The crisis that overwhelmed financial markets and economies worldwide in 2008 laid bare many of the illusions that formed some aspects of the foundation of our now-global financial system and left little to celebrate in our economic and financial lives as the year came to a close. Some of the sophisticated mathematical models used by Wall Street to measure risk, allocate capital and defend shareholder value turned out to be badly flawed.
Washington’s regulatory agencies missed what, in hindsight, seem obvious clues that overleveraged financial institutions recklessly stretched undercapitalized balance sheets in search of increasingly speculative profits. The long-delayed consequences of years of lax consumer and mortgage lending by financial intermediaries — in some cases encouraged by Congress and regulators, made possible by a prolonged low interest rate environment mandated by central banks — hit home with a vengeance. And the hundreds of billions of dollars in write-offs by Wall Street have undermined confidence in the financial system worldwide.
Many Americans — and no doubt many CBIS participants — were understandably outraged at a government bailout of the same banks and financial institutions whose activities were at the heart of the crisis. The use of billions of taxpayer dollars to rescue these institutions — even as millions of Americans were losing their jobs in a rapidly weakening economy — seemed to challenge the very notion of economic justice.
It is tempting to look on such an emotional sequence of events and craft a morality tale, with villains and victims. And there are more than enough of both to go around, as CBIS’ regular commentary on the crisis in late 2008 observed. From a more distanced perspective, however, the enduring theme that emerged from 2008 is the crucial importance of the basic tenets that lie at the center of our Catholic socially responsible approach to investing and to the conduct of business in general.
At the heart of the financial crisis was a distinct lack of integrity in the making and implementing of many key business decisions regarding lending standards, leverage, capital adequacy and risk, and 2008 showed just how expensive that proved to be — to investors, to employees and to the national and global economies.
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