Scapegoats Wanted


Just as our search to pin the blame on those responsible for the sub-prime mortgage crisis is winding down, the search for those responsible for the high price of such commodities as oil and wheat is revving up. We seem to need victims to account for our systematic failures. In the first case, the heads of investment firms rolled, and some firms themselves were dismembered. Now “speculators” are seen to be driving up the price of commodities – though, as yet, no fingers have been pointed at specific individuals. No doubt, they will be as Congress goes into action.

So long as investors search for increasingly profitable investments, banks and hedge funds will try to fulfill the demand. And because they are under increasing competitive pressures to produce results, they will take greater and greater risks. And, needless to say, caught up in their competition with each other, increasingly, they will tend to minimize the dangers. Greater and greater emphasis on “risk management” will not protect investment firms from the pressure to produce results in a competitive environment.

To be sure, some leaders of investment houses have been particularly imprudent and careless, and no doubt there are those who speculate in commodities futures. But so long as they are competing to succeed against each other in attaining unrealistic results, some will fail. So long as they keep looking to each other to see where they are in their own competitive race, they will minimize the dangers. And then some will be tarred and feathered with the blame for the whole fiasco.

It is a bit like campaign reform. No sooner does Congress pass legislation to restrict the influence of big donors and the power of lobbyists to affect the political process, than new loopholes are discovered. So long as campaigns are going to be more and more expensive and the benefits of winning increase, those running our campaigns will find loopholes to keep the system going. All can agree that the system needs to be reformed, but no one wants to give up a competitive advantage. It becomes a mass collusion.

What we don’t know we know about this is how we are all implicated: The banks that promoted cheap mortgages and home equity loans, the companies that continued to securitized them as they became less secure, the investment houses and funds that kept the bandwagon going, the regulatory agencies that looked the other way, and the home owners who minimized the dangers of debt. Most important: What we don’t know we know is what we would have to think if we didn’t have scapegoats to distract us and take the rap: our unrealistic hopes for endless gain, and the flaws in the system that keeps such hopes alive.