Governance failure is at the heart of the global financial crisis

Oct 21, 2008 Letters

DEAR EDITOR,
The principal source of the global financial crisis is a failure in good governance by international financial institutions; and this has been encouraged by the governments of developed countries, chief among them being the United States.

The fundamental responsibilities of corporate boards and regulator institutions are to provide strategic oversight and direction, to ensure a strong control environment, and to challenge unacceptable practices.

For example, as reported in the New York Times and Wall Street Journal, when the market for securities began to look shaky, big-time sellers of high-risk, mortgage-backed securities sold much of their stockpile of mortgage-backed securities to eager customers — all the while selling the securities short, betting the market would go down.

The companies made handsome profits, of course, but what about their customers? So where are we, after years of unrestrained greed on Wall Street coupled with a lack of prudence, ethics and regulatory oversight on the part of the US Government? Well, the U.S. economy is, to put it mildly, shaken, and taking the world economy with it.

This global financial crisis highlights the need for developed countries and international financial institutions – IMF, World Bank included — to reassess their principles of good governance.

Governance issues remain the principal constraint to the security and well being of our world, and the wider international environment is increasingly influencing developing countries and affecting individuals, businesses and governments more than ever before.

The challenge going forward is likely to be exacerbated by the global threats that include raising commodity prices, climate change and the current financial crisis.

It is not surprising, therefore, that the leader of the UK Conservative opposition party, David Cameron, says that what is needed to steer Britain is not experience, but character and judgement – in essence, integrity.

Integrity is the missing link in good governance. Good governance can thrive only when corporations and governments exercise moral restraint and integrity. When those restraints fail, greed and corruption are sure to follow, which in turn plunge millions of people around the world into poverty.

Ironically, rich countries dedicate their efforts to reducing poverty in developing countries through their international aid agencies and financial institutions.

Moral restraint and ethics, you see, require a set of morals — beliefs that some things are right and some things wrong. To put it more simply, moral restraint requires not a development worldview, but a Biblical worldview.
Kevin Bonnett

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