Over the past year, global financial markets have been experiencing what internacional media have, at various times termed either as the “sub-prime mortgage crisis” or a “credit crisis” or as a “global financial crisis” or as a “banking crisis”.
I am not an economist. My only claim to being familiar with things economic has been through an undergarduate university course I took in the subject, through laymen readings I engage in as a compliment to my professional work, and as an ongoing personal interest.
That said, economics, politics and sustainable development all seem to me to share at least one thing in common: “pendulum swings”. That is, each of these fields experiences the phenomenon whereby economic or political or ecological swings made in one direction can often be followed by near equal swings in the complete opposite direction.
For me, the current financial crisis – which is a variant of the olde adage that: “What goes up, must come down” – simply provides further solid, even practical, evidence of the existence of pendulum swings in systems.
Financial crises are not new. Earth’s humans have ample historical evidence of financial crises happening in various locations and at various points over historical time. Interestingly for the purposes of this discusion, these crises have often arisen after an earlier period of financial excess (i.e. after an earlier period of time where the pendulum had swung itself in to the complete opposite direction).
“And so, what does all of this have to do with sustainable devlopment”, you may ask?
This is because sustainable development denotes a “balance”: a balance between the social, environmental and economic components of human societies.
And it is an “im-balance” in the workings of the global economy that has lead to the current financial crisis. (With much of this im-balance still tied in to the financial markets’ ongoing inability to accept limits to growth, which laws of physics, particualrly the First and Second Laws of Thermodynamcis, so clearly address).
Otherwise stated, it is in the striving for a balance in each of the three aspects of sustainable dvelopment that human societies can help avoid extreme swings of the pendulum, such as the global economy is currently experiencing.
Traditionally throughout human history, humans could be certain that, no matter what specifically happened within the confines of our constructed economic systems – whether a financial crisis or a recession or whatever– at the end of the day all things would eventually work themselves out in some manner.
Yet today, with the added pressures humans are placing on earth and the planet’s ecosystems, humans can no longer seriously hold any same degree of certainty in a positive outcome to a financial crisis.
Unlike in the general workings of human-constructed economic systems, should earth’s ecological balance give way – and earth’s ecological balance itself increasingly appears threatened by the dominant economic system we now watch in the media as being in a free-fall – then those ecological consequences will be beyond human ability to control.
Most of those global banks currently identified in the media as facing final stages of collapse are now being bailed-out by national governments, which are offering billions and billions of taxpayers dollars in loans and guarantees. However humans need be clear that no human financial bailout can ever save or rescue an earth ecosystem in the final stages of collapse.
And while paper calculations of devalued assets are generally the main losses in a financial crisis, the physical lives of countless humans and other biodiverse species will be what are lost in any ecosystem collapse on earth. While paper losses can be chalked up to personal experience, physical losses are permanent.
Soon global governments and the business community will have done all they can do to mitigate the effects of the current financial crisis. And after that time has been reached, national governments would then be wise to shift their attentions toward developing and implementing policies for acheiving greater degrees of balance within human societies.
By necessity, this shift in attention cannot be a backward shift toward trying to recapture the past glories of an oft-failed economic system. (i.e. evidence of such failures are found within the current global financial crisis, the Argentine financial crisis of 1999, the Russian financial crisis of 1998, to name only some of the most recent such examples).
National governments should instead make a forward shift: one toward seriously thinking about “how” human societies can be restructured to begin their necessary process of bringing about “sustainable development” and its intended balance between its social, economic and environmental components.
For me, such a shift would include solutions requiring humans to end a habitual return to past patterns of behaviour. This shift would, instead, require humans to become aware of how better life on our planet would be should all countries pull together and work alongside one another for the “Commonwealth” and “Common Good” of all life on earth.
And how might a “sustainable devlopment balance” appear in your part of earth?
Social Sustainable Development could include:
- policies to increase social cohesion, integration and equity;
- K-12 public education, mandatorily and freely-available for all citizens;
- health care, freely available to all citizens;
- participatory decision-making, whereby the practice of democracy is expanded to one where citizens are actively involved in the making of major societal decisions;
- ending of corrupt official practices;
- creating a culture of meritocracy;
- food security (i.e. food sustainability); and
- encouraging individual creativity by ensuring freedom of thought and freedom of belief.
Economic Sustainable Development might involve:
- development and implementation of locally-appropriate policies to create a strong middle class and to eliminate any wide income divide between the wealthiest 30% and poorest 30% of a national population;
- diversification of local economies away from any primary reliance on single economic activities and instead repositioned toward a basket of varied economic potentialities;
- the pursuit of localised economic sustainability (economic self-sufficency) within a larger national and global reality; and
- expenditures in Sustainability R&D (research & development).
Environmental Sustainable Development would entail:
- living within the bio-regeneration capacity of a local ecosystem. This would include humans not taking more resources out of the earth and its local eco-systems than can be replensished by those same eco-systems and the earth itself AND that humans not dispose into the earth any waste that is not easily biodegradable nor place in the earth more waste than the earth can easily degrade by natural processes; and
- varying and locally-appropriate degrees of respect for all life and life-forms on earth and in a local eco-system.
Tus, to reduce the potencial ferocity of “pendulum swings” – such as the one currently being experienced in the global financial system – and to ensure a greater harmony within human societies by our pursuing an economic, environmental and social balance, human societies need, by necessity, to move toward Sustainable Development.
Currently, Earth’s pendulum swing is to the positive, with an adundance of resources still available if they are shared fairly and justly with all life forms on earth.
Yet in the way humans are developing our societies, science has been warning us for some time now that earth’s pendulum is now swinging in the other direction.
Are humans really eager to try and live through the ecological equivalent of a “global financial crisis”?
Is it time for humans to engage in a “Sustainable Development Re-think”?
Market Mayhem and Meltdown: What is at Stake?
The ripple effect of the ‘global’ financial crisis will likely erode the shores of once affluent economies for decades to come. Furthermore, it is going to take a lot more than a Keynesian slight of hand to correct two decades of easy money, poor oversight and weak market self-regulation. But what is really going on? Is this caused by the credit crunch, who is to blame and what if anything can be done?
The current situation is, I believe, not really caused by the credit crunch at all. This is surely the effect of other causes. Massive over-leveraging, gargantuan over-valuation of assets, excessive spending and a culture of financial risk taking all within a remarkably unregulated market place are surely more logical candidates! The causes, because they are deep rooted and structural, will therefore take many years of radical reform to correct.
The long term implications of the current crisis are quite profound on three fronts. Firstly, the impact on the long term structure of capital markets. Secondly, the likely effects on long run economic growth forecasts and thirdly, on the shape and trajectory of international relations too – much to the chagrin of US and UK political leadership. Furthermore, with the middle classes taking the lion ‘share’ of the hit as bourses threaten to gravitate ever closer towards ground zero, the once heavily invested middle-classes will be reluctant to engage in potentially risky private equity deals and corporations may have to rely on governments as bankers of first rather than last resort.
The global financial system prevalent throughout the 1990s and throughout much the early millennium is of course a direct manifestation of the structure of capital accumulation itself, and of the social structures that it relies upon. It is therefore not just credit markets but the entire economic ideology which is the very root of the problem. Evidence for this simple deduction can be seen by the burgeoning income disparity (within and across countries) and the rapid return to Keynesian economics to ward off the wicked witches of financial discontent.
The bailing out of private equity markets whose traders and brokers have, if you listened to the television and read the newspapers, been somewhat cavalier about asset valuation, its packaging and global re-sale has ushered in a return to protectionist policies that were radically done away with during the Reagan and Thatcherite era! What is different now though is that the US and UK once outsourced industrial production to China and India, but this time Indian companies are beginning to outsource their industrial production to countries such as the UK; Abbey Works in Wales is now owned by Tata Steel; a case in point.
Whether the crisis emanated from the United States as claimed by Gordon Brown or not, no market has remained untouched, and losses are being felt evenly across every corner of the globe. The source of the problem therefore is not so easily confined to the US alone. It is rather a collective failure to adequately regulate an economic ideology that we have all, albeit to differing degrees, contributed to. Moreover, anybody who has borrowed excessive levels of finance over and above their means simply can not be immune from criticism. As a result, and reflected in the global downturn, this situation is no longer a US or European crisis – it is a universal. It is what HIV is to health and although there is no long term cure, for now, we will just have to keep on taking the medicine.
That the profit seeking interests of credit rating agencies, when combined with the equally un-tethered profit seeking interests of investment bankers (who love leverage) are combined, as Warren Buffet famously asserted with regard to derivatives, ‘financial weapons of mass destruction’ are born. That the period of easy money started with the oversight of Alan Greenspan in 1995 need not go un-noticed and his voice has been surprisingly silent in the aftermath of such widespread destruction. It is therefore, not the mistakes of Paulson and the like that have got us to this point, it is the work of many, in all countries now affected by the financial crisis.
Of course, if the leverage ratio (total assets divided by stockholders equity) of firms such as Lehman’s Brothers was at 30.7:1, then it is of little surprise that when US$500 million defaults, the house of cards comes tumbling down. Lehman once boasted having ‘a culture of risk management at every level of the firm’. Yet as we now know, Lehman’s like others were not just gambling with their own money they were of course gambling with ours. Moreover, even though the full price tag of such mal-practice has yet to hit the fan, the current age of complex financial products which are highly ‘securitised’, ‘futured’ and ‘derived’, only makes understanding who owns what, at what price, and in a falling market almost impossible to decipher. In all likelihood, the US$700 billion bail out, different but similar to that in Europe, will be the thin end of a heavily overleveraged wedge.
Yet, if the truth be told it is in fact not only the greed and poor financial decision making of CEO’s that brought us to this juncture, it is also the greed and poor financial decision making of each and every person who has lived radically beyond their means. None of us is immune. In 2007, when the camels back finally broke, I was shortlisted as an executive for a well know German bank who offered a base salary of US$500,000, with a guarantee of US$500,000 and then a share in the up side. I thought the wages absurd, but would I have signed if offered? OK, back to the story.
Providing 100 per cent mortgages to the unemployed is foolhardy at best! But, if in order to buy a house or use a car people need to go into debt while it means that individuals, families and now entire economies are living well beyond their natural productive value, it also means that the costs of these basic resources are also hugely overvalued. This crisis is, therefore, about the right-sizing of assets and bringing value back in line with actual national product. Moreover, as financial services are a supply and demand partnership, a contractual relationship between two risk taking free-agents, we all clearly need to accept blame in some shape or form for partaking.
The current meltdown signifies the end of a particularly unsustainable form of capitalist accumulation whose ideology was the first casualty of the securitisation crisis that started at the end of the second quarter in 2007. Patients with cancer can still carry on daily business, but as the illness deepens, there comes a pivotal moment when complete metastasis kicks in! Radiotherapy (like state bail outs) buy time, we know that, but it does not remove the causes of cancer. A radical change in lifestyle and diet is usually what the doctor ordered!
Of course, because there is no supra-national global financial watchdog (the IMF is as out of step with the crisis as the average hockey mum!) each country is now on its own, hatching bail plans to keep market liquidity flowing, trying desperately to reassure petrified private equity markets that this is little more than a temporary blip. As the UK, with some justification, buys shares in our banks, with the hope that tax payers will gain in the up side, in so doing we also cement a new kind of public-private partnership that will forever change the face of the financial services industry.
With CEO’s pay capped, dividends questioned and rights-issues contested the highly motivated profit seeking individual needs to ply their skills (urgently) in another industry. Saving the environment, solving poverty and making conservation both sexy and profitable is the new leadership we now need.
The winners in this situation will be those individuals, families and countries who have lived within their means, who run surpluses, who are self-sustaining, who can export skills and goods. The US, like parts of Europe in particular, are running increasingly unsustainable budget and trade deficits and with global military deployments to maintain in Iraq, Afghanistan, South Korea and Japan, former Eastern Europe and now Africa, economic contraction will only make the task of stabilising the periphery more challenging than ever!
Of course, if in the process, rising second world economies are also taking major positions in US and European equity markets, they also stand to gain heavily in any eventual upside too – which is of course fair enough and all above board. But with many financial market specialist quitting the US and Europe in favour of the warm trading winds of the Middle East and Asia, the balance of global economic power is surely shifting like quick-sand as I write. Economies are falling onto recession by the hour. But this is not new and history stops for nobody. New partnerships are created, some rekindled and others die; the process of renewal moves on.
I just better hope that in the process our leaders are smart enough to make sure that the next generation of financial products have their values firmly rooted in what is good for us all long term not what makes a quick buck over the short!
For more on the finacial crisis visit http://www.petermiddlebrook.com
Excelent reflection, I think also that this Economical Crisis is only answer of the excess human beins, cause we think that we can have more than we had already. As james R. Karr show us in the “layer cake model” thare is a relation in those the elements (natural sistem, social sistem and economis sistem)and we know that the enviorment is in crisis(climate change, natural disorders, species are disappearing , human societies to(violence, lost of values), and the last it have to be to(economical)…an the answer is SD, having in mind that those elements needs a balance.
About Dia de Muertos.
Tom, i believe that people should learn to respect the other cultures, how you say ” The greatest honor is be who you appears to be”.. And i think, we should to be autentics, in all the aspect including our culture.
I feel a deep respect for all the humans beings and theirs believes.
How somebody tol me, maybe i’m not agree with you but i will defend with my life you right to express your self..
Or something like that.