When Trust Snaps and Morality Melts
Without pretending to understand the intricacies of the financial world, it should not be far from the truth to think that the butterfly wings which started off the current and dragging storm belong to those people who bought things, houses in particular, they basically could not afford to do so. It is perhaps not so much a matter of right or wrong than one of rationality, or recklessness - in terms of risk taking. But with cheap and easy credits abounding, and speculation for perpetually rising property values running wild, one might have to be a saint to resist all temptations.
Perhaps rationality is not readily defined in any absolute sense. Is excessive risk-taking based on some illusionary gain irrational? But how would people know that the rising property prices were but an illusion, until they witnessed or experienced the painful reversal in fortune? If the whole business of speculation smacks of gambling, because it is gambling.
But if living on stretched credits is reckless, how about those people who made those subprime mortgages available? And with the exercise of free will, people can sell and buy virtually anything and everything under the sun. Even these questionable credits can be packaged and so-called "securitized" and sold on in large volumes through the world of money markets.
Adam Smith had long elucidated on the paradox that money is only an imaginary stuff for facilitating exchanges, but with no real value itself. He wouldn't possibly have conjectured that people would take imagination to such new heights in two centuries' time and come up with all sorts of derivatives and commercial papers for creating money.
I wonder how do all these things actually work - the likes of "collateralized debt obligation" or "credit default swap"? Without understanding any of the technicalities, I imagine a commercial paper of some sort somehow represents somebody's claim on to something of some value, which somebody else committed to honour and pay up at some time in the future. So with all these papers floating around, arguably default risks are well spread with all sources of money from the willing lenders well tapped for the borrowers in need. That's all very well and merry until somebody in the chain of transactions fails to pay up, let alone a great number of people who cannot afford to pay up. When nobody wants those papers anymore, they become junks (like money returns to its true value - zero).
How the machine of world finance comes to a disastrous stoppage is no less mysterious than how so many money products have been made out of sand or thin air. While politicians, economists and journalists the world over are debating about the causes, blames and remedies, it is clear that what was at stake and rampantly abused was also the fundamental pillar of any free market economies - trust. Selling toxic securitized products is no morally better than selling contaminated milk powder.
But morality may be as elusive a concept as rationality. Again, the father of economics offered some enlightening thoughts. As our senses never did, and never can, carry us beyond our own persons, it is our imagination that generates sympathy towards other people, how they feel, and gives sympathy its power. Our imagination, other than just logic, also helps us to form judgment on our feelings and those of others, and the actions which result from these feelings. If morality is about doing something what we consider appropriate based on our senses of sympathy, it is also an effort of imagination. Sadly, it appears from the financial debacle that our imagination of one kind (making money) seems to have grown at the expense of the other kind (morality).
No doubt a sea change of judgment and reform to the ailing financial systems is already in the making. But it is a matter of fact, not righteousness, that no system will ever work without the honour of trust and morality.
Perhaps rationality is not readily defined in any absolute sense. Is excessive risk-taking based on some illusionary gain irrational? But how would people know that the rising property prices were but an illusion, until they witnessed or experienced the painful reversal in fortune? If the whole business of speculation smacks of gambling, because it is gambling.
But if living on stretched credits is reckless, how about those people who made those subprime mortgages available? And with the exercise of free will, people can sell and buy virtually anything and everything under the sun. Even these questionable credits can be packaged and so-called "securitized" and sold on in large volumes through the world of money markets.
Adam Smith had long elucidated on the paradox that money is only an imaginary stuff for facilitating exchanges, but with no real value itself. He wouldn't possibly have conjectured that people would take imagination to such new heights in two centuries' time and come up with all sorts of derivatives and commercial papers for creating money.
I wonder how do all these things actually work - the likes of "collateralized debt obligation" or "credit default swap"? Without understanding any of the technicalities, I imagine a commercial paper of some sort somehow represents somebody's claim on to something of some value, which somebody else committed to honour and pay up at some time in the future. So with all these papers floating around, arguably default risks are well spread with all sources of money from the willing lenders well tapped for the borrowers in need. That's all very well and merry until somebody in the chain of transactions fails to pay up, let alone a great number of people who cannot afford to pay up. When nobody wants those papers anymore, they become junks (like money returns to its true value - zero).
How the machine of world finance comes to a disastrous stoppage is no less mysterious than how so many money products have been made out of sand or thin air. While politicians, economists and journalists the world over are debating about the causes, blames and remedies, it is clear that what was at stake and rampantly abused was also the fundamental pillar of any free market economies - trust. Selling toxic securitized products is no morally better than selling contaminated milk powder.
But morality may be as elusive a concept as rationality. Again, the father of economics offered some enlightening thoughts. As our senses never did, and never can, carry us beyond our own persons, it is our imagination that generates sympathy towards other people, how they feel, and gives sympathy its power. Our imagination, other than just logic, also helps us to form judgment on our feelings and those of others, and the actions which result from these feelings. If morality is about doing something what we consider appropriate based on our senses of sympathy, it is also an effort of imagination. Sadly, it appears from the financial debacle that our imagination of one kind (making money) seems to have grown at the expense of the other kind (morality).
No doubt a sea change of judgment and reform to the ailing financial systems is already in the making. But it is a matter of fact, not righteousness, that no system will ever work without the honour of trust and morality.
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