Charles Morris and a Return to Government Responsibility and Boring Banking - Term Paper Example

Charles Morris and a Return to Government Responsibility and Boring Banking In Chapter Eight of Charles Morris’ book, The Trillion Dollar Meltdown, Morris titles the chapter Recovering Balance. The issue of balance in today’s markets and in the banking industry has become a central issue in the world today. In this chapter, he predicts the eventuality of a major recession - and his prediction has come true. In his description of proper regulatory governing processes and uses the example of the beauty and efficiency that once marked the California State policies, and in his example of their decline, he shows how a lack of government for the good, means a decline in the overall health of an issue. In the pursuit of greed, quality control has been left unattended and has created a decay that will not be easily fixed. As the United States seeks to recover from poor oversight and inadequacies in governmental policy, the world is affected and must work with the U.S. to find balance in the markets and in the economy once again. The economy in the United States is currently undergoing a deterioration that is affecting industries, markets, and individuals with expanding impact. This has been the result of inadequate regulation in the financial sector, which directly impacted the real estate market, and has now seen a developmental causation within the markets. Charles Morris has spoken quiet clearly on the topics in his chapter and most of his opinions have a great deal of merit. Shareholder wealth maximization is the long term goals in the financial realm of a corporation as it is reflected in investor confidence and is specifically measured in the value of 1 Client’s Last Name 2 the stock. This can sometimes be in contrast to the needs of a corporation to fulfill ethical responsibilities. What is most desirable is that the long term effect of proper use of ethics creates benefit within the financial health of the corporation as it does not seek short term maximization at the expense of ethical concerns, but uses careful planning to maximize long term maximization of profit, sustained and consistent. The problem with this type of planning is that it is not glamorous, and therefore can be less appealing to some investors who want the rush of a quick return. In the beginning of the chapter, he speaks about the government regulation in California and how it prevented the deterioration of the beauty of the ocean views from Route 1. As he travels along, he sees no businesses that would foul his view and realizes that this is the result of solid governmental intervention. The California government accomplished their goals by seeking to do what was right, over what was profitable in the short term. They preserved what was not necessary to deteriorate in order to provide long term benefit for the people of California. This potent example of how what is right is a stronger argument than what creates a short term profit, is a solid reason for accepting the need of strong governmental oversight that has its eye on long term consequences. Short term answers that will have consequences that reach beyond the scope of the immediate present will not have lasting results, and will inevitably end poorly - just as we have seen in the last year or more. The argument is valid when it is put under a two prong mandate. Government must do what is right in the long run, and they must do it without the influence of corruption. Listening to those who are educated over those who are working for a standpoint of greed, will more likely end in positive long term growth for the country. 2 Client’s Last Name 3 One of his crucial points is that governing bodies, when making decisions over the type of regulation to put into place, must be careful. The World Bank, an organization providing assistance to developing nations in the areas of financial and technical needs, says that governance is “the exercise of political authority and the use of institutional resources to manage society's problems and affairs“(World, 1991). Under this definition, the government is mandated to watch the actions of corporations and insure that they are in the best interest of people that they affect. The need for a consistency in the way in which corporations are managed, with an eye on overall positive growth that concerns ethical issues, combined with financial considerations, is part of the governance that must be maintained over a corporation and its policies. In an effort to create short term fixes or to fix problems with regulations that will cause short and/or long term collapses within the province of the regulation is not an answer to the problems at hand. It is essential that long term solutions be found that can be created to have both short term affect and to not create long term issues that are then fixed with another ’band-aid’ affect. However, Morris does state that “The regulatory failures, in any case, were preponderantly failures of supervision, rather than failures of regulatory design” (Morris, 2008). This indicates that the devices that can cause a shift in the economy to a more balanced state do exist. It is the responsibility of the government to identify where these regulations are not being used properly and to reinstate their use under proper supervision. Ultimately, it is the responsibility of the governing administrators to focus on the goals needed to benefit the majority, and to enforce the prudent use of the tools at their disposal to maximize balance over profit. Profit is a good thing, but if the needs of the larger population become disrupted under a poor economy, then profit will not continue under any level of success, and, as we have seen, the 3 Client’s Last Name 4 house of cards will come tumbling down. The real estate market is an example of this house of cards and how easily it can fall apart when not regulated properly in terms of loan acquisition. The real estate market is affected by increases in demand created by greater availability of credit, which causes the prices to rise. This has been a trend that has finally burst as interest rates rose, creating an inability for owners to meet mortgages which has now created a mass of foreclosures. This was accomplishes by the loosening of restrictions on lending practices that created a large group of hopeful homeowners who got into a mortgage that they could not afford when the variable rate rose above their ability to pay. One of the more fundamental aspects of the financial world that Morris addresses is the concept that the financial world needs to become boring again. On the surface this simple statement doesn’t seem to mean much. However, in a generalized overview of the last twenty or more years, the market has become such an exciting place, almost a place that can be associated with the thrill of gambling, and this has created too much overall interest in a world based on money that makes money, instead of trade of goods. When the risks start to be so risky that they are sitting at a blind turn, waiting for an investor to make that bend to reveal the consequences of a risk, the excitement is attractive. That is, until that turn is made and the losses have become life altering. Morris uses the examples of the RBC and the TD Banks of Canada which are boring banks, in the business of just being banks, and have “outperformed their brilliant and swashbuckling American cousins” (Morris, 2008). The citizens of the United States have become adrenalin junkies, seeking thrills at every turn to the detriment of the financial health of all of its citizens. This ever increasing need for excitement and competitive edge has had its 4 Client’s Last Name 5 affect, just as it would have an affect on any addicted person when the chemical high needs to be expanded and increased just to satisfy the need for the thrill of it. This need for addictive satisfaction on the level of excitement and the ’rush’, can be seen in the accelerating need for thrills in all aspects of life, including entertainment, news, work, and home. It is assumed that entertainment should be a blockbuster size, news should be thrilling and sensationalized, work should be larger than life and is a failure if an average income is attained, and that homes should be bigger and with exorbitant, unaffordable mortgages - and that this stress-filled life should be the way of things. In dropping expectations to a more reasonable and content level, the need for an ’exciting’ bank system that has high risks and the hope of high rewards will seem unsafe and unnecessary. According to R. Edward Freeman, as quoted by Robert Phillips in his book, Stakeholder Theory and Organizational Ethics, “A stakeholder in an organization is (by definition) any group or individual who can affect, or is affected by, the achievement of the organizations objectives”(Phillips, 2003). In the stakeholder capitalism model, the morals and ethics of the corporation is scrutinized as well as the financial responsibilities to the shareholders. Using this typ of organizational theory that examines more than bottom line profit allows for a more solid formation within the company, which creates longevity for the corporation, which will create a more solid foundation for profitable gain. The international monetary system is developed on a series of rules for the exchange of currencies between independent nations. This system creates a common standard of value between nations. Within this system the Euro has seen a distinct advantage over the dollar by having a value that is roughly 40% higher than the dollar. This is a significant disadvantage in the world market. As the United States starts moving toward a more solid economy, the value of 5 Client’s Last Name 6 the dollar will need to find a more solid foundation in the world market. The dollar must regain a deeper value. This will be accomplished as debt is brought under control, along with lower gas prices, in order to create a more stable cost of goods. The crisis that is at hand will undoubtedly teach this lesson. It is unfortunate that the loud, screaming voice that keeps the country hyped up on adrenaline and dopamine will have to be silenced by the guillotine. This will not be an instance of ‘cutting the nose off to spite the face‘. The nose is long gone. In this case, the sociological ramifications will have to be a change in the way society conducts its life. As in the case of the 1960’s where radical changes occurred in the way in which society perceived its overall identity, this change will be necessary to weather the storm and to come out of the other side as an intact nation. It would be nice to believe that the new ’green’ movement and the attitude of pulling back on the needs of life will change the society into a more conservatively constructed culture. However, it is unlikely that the need for profit will quiet its voice long enough for the emergence of a more content society that doesn’t live on the excitement of acquisition. 6 Client’s Last Name 7 Works Cited Morris, Charles R. The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. New York: Public Affairs, 2008. Phillips, Robert. Stakeholder Theory and Organizational Ethics. San Francisco: Berrett- Koehler, 2003. World Bank, Managing Development - The Governance Dimension, 1991, Washington D.C. http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/20 06/03/07/000090341_20060307104630/Rendered/PDF/34899.pdf. Read More