Faust, Banking and Trust

Over the few weeks we have watched an entire industry - implode. Running parallel to that I have been working on a number of presentations and projects in which I have been thinking through a set of principals that I describe as Flow(s).

As component parts to Flow(s) are concepts of [1] Trust [2] Transparency & Transparency of contract [3] The 4C's of Commerce, Culture, Community, Connectivity.

Here my interest is in Commerce and Community.

Last year as bonus's were paid out to city dealers of up to 20 million pounds, many attacked the ethics of such large bonus's. That even the notion of regulation in the free market economy was sacrilegious.

As Will Hutton writes

the scale of the personal rewards now available in London and Wall Street - £15m-£20m at the top is the norm - along with the greed-is-good doctrine associated with extreme laissez-faire economics, has trashed the need for individuals to worry about integrity. They don't need to be concerned about their reputations; they just need one deal or one year at the top and they need never work again. The incentive structure has so departed from one of the principal norms of fairness - proportionality between value added and reward - that it has eviscerated trust relationships and integrity.

Yet how ironic then that it is the everyday Joe and Joesphine that has been asked to put their hand in their pocket and bail out a defunct system - in the same breath that their homes and livelihood's have been taken from them. Hank Paulson the former Goldman Sachs CEO, who is involved with the $700 billion rescue plan, is described by Hutton as not being well endowed with the fairness gene.

his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.

Excuse me? And in fact I think that we are not even at the bottom of ths crisis, as the Bradford & Bingley in the UK is the latest to fall victim.

Hutton underscores the critical point when he writes

... it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values.

We have separated Commerce from Community and Accountability. We work to quarterly profits and goals, and we have been mining at the edifice of our own civilisation as a consequence. John Reynolds argues that banks will need to move to a system of genuine ethical scrutiny. The Archbishop of Canterbury criticised the

trading of the debts of others without accountability

Adam Smith argued that human-self interest drives markets to a form of equilibrium, where the result would be the best possible outcome for society itself.

Well, I think we can see that this is not the case, when greed and avarice dominate the agenda. when in fact we trade in peoples lives as a game of risk. The implications and reveberations will be defining - beyond the banking industry.

Adam Smith also asked this question, what determines how wealth and resources are allocated in a society? I think we need to be asking this question again today, because it seems to me that the economic models, and wealth creation schemes have lost all sense of reality with the real world.

Trust - the foundation of all collaboration and sustainable trade has left the banking industry. Commerce and commerce alone does not make for a sustainable society and or economy. Especially if John Gray, is to be believed

Having created the conditions that produced history's biggest bubble, America's political leaders appear unable to grasp the magnitude of the dangers the country now faces. Mired in their rancorous culture wars and squabbling among themselves, they seem oblivious to the fact that American global leadership is fast ebbing away. A new world is coming into being almost unnoticed, where America is only one of several great powers, facing an uncertain future it can no longer shape.

The visceral truth of Schumpeters concept of the gales of creative destruction, is measured in the words of Grays comment,

Meltdowns on the scale we are seeing are not slow-motion events. They are swift and chaotic, with rapidly spreading side-effects

Gray attacks the Amercian political elite for being the architects, and harbingers of their current downfall. Deregulation, and libertarian economics, starting with Thatcher and Reaganomics, tore asunder the controls set on free markets. And indeed we see a prancing John McCain trying to make political capital out of a crisis I think he barely understands the magnitude of.

My question is what type of society do we want? And how is that sustainable? We are witness to the last gasp of a mass consumer society where we worship above all else money. We are all more than that, we always have been. But this endless seperation of ; Commerce + Community, Ethics, Sustainability, Happiness, Spirituality even - leaves us all bankrupt.

That is why there is  a shift in ambition away from consumerism and city life, even as the credit crunch takes hold, for the first time in generations more people more people are moving to rural areas that are moving out of them.

And Faust? Well making a pact with the devil never works out in the end.

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