Authorities in the US and Europe have officially declared that recession is taking place in their respective economies -- finally. Months of debacles beginning with the sub-prime housing mortgage crisis in the US in late 2007 have cumulated in the stunning collapse of Lehman Brothers, a leading investment bank of the times. Additionally, the financial world has recently been hit with the double whammy of AIG and Citigroup, both respected and indeed revered institutions that now have to go cap in hand to seek the Federal Government's assistance to bail them out. What indeed could have precipitated such a drastic turn of events?
Commentators on the sidelines have proclaimed rather loudly that greed is the root cause: bank executives are greedy to extend mortgages to people who simply cannot afford such payments; credit ratings agencies are greedy and scared to lose market share to competitors and create perceptions that such-and-such a product is AAA-rated, based on 'reliable third-party information', when in fact it is downright shoddy; US Federal Reserve is greedy in persisting with low interest rates that lead to unbelievably cheap credit despite global trends that indicate the contrary; investors are greedy for demanding ever-increasing rate on return on investment no matter what the cost. Yet should we take such 'expert opinions' as an accurate reflection of the cause of such events, and indeed are the various remedies suggested logical steps that address these causes at the core?
The course of human history has been for the most part beset with actions and over-reactions. The Great Depression of the 1930s led to massive government spending; the punitive measures towards Germany after the First World War indirectly led to the rise of Hitler during the Second World War; the meteoric rise of Japan after the Second World War was followed by a lost decade in the 1990s. Perhaps the issue lies deep within the psyche of humans themselves. Rather than address the behaviour of greed per se with punitive measures such as fines, jail sentences, and government bailouts, could one not take aim at the psychology that lies beneath the decision to engage in 'greedy behaviour'? It is likely that humans are innately unable to regulate their behaviour towards a stable norm that conforms to neat patterns that can be observed and predicted in a cold scientific light, as what most classical economists would hope. The aggregate such behaviours are more likely than not to cause points of crisis in the time continuum.
Another classic case of human myopia on a massive scale is the refrain that 'What happens over there won't happen over here.' In an increasingly interconnected world such as ours, such a mentality cannot be more inaccurate. Sooner or later the credit crunch will affect the shores of Asian countries; exports will dwindle, as will factory orders, and the dreaded R-word will be back on the lips of citizens in these countries.
One would do well to minimise the impact of external events without being unnecessarily impacted by them. For instance, job security is mostly a myth, booms and recessions are never permanent, and opportunities are like hope -- they are out there so long as one has eyes to see. Increasingly, one should also realise the futility of projecting ever increasing rates of growth just because the short-term investor market demands it be so. Persisting in such logic flies in the face of historical principles, no matter what the economists and other experts say. The sustainability question is ever-present, but is more than often hidden amidst the hyperbole of gung-ho predictions by governmental authorities and private-sector industry players alike.
