This crooked timber

Dec 25, 2008 Editorial

“Out of timber so crooked as that from which man is made, nothing entirely straight can be built.” Immanuel Kant.
On this Christmas Day, as we contemplate the greed of those who exploited the financial system of the developed world and brought all of us to the precipice of the greatest depression since the 1930’s, the sentiment above, expressed by the great German philosopher, does not seem as pessimistic as it usually does.
One does not have to be a Christian to appreciate that man is fundamentally flawed: all of the major religions find agreement on this point. Even those atheists who attempted to construct utopias based on the idea that once the exploitative relations inherent in the “capitalist” social fabric were removed and their postulated “inherent goodness of man” would flower, failed ignominiously after seventy years of experimentation.
Their nomenclatura elite, who have seized most of the wealth into their private oligarchic hands, have nothing to learn about greed from those whom they had berated in the past. But the exploits of a single man, Bernard Madoff, who incredibly stole a mind-boggling US$50 billion and drove thousands to ruin (and one suicide up to now), has brought a face to the anonymity of “Wall Street” greed blamed for the world calamity. Madoff was a money manager who stressed his ties with the Jewish world – secular and sacred – to build a network of investors, individual and institutional, that was the envy of the rest of the financial world.
The fact that he was once the head of the NASDAQ stock exchange may have given him legitimacy, but his cultural and religious connections earned him trust. Billionaires lined up to be admitted into Madoff’s evidently charmed circle. And Madoff was, in the end, willing to betray that trust in the service of greed.
But Madoff was not alone in his greed. Those who lined up to give him their money to invest now admit that they stifled their doubts about Madoff’s “system” that could deliver consistent and uniform high returns over decades. This had never before been accomplished by legitimate means. But greed overcame their training and doubts, just as it did those of the managers of the banks and investment houses etc for whom math whizzes created complex financial derivatives — which they now admit that they never quite understood. But they kept quiet once the money kept coming in: it appeared to them that, at last, the perpetual money-making machine had been invented. Then, inevitably, the whole bubble collapsed.
But Kant had not just described the human condition as he saw it; he had proposed — as so many others have done — that institutions be created in every facet of human endeavour which would try to keep man on the straight and narrow. Checks and balances, watchdogs, a constant renewal of personnel in organisations were all proposals he proffered: eternal vigilance was to be the watchword.
So the question arises, “Where were the checks and balances and watchdogs of the financial system?” More specifically for the financial world under purview here, “Where were the regulators and the external auditors who are supposed to be eternally vigilant for the potential skulduggery lurking inside every financial wheeler dealer? After all, there are rules.
One code of professional responsibility states: “The Principles call for an unswerving commitment to honourable behaviour, even at the sacrifice of personal advantage… It imposes the obligation to perform professional services to the best of a member’s ability, with concern for the best interest of those for whom the services are performed and consistent with the profession’s responsibility to the public.”
The problem is that these professionals, including external auditors, are also created from crooked timber, and frequently are induced by greed to forget that ultimately their duty is to the shareholders of the companies they scrutinize, not the managers, or even the board of directors.
And we come to our final question, posed by the Roman satirist Juvenal over two thousand years ago, “Sed, quis custodiet ipsos custodes?” – “But, who guards the guardians?” On this Christmas Day, we can only respond that, in the end, it all boils down to morality. All of the major religions, including Christianity, have outlined ethical systems for our guidance; and if we want peace and goodwill on earth, it behoves us to heed these guardians of the guardians.

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