Morality tale

2008-10-03 00:00

Is it a crisis of finance, or of morality? The current international turmoil in the banking sector is basically about a classic human failing — greed — fuelled by the seemingly limitless march of modern consumerism. Everything, however, has its limits, a fact ignored by many bankers and borrowers.

Some of the tales now emerging stretch the limits of credulity. Mortgage arrangements have been made on the reckless assumption that property values will continue to rise. Re-financing of assets for the purpose of consumer spending has been encouraged. Credit cards have become as common as garden weeds and are widely abused.

Toxic debt threatens major world economies and has led to an extraordinary scenario: governments firmly wedded to capitalism effectively nationalising parts of the financial services sector; and business people who extol the free market system readily accepting taxpayers’ money. Opinion is divided on the need for greater regulation: often this tackles the last crisis rather than the next. But there is a case for unbundling the sector into smaller units so that failure cannot threaten whole systems.

Even more important, perhaps, is the need to re-establish basic common sense among lenders and borrowers. Fundamental truths never lose their value: many people are pondering the lesson about living unrealistically beyond their means. A culture of consumer expectation must be modified.

Against this background of uncertainty the policies of the South African government begin to emerge as a model of fiscal responsibility. Raising interest rates in line with inflation has curbed spending and encouraged saving. Legislation tightening access to credit has removed temptation from likely defaulters. Reserve Bank governor Tito Mboweni and Minister of Finance Trevor Manuel have applied old-fashioned standards that are now being vindicated.

But danger still lurks, most notably in probable further decline in the property market. There has been an unhealthy tendency in recent times to regard houses as investments rather than homes. And if a structural crisis does reach South Africa, those likely to suffer will not just be gung-ho bankers and feckless consumers. More seriously they will include responsible pensioners and workers; and, as ever, the poor.

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