well, and no action was needed.  If you hand regulatory oversight to people who are inclined to keep regulation out of money-making deals – regardless of the damages they may cause – necessary intervention will most likely be left ignored.

[4] Crime, Bonus & Punishment

When banks were losing so much money that people were in danger of losing their life savings (as many did during the Great Depression), government had a choice – punish those who had acted irresponsibly and help those who could be harmed by their action, or help the culprits and punish their victims. In the UK, billions were handed to the banks (which could then pay bonuses to their top executives) while the rest of the country was subject to austere cuts.  In the US, vast sums were given to the banks virtually with no strings attached, but people who lost their homes and jobs had no comparable support.  Of the countries hit by the 2008 financial crisis, only Iceland tried to prioritise helping ordinary people, let the irresponsible companies go bust, and sent guilty bankers to jail.  Where greed and irresponsibility are rewarded by bailouts and bonuses, instead of being punished by bankruptcy and jail, it is likely that more of the same will happen again. 

Conclusion

Deregulating the financial sector makes it far more likely for a calamitous crisis to occur.  Why do some people nonetheless push for it?  It’s basically why ‘Free Market’ acolytes always call for deregulation – it increases the scope for unscrupulous profiteering while passes the risk of harm to the public (consumers, communities, the environment, public agencies).  In cutting down regulatory safeguards, callous executives can engage in activities that generate more income for them even though it greatly increases the probability of many unsuspecting people getting financially or even physically hurt as a result.  When damages are done, they will deploy top law firms to help deny their culpability, pay out if necessary compensation (which is tiny compared with the profits they have then made), or lobby the government to bail them out.

In closing, it is worth noting that Norway and Sweden were persuaded to adopt financial deregulation in the late 1980s, but after they both got burnt in the 1990s, they learnt the lesson and tightened their financial regulations again. Subsequently, they were largely unaffected by the 2008 global financial crisis. As for Denmark, which never embraced the deregulation mantra at all on the banking front, it emerged unscathed from what hit most European countries in 2008.

‘Orchid Mantis’ Politics

One of the most insidious forms of political con has to be the Orchid Mantis – which I’ve named after the predatory arthropod that takes on the appearance of a nectar-giving flower, to attract unsuspecting insects so as to capture and feed on them.

In politics this con works on two levels.  First, it picks on certain notions which are likely to appeal to a large number of voters, and pretends it champions them when it is more likely to harm those who get close to them.  Secondly, the con is amplified when even otherwise sensible commentators help it along by referring to the con as if it is sincere in what it professes.  

Let’s look at three notable examples.

[1] The ‘Patriotic’ mimicry

These politicians present themselves as flag-waving champions of their nation.  They are keen to use force to show how strong their country is under their leadership.  They talk down others and insist ‘their’ people matter more than everybody else.  In practice, they will take foreign political donations and business benefits so long as they help them personally.  They will risk the security of soldiers and civilians through counter-productive or provocative military posturing.  They decry diplomacy and arms control if that hinders the profit-making of their arms manufacturing and trading backers. And they are the ones who consistently vote against better support for veterans in the military, but always for more to fund corporate contractors.  Far from being patriotic, they are all too ready to sacrifice other members of the country to advance their own ambition. 

[2] The ‘Religious’ mimicry

Then there are the politicians who position themselves as devoted ‘Christians’, ‘Muslims’, or whatever sect they want backing from.  They will tirelessly attack anyone who disagrees with them as a heretic, an infidel, an immoral atheist.  They will selectively pick out a few texts that lend themselves to hateful or oppressive interpretation, and promote them as the defining doctrines of the One True Faith.  For anyone who derive from religion a sense of compassion, human fellowship, fairness, reciprocity, these fundamentalists will have nothing but contempt.  They will do everything they can to sound pious and surround themselves with symbols of the religion they seek to exploit, but their true nature is embedded in their callous disregard for the suffering they cause to others. They will justify their cruelties by pretending that everything they do is authorised by ‘God’, and dismiss any evidence of their wrongdoing as an affront to their ‘sacred’ beliefs.

[3] The ‘Pro-Business’ mimicry

Alongside the pseudo-patriots and faux-faithful, there are the politicians who set themselves up as ‘pro-business’/’pro-market’ as though they have found the formula for prosperity for all, and they are the only ones decent enough to want to implement it.  In reality, what they have found is that a rigged market system will concentrate wealth and power in them and their rich allies, while increasing inequality gaps so the majority will be made weaker and more vulnerable.  They say they want deregulation to make the market free, when what they seek is to remove regulations that will hold them back from exploiting consumers, workers and suppliers.  They are fully behind laws and subsidies that help them take advantage of others.  They are pro those big businesses that donate to them as co-conspirators, but they care little for the dire consequences their biased policies may have for other businesses or the economy at large.

Expose the Con

In biology the behaviour of Orchid Mantis is known as ‘aggressive mimicry’, as it involves masquerading as something helpful in order to inflict severe harm on others.  That is precisely what Orchid Mantis politics is about.  The last thing commentators should do is to help the perpetrators of this con by referring to them as ‘patriotic’, ‘Christian’ (or whatever religion they are trying to co-opt), or ‘pro-business’.  Call them out for the tricksters that they are, and stop them harming unsuspecting voters.

Mary Parker Follett: communitarian pioneer

The dawn of the 20^th century brought us a wave of pioneering communitarian thinkers such as John Dewey, L. T. Hobhouse, Leon Bourgeois, Emile Durkheim, and Mary Parker Follett.  They exposed the stale dichotomies of reactionary complacency v revolutionary conflicts; total state control v laissez faire; rigid traditionalism and iconoclastic free-for-all.  Instead, they put forward new ideas and practices for developing social, economic and political relations to improve people’s quality of life.

Mary Parker Follett (1868-1933) is mostly remembered today as one of the earliest and most influential management theorists in the US.  Occasionally, a few would point out that she was also a notable political thinker.  In fact, Follett’s ideas on the management of organisations, on politics, and on the social centres movement, are all aspects of her core reflections on community development.

A key focus for Follett is the nature of human relations.  She rejected the myopic individualist view that sought to idealise the isolated self as free from all ties and obligations – acting solely in pursuit of one’s own interests, defined without reference to others.  At the same time, she would not accept as a viable alternative the notion that one would realise oneself through being absorbed by a larger group, or through some unthinking dedication to serving and obeying what the group calls for.  The self, for her, comes to lead a more enriched life in developing wider interests and concerns in association with other people – through exchanging thoughts, feelings, perspectives, one grows intellectually, emotionally, democratically.

People who interact in this mutually instructive and supportive way form a community that gives greater meaning to its members, not because it represents something over and above them, but because it embodies what its members have themselves thoughtfully constructed as their shared goals – and most importantly, serves as an on-going nexus whereby people can work out together what they should do.  Accordingly, Follett recommended the promotion of cooperative actions through schools, social/community centres, workplace democracy, political group discussions, in order to facilitate more satisfactory human endeavours.

Anticipating criticisms (echoes of which are heard to this day) that this would increase unruly, chaotic clashing of views, she drew a clear distinction between interactions that are in line with the community principle, and behaviour that is associated with the crowd mentality.  The latter is actually just a collection of isolated individuals each driven solely by one’s own thoughts and emotions without any due recognition of others or engaging in any form of shared deliberation.  Worse still would be mob behaviour where people blindly follow the instructions of someone who has taken a ‘lead’ position and act without critical exchange of diverse ideas or due consideration of the consequences for others. 

Those who command a mob or order a subservient workforce exercise power over them.  By contrast, democratic leaders exercise power with the fellow members of their community.  Follett was aware that the threat of authoritarian power could push many towards the anarchic fantasy of everyone thriving with no power required for sustaining any organisation or enforcing any rule.  Power, she understood, was essential to hold any group together, and the challenge was to ensure power was exercised cooperatively with respect for and input from all.

Follett’s conception of community life is that of interactions of pluralistic viewpoints. In place of monolithic, fossilised groups of people who unquestioningly comply with one set of doctrines and instructions, she advocated mutual learning and cooperative development at every level – from the neighbourhood, the city, to the nation and indeed, world governance.

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The New State by Mary Parker Follett remains an excellent introduction to her wide range of ideas on power, learning, organisation, and democracy.

Beware of Zombie Arguments

Some arguments have long been found to be misconceived because they are framed around a false dichotomy.  Imagine arguing over if we should run around continuously all day or stay still 24/7 – neither option is remotely sensible, and no one would want to waste time disputing which to choose.  Yet in politics, many arguments with no life in them have nonetheless been deployed in zombie-like attacks.  Anyone infected by them are liable to seek out ‘enemies’ with all rationality gone.  Let’s take a look at a few of these.

‘Socialism v Capitalism’ is code for one of the most common zombie arguments: should we have a completely state-controlled economy or an absolutely free market with no regulation at all?  The implication is that the unacceptability of one would serve as the justification for the other, but no one can seriously think that either of these is viable.  Ample evidence has shown that the closer any country gets towards overwhelming state economic control or relentless deregulation, it increasingly suffers economically AND socially.  What works in practice is responsive adjustment to introduce or remove state involvement in light of what in each case may help businesses and workers and the wider public.

‘Hawk v Dove’ is a classic zombie argument in defence discussions.  On the one hand, ‘hawk’ is supposed to be the way forward because ‘dove’ is blindly pacifistic and won’t do anything to defend one’s country’; on the other, ‘dove’ is meant to be sound because ‘hawk’ is blinkered in its aggression and will fuel disastrous conflicts which could have been avoided.  But how crass it would be to assume that one must always shoot and bomb regardless or insist that a gesture of peace will solve every problem.  History tells us that we need both military and diplomatic capability, and an evidence-based approach to guide us over how to combine them in different circumstances.

'Unquestionable Values v Anything Goes’ provides the core theme that lends itself to variations such as ‘our religion must be unchallenged’-v-‘my freedom must be absolute’, and ‘our customs are to be accepted by all’-v-‘my choices are no one else’s business’, etc. It is widely recognised that there is no single religion or set of customs that commands the assent of everyone in any modern city, or country, let alone the world.  At the same time, what any individual or group does can have serious consequences for others living near or far away. It follows that we cannot dogmatically impose any doctrine as binding on everyone or allow all to behave without any regard for the wellbeing of others.  Laws and policies have to be devised on the basis of how civility, mutual respect, personal safety, and constructive relationships may be affected in diverse situations.

‘Justice v Rehabilitation’, to take one more example, illustrates the unthinking approach of locking two dead-ends together. It tells us that the choice is either justice by harsh treatment of the accused as demanded by the tough ‘law and order’ brigade or rehabilitation through restorative practice as favoured by soft ‘sandal-wearing’ idealists. But we already know justice may not be served at all by ‘toughness’, especially if guilt is just presumed, and there can be no rehabilitation if there is no genuine remorse.  Offenders are varied – in the seriousness of their crimes, in what led them to break the law, in how they might (or might not) change their future behaviour. The relevant consideration is what ingredients would in different cases bring about the most desirable outcomes for society as well as the individuals concerned.

Zombie arguments are designed to muddy the water of political debates, fool people into backing absurd ideas when the only alternative is presented as palpably unsound, and block off serious examination of policy options.  When you see them coming, shut them out.

Politicians, Plumbers & Plato

Does anyone say: “all plumbers are the same”; “you can’t trust any of them”; “plumbers are clueless”; “we don’t need them”?

Most likely, people will agree that we can’t build reliable houses without the input from a good plumber. And plumbers are certainly not all the same – some are dedicated experts, some are mostly helpful but difficult to get in an emergency, and some are actually con merchants.

The same is true of politicians.  It would be unwise to brush them all aside as equally incompetent or corrupt, when in fact how well (or badly) society functions depends on what politicians are in office.  The more we allow those who only care about enriching themselves or advancing fundamentalist causes to take power, the more we will suffer.  If we are to get better public services, more fairness in human relations, safer communities, a stronger economy, and real sustainability, we need to get more sensible, strategic, public-spirited politicians elected.

But what makes a good politician?  Plato misled generations into thinking the key qualification to be a political leader is to have the unquestionable ability to know what should be done for society. But there can be no such ability, because what should be done for society depends on a wide range of factors – including crucially the deliberative explorations by members of the society in question – that no individual can know without engaging with others on an ongoing basis.  

Only a dictator would claim to know what should be done irrespective of what others might have to say.  While Plato was fine with that so long as the dictator subscribes to Plato’s philosophy, history has taught us that we must guard against authoritarian rule at all times.

To tell what would make a good politician as opposed to a bad one, we should look to three qualities:

[1] Character of integrity

We want political leaders who are honest and respectful.  Many people who enter politics are kind and decent. But there are also those who are hypocrites, cheat in their private dealings, bully those who work for them, and couldn’t care less about those less fortunate than themselves. When we read about them in news reports, we must highlight who they are and the political party that gives them a home, and not slide into the absurd censure of “all politicians are dreadful”.

[2] Public-spirit

One’s career before turning to politics can tell us a lot about a person’s suitability for public office.  Some have dedicated themselves to helping others, through public service or a voluntary organisation.  Others have concentrated on making money through financial speculation or defending clients who try to get round the law for their personal gains. The former have shown consistently their concern with advancing the common good.  The latter type treat politics as a means to build influence and contacts to help their eventual return to their private career for money-making.

[3] Readiness to learn

Good politicians are well disposed to learn from others – be they experts in particular fields, colleagues with greater experience in certain policy areas, groups with serious concerns that have not been addressed, or the public in general about issues that affect their lives.  Unlike demagogues who would arrogantly pretend to have the answers when mired in ignorance, they would prioritise cooperative learning to guide their policy decisions.

There are other important skills such as resilience, persuasiveness, leadership that politicians ought to possess.  But these skills may be displayed by people who lack the three vital qualities we mentioned above, and without them we are more likely to get a manipulative authoritarian steering us to ever more disasters, than to receive sound political stewardship.

Politicians should not be backed on the basis of their photogenic smiles or clever jokes.  But like plumbers, they should be chosen for the qualities that really matter.

Third Encounter of a Closed Mind

People with a closed mind attach themselves to certain feelings and beliefs they have at a formative stage in their lives acquired, and henceforth refuse to reconsider them regardless of what may be presented to them.  Attempts to persuade them to think again are liable to be perceived as an attack on their very identity, and would most likely be pushed aside.

The first time we encounter such a closed mind, we may be struck with incredulity. How can anyone possibly think that others are more or less trustworthy depending on their skin tone? Can anyone seriously dismiss overwhelming scientific findings about climate change issues as one big hoax?  Why would anyone assume that countless families living in poverty and hunger must have only themselves to blame?  What would make someone believe they always know more about what God wants than anyone who holds a different view?

On a second occasion, bemusement may give way to anger.  We are now witnessing those with a closed mind backing politicians who want to make it easier to discriminate against people on the grounds or race or sexuality.  We hear them cheering policies that are unsustainable economically and calamitous environmentally.  We see them pressing for ever harsher treatment of those on low pay or in precarious employment.  We learn that in the name of ‘God’ they are rallying around laws to reduce women rights.

By the third time we encounter those with a closed mind, we may despairingly feel there is nothing more to do but to walk away.  What can we do with people who ignore facts, make groundless assumptions, and routinely condemn what they barely know anything about?  Well, there is one thing we could try.  This would be the path of empathic connection.  Instead of trying to prise open a closed mind, introduce it to the experiences of someone they can relate to – a friend of a friend, a neighbour of a relative – indirectly through recounting something that happened, or directly in getting to know a person.

The philosopher, Richard Rorty, once suggested that Heidegger might not have become a Nazi supporter if he had fallen in love with a Jewish woman.  Rorty’s point was that a mind firmly closed to consideration of relevant factors might just be prompted through emotional contact to engage with what was hitherto outside its own confines.  

Love can be powerful in bringing people together.  But often neighbourliness or friendly acquaintance might suffice to facilitate the understanding of new perspectives.  For example, it is well known that areas with lower levels of immigrant population have more negative views about immigration, whereas people who have more opportunities to live and work with immigrants are better disposed towards them [Note 1].

Meeting patients and their families who have had to deal with particular illnesses and treatment could work better than listening to lectures in changing the minds of people who had previously refused to accept any expert medical advice.  Becoming personally familiar with the struggles endured by a couple of overworked, underpaid parents and their hungry children could reveal problems that would otherwise be ignored if the case was covered in a formal report.  Getting to know people with diverse religious and secular beliefs could turn out to be the best antidote to self-righteous extremist views about what is ‘Right’ or ‘Wrong’ in the world.

It may not be easy to get people together when they are usually kept far apart.  But it is always possible [Note 2].  And while there is no guarantee it would work every time, empathic connection offers a tangible route to bring closed minds out into the open.  It’s worth a try.

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Note 1: During the UK’s EU referendum, support for Brexit was generally higher in areas with lower migrant population, and lower in areas with higher migrant population.  People’s assumptions about immigrants tend to improve over time when they get to know more about them in their daily lives.

Note 2: It has been documented that in the First World War, British and German soldiers in opposing trenches made direct contact with each other over the Christmas period and celebrated by sharing food, singing and playing games together.  Alas, their superiors did not welcome this outbreak of fraternity and threatened to court martial anyone refusing to shoot at the enemy.

In Whose ‘God’ We Trust?

When people play the ‘god’ card and confront others for daring to disrespect their faith, it can leave one feeling defensive or even apologetic.  But where the issue is about the legitimacy of someone’s claim that can have harmful consequences, the focus must remain on the basis for the claim in question. 

Consider the following claims: “Anyone who questions the holy Book of X should be stoned to death”, “All people born outside this country should be deported immediately”, “Anyone who does not agree with the absolute truths I possess about human sexuality must be locked up”, “No one – adult or child – should receive any medical treatment not specifically approved in the ancient sacred text of Y”, “Everyone should commit suicide at the end of the year to ascend to the divine plane of blessed life”, or “Women must submit to men’s decisions always”.

Can the rejection of these claims be brushed aside by a simple “But these are my religious beliefs”, backed a little elaboration: “They are the words of God – they cannot be doubted”?

Of course, where an infallible and eternally honest and caring deity issues a statement, by definition its veracity is guaranteed.  However, what evidence has anyone got that the claim they are making is indeed authorised by such a deity?  They can insist that they have read it somewhere and their interpretation of what they read is perfect; they have been told by someone who unquestionably knows these things; or even they have been informed directly by ‘God’. Since they are palpably not an infallible and eternally honest and caring deity themselves, they could be wrong. “Are you calling me a liar?!” is a favourite retort, but apart from charlatans, people making flawed claims might be sincerely mistaken, unwittingly misled, or sadly delusional.

People united under one sect or cult may well feel that their version of ‘god’ is supreme and everyone else must accept whatever they claim in the name of their ‘god’.  In reality, there are countless sects, cults, denominations, religions, and each is cocooned by its own inner certainty.  Society can either leave them to clash in vicious conflicts until/unless one crushes the others to secure theocratic hegemony over everyone, or it ensures that religious faiths are private matters which will not dictate public policies, and individuals and groups can act on such faiths so long as it would not cause mental, physical or financial harm to anyone.

The assessment and resolution of disputes about what claims are warranted and what actions ought to be promoted or prohibited (because of the likely impact on people’s lives), are to be carried out through objective evidence-based examination.  No one’s testimony can carry any special weight solely on the grounds that it is derived from their ‘faith’.  No finding or query is to be excluded whenever someone raises an objection in the name of ‘god’.

Ultimately, though some have tried to misrepresent these observations as an attack by secularism on religion, it is about keeping the door open to reasoned, civil discourse, as the alternative would be to allow multiple self-styled unquestionable proclaimers to contradict one another ad nauseam without ever referring to facts that are accessible to all.  Indeed the problematic matter at hand is not religion as such, but any outlook which seeks to position itself as absolute and self-justifying.  Any indubitable ideology about the necessity of totalitarian control or racist supremacy, conspiracy theory which cannot be disproven by any conceivable evidence, or defence of ‘traditional’ values that translates into intimidation and oppression – these all rest on faith that defies all scrutiny, and far from trusting them, they must likewise be held back from influencing any action that may cause harm.