[Viewpoint]Greed’s pitfalls

The Great Depression began with a Wall Street crash on the morning of Oct. 24, 1929, and its specter may have returned. The financial shockwaves from New York set off by the fall of top investment banks Lehman Brothers and Merrill Lynch traveled around the world and threw the global financial market into a panic. Sept. 16 was a “Black Tuesday,” and international stock markets fell the most since the Sept. 11, 2001 terrorist attacks.

In one day, $600 billion worth of stocks became worthless worldwide. The U.S. Federal Reserve Board stepped in to bail out AIG with a loan of $85 billion and prevented a further crash. AIG, the biggest insurance company in the United States, was on the brink of bankruptcy. However, we are walking in a minefield and you never know when and where the next bomb will explode.

This said, we cannot blame anyone for the crisis. We all have been riding the “streetcar named Desire” and have become intoxicated by the infinite pursuit of greed.

The danger of falling off a cliff was so evident, but we all closed our eyes and dashed toward the immediate profit. The result of keeping our foot on the accelerator pedal has finally come.

You only make money by betting money in the age of casino capitalism. You hope to score big without putting forth too much effort. You play the money game with cutting-edge financial tactics. Derivatives products sell anything and everything to make money. Now, the faces of capitalism have taken off their masks and revealed the ugly truth. Not just minor individual investors who joined the game late but institutional investors whose greed drove them to the end are falling off the cliff one after another. Is the market retaliating against humanity’s endless greed?

When the bubble of the new economy popped, the U.S. Fed began lowering interest rates in 2001, dropping it from 6.5 percent to 1 percent in two years. The demand for homes using low-interest loans started the real estate boom, and it led to a rise in housing prices, which created the real estate market bubble. People rushed to take out loans so they could buy houses, and banks liberally issued mortgages without thoroughly reviewing repayment risks, in hopes of additional price surges.

The investment banks made a jumble of subprime mortgage bonds to eliminate risk, using cutting-edge financial engineering techniques. They cut and pasted them here and there, creating collateralized debt obligations, a derivative product, and pocketed enormous profits selling them. As long as the real estate boom continued, it meant happiness for everyone.

However, happiness was a mirage that could not last. When the real estate market bubble burst, overdue mortgage loans led to the subprime mortgage crisis. Homeowners who were unable to make mortgage payments went bankrupt, and it led to a series of failures in investment banking giants and chaos in the international finance market.

The history of capitalism has been a history of crises. If Karl Marx’s prediction was correct, capitalism should have met its end when he started writing “Das Kapital” in 1857. There have been countless chances for capitalism’s ruin, and a global revolution should have broken out a long time ago.

However, capitalism has survived until today. By nature, capitalism cleans up and evolves by itself.

As long as humans are selfish and greedy, capitalism will not fall. Capitalism is the system that best suits humankind’s instinct.

However, we cannot let financial capitalism be as reckless as it has become today. Moral hazard and excessive greed cannot continue. We need to recover reasonable levels of health.

At a minimum, regulation on blind greed is inevitable.

Whoever becomes the next president of the United States between Barack Obama and John McCain has to make resolving the issue his highest priority. He needs to work with the international community to come up with a solution.

It is not just for the United States itself but also for the world as a whole.

If we fail to learn a lesson from today’s crisis, we will have to continue our dangerous ride on the streetcar named Desire and repeat a series of endless crashes.

*The writer is an editorial writer and traveling correspondent of the JoongAng Ilbo.

by Bae Myung-bok