"When men are pure, laws are useless; when men are corrupt, laws are broken."
Benjamin Disraeli, British Politician
1804 - 1881
Corrupt Capitalism, Credit, and Consumerism!
Corrupt: To change from good to bad in morals, manners, or actions; to degrade with unsound principles or moral values; to become morally debased; to cause disintegration or ruin
Credit: The provision of money, goods, or services with the expectation of future payment; money, goods, or services so provided
When capitalism becomes corrupt, we experience fallout. Thatís what we are experiencing now in the Fall of 2008.
There is also a foundational flaw in the economic model on which the US and others have been operating for some time.
I will explain that in a moment.
First, Wall Street is not only financially bankrupt, itís morally bankrupt. Greed, fraud, and criminal behavior have contributed to the current financial condition. One financial analyst stated that over $6.5 billion was transferred to Wall Street executives in bonuses over the past 24 months. Thatís right, $6.5 billion. Several authors predicted years ago that Enron was the tip of the iceberg and that we would see more in the future. Well, the future is here.
Long-term, capitalism without integrity is simply not sustainable. There seems to be a high percentage of executives who donít care and donít honor their leadership responsibilities. Being paid millions and attending elite events where wine costs $20,000 a bottle -- while their organizations file for bankruptcy -- are unconscionable actions.
One of the problems is these executives are simply hired guns with no emotional connections to the company.
Almost all companies started with an entrepreneurial visionary (or group) who, over time, built it into a public company. The majority of these founders had a heart for their organization and would not jeopardize its success in exchange for greed. Think of Warren Buffet, Michael Dell, Bill Gates, Henry Ford, Walt Disney -- each had a vision to fulfill.
But what happens after the founder is gone?
The research shows that only 10% of family businesses survive to the third generation. Why wouldnít that formula apply to larger firms?
Society wants compassionate capitalism, yet the legal mandate of public companies is to make money for shareholders. When executives have only a monetary mandate, thereís an obvious conflict of values.
Regulators disregarded basic credit standards, allowing people with little ability to repay a loan buy homes and cars. Society was quick to indulge in this credit-consumption behavior.
Credit is an advance of your future earnings based on your promise to pay it back. The US housing market was inflated by individuals and lending organizations who created a false economy. As one commentator put it (and I agree with him), the population is simply broke.
Even here in Vancouver, housing prices have increased to the point where it is estimated that 65% to 70% of the average monthly income of a household is dedicated to housing. Again, this is not sustainable. Forty years ago, the recommended percentage of housing-debt-to-income was 27% to 30% of gross income -- not the outlandish 70% or more we witnessed recently.
The CEO of an Oregon-based bank suggested US homes needed to drop across the board another 10% to an overall reduction of 30%, to achieve affordable housing prices.
With the world economies so interconnected, the domino effect of this situation is significant. Japan went through a period of little growth in the Ď90s but it rebounded. Over 70% of the US Gross Domestic Product was consumer consumption; reducing the credit available to people would slow economic growth. Rather than accept that fact, the institutions and monetary policies continued to drive unsustainable spending through fast and easy credit.
Although many have panicked -- the sky is falling down, the net result is that the market needs a correction -- and so do our spending habits. Yes, the adjustment will be painful but so is withdrawal from drug addiction. The developed world, especially North America, is addicted to credit. It is time to get off the treadmill and rehab the population.
Will we learn from this event?
Will our moral fabric improve?
Only time will tell.
What do you do now?
Read the Action Steps below.
Corrupt Capitalism, Credit, and Consumerism!
1. If you are out of a job or wondering about your next steps, now is the time to embrace change. Debit is something to reduce, not increase. Stop spending more than you are making -- right now!!!
2. Using credit to live beyond your means is a recipe for disaster. The Donít Pay Until 2012 promotions from retailers are simply credit debt deferred. Donít get sucked in.
3. You canít change what you donít understand. Document everything you spent money on over the past 3 months. Revisit all your expenses; plan to reduce spending. Thereís a big difference between what you want and what you need.
4. We are a convenience society. Revisit what you are buying in the grocery store. For example, you pay twice as much for pre-peeled, small-serving carrots than for big, unpeeled carrots. The examples are endless. You can save what you donít spend.
5. Compare the costs of a used car versus a new car . . . and no car at all.
6. Get involved in the political process to increase controls over institutional conduct. If you are shareholder, speak up. Get engaged.
7. No matter the economic conditions, many individuals and organizations still thrive.
8. Donít blame anyone else for your financial condition. You are responsible for the choices that got you where you are today. Be a saver. Put away 10% to 20% of what you make each month. Have a cash fund equal to 6 to 8 months of living expenses.
9. Get informed enough about the markets and money matters to make wise decisions. Thatís called being Financially Literate.
10. People living on purpose build their lifeís directions on their own personal strengths and desires, not those of others. Start living your life on purpose. You can serve as an example that everyone can appreciate.
11. Be responsible. Get the information you need and make intentional decisions to be free of debit while embracing compassionate capitalism!
Until next time, keep Living On Purpose!
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Ken Keis, MBA, CPC, is an internationally known author, speaker, and consultant. He is President and CEO of CRG Consulting Resource Group International, Inc., Many professionals herald CRG as the Number One global resource center for Personal and Professional Development.
For information on CRG Resources, please visit crgleader.com
For information on Kenís Training and Speaking Programs, please visit kenkeis.com
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