Friday, 5 December 2008

In the eye of the storm (Conclusion)

WE have seen the enemy, and it is us.

As far as the American consumers and the current financial crisis are concerned, the above phrase could not be any more appropriate. The biggest share of the collective blame lies squarely with them, and the way the United States lives today.

Many of us have friends and family in the United States. A good number will have been there ourselves.

Therefore, when I make a statement like this, it should come as a surprise to no one. How many of our friends and acquaintances Stateside own large SUVs? How many live in nice homes, with all the furniture and furnishings obtained through easy credit? How many generally live a lifestyle that seems to be beyond their reach, and act as if money is always there when they need it?

The truth is, watching the crisis unfold has been like witnessing a runaway train in slow motion.

We all knew the accident was bound to happen at some point, but everyone was powerless to stop it.

All the fingers are now pointed at the banks, the financial institutions and the car companies, for all having acted irresponsibly and caused the world to fall down. But if we really stepped back a bit from the burning rubble and tried to sift for evidence, we would probably conclude that the fire had its origins somewhere else.

Take the car companies, who are now being accused of making the “wrong” cars and not being “sensitive” enough to the needs of their consumers.

Well just a year ago—and probably even more recently than that, what their consumers wanted were large gas-guzzling SUVs. Back in the days when petrol was more affordable, did anyone, apart from Leonardo DiCaprio and Cameron Diaz, ever consider being seen in a hybrid car? I don’t believe so. So really they were not being irresponsible, they were just being market savvy.

And what of the savings banks which were all rushing to grant more outrageously priced mortgages, the investment banks tripping all over themselves to package the loans and sell them off as investment-grade Collateralized Debt Obligations (CDOs), and the insurance companies like AIG thinking they could benefit from the whole situation by insuring the CDOs by means of Credit Default Swaps?

If we are really being very honest about it, they were just acting according to their roles in a free market. They saw a demand, and went ahead and tried to fill it. This is, after all, the mantra of capitalist economics—give the consumer what he or she wants, and your business succeeds.
The consumers want cheap loans, give it to them. They like to ride in large SUVs, make some for them.

We cannot, and most especially the Americans, cannot have their cake and eat it too. The capitalist world (and today this means all the world) has made a choice, and it is a simple one. It wants free markets to work without state intervention. It resents overregulation, and prefers only minimum oversight to ensure the compliance to laws and regulations, but not a sense check of their “greater good” to society.

In such a society, where the free hand of the market governs, the premise is that the ultimate responsibility lies with the consumer. This is the whole premise of a capitalist society—that no matter what happens, we believe that we should be free to make our own choices, and to create our own opportunities.

Unfortunately, this choice has a flipside, too. We should also be responsible for our actions, and accountable for the consequences of our excesses.

This crisis is simply a reminder to all of us consumers, and to the American consumer in particular, that the buck stops right here.

Published in the Sun.Star Cebu newspaper on December 05, 2008.