Triumph of Greed

[Joanne98]

Tax evasion, tax avoidance, money laundering: institutionalised crime is so much part of the global economy. Then there is moral crime…

The events of the past few months have shown with stark clarity that the financial models pursued in the sub-prime mortgage industry were so deeply flawed that they call into question the economics on which they were based. Yet to date there is precious little evidence of any fundamental rethinking taking place, either in the financial industry or by the economics profession, much of which still seems in denial about the gravity of the present crisis. With few exceptions, the argument from all sides – and from most in politics, too – seems to be for a return to business as usual as quickly as possible. But is continuity in how markets operate what we want? Or even what we can afford? Or are the costs of doing business this way – and the moral and social, as well as financial, costs – more than we should be asked to bear?

Consider this story. It concerns the collapse of Northern Rock in 2007. The tale is by now well known (it was first uncovered by the financial analyst Richard Murphy), but it still bears repetition. Here is Iain Macwhirter’s version from the New Statesman of 20 October 2008: “The Treasury minister Yvette Cooper discovered to her dismay that Northern Rock didn’t own half its own mortgages: £50bn had been hived off to a Jersey-based company, Granite, registered as a charity benefiting Down’s syndrome children in the north-east of England.” The arrangement was sanctioned at the highest levels of the company.

The story should be an acute embarrassment for an industry which, only a few months ago, was hailed by Gordon Brown as perhaps a more significant force for creating prosperity than the Industrial Revolution. But it is more than an embarrassment. Whether it is technically illegal or not (though it is clear that the Down’s Syndrome Association North-East was at least subject to identity theft), most of us would say that what happened at Northern Rock was, at minimum, a serious moral crime. Instinctively and surely correctly, we feel there is something fundamentally unforgivable in using a charity for Down’s syndrome children as a tax-evasive park for distressed mortgages.

Not only is it a moral crime: it is a step too far towards the criminal per se. Like with Enron and many others before it (a litany that is now getting much too long for comfort), Northern Rock’s act is in danger of blurring the line between business and crime. We are all aware that this is a line crossed with increasing frequency. Corporate scandals of the past few years have involved many, if not most, of the world’s major global accounting firms as well as major corporations and financial institutions.

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This is a really well written.