Whatever Happened
to Ethics?

A sermon delivered at the Unitarian Universalist Congregation (Blacksburg, VA), October 18, 2009, by the Reverend Christine Brownlie.

Reading: In Memorium

What I would like to say to the people of the future is this:

You will look back on us with astonishment at the truths which stared us in the face, and which we did not see. You will look with wonder at the bright toys we created, and used only for the rape of the planet and one another.

It will see to you strange beyond believing that we reached for the stars, and did not know the simplest keys for living well together.

But know this also, you of the future. You with your libraries, you with your fountains, you in your star cities! Know that even in our slumbers we dreamed. In our fumbling shadowed search for mistaken glories, even in our clumsy cruelties, it was for you that we dreamed

John Cummins

Sermon

Looking back at the economic collapse of the past year, I find myself wondering, “What were they thinking?”

By “they,” I mean everyone from the big players in the investment banks to the people who took out mortgages that they absolutely knew they could not afford. I mean the devious employee of the big financial institution in France, who made so many bad investments that he lost 7.2 billion dollars, to the people who run up enormous debts on five credit cards and say, “I’ll just keep paying the minimum until I die and I guess they’ll just have to forgive all that debt.”

I mean Bernie Madoff, who spent years taking money from intelligent and decent people to fund a Ponzi scheme that would have made the originator of such a scheme shake his head at the chutzpa of this guy! I’ve seen videos of the gatherings that he held for his favorite investors — Wow! What a performer! And I have to wonder, what goes through the head of someone who is creating this illusion and selling it as though it’s a sure thing? How do these people sleep at night? How do they face themselves in the morning? Do they live in some kind of altered state of mind or alternate reality?

I don’t mean to imply that I’m such a virtuous person that I have no acquaintance with the act of deception. But I find that I just can’t carry it off very well or for very long. Life becomes too complicated, and the anxiety that comes with the fear of discovery is just too unpleasant to live with — at least from my experience. I’m not happy with carrying unmanageable debt either. The worry is just not worth the supposed gain. Above all, my parents instilled in me a strong sense of guilt as well as the understanding that a person could be too smart for his or her own good. And the final kicker: actions always have consequences. Like everyone else, I accepted some of this, but I also had to learn the hard way. And learn I did! But I guess my experience isn’t universal, or maybe some people are just a little slow to catch on.

As I’ve been following the ugly twists and turns of this recession, time and time again I’ve been amazed at what I have come to think of as the profound state of denial that has apparently taken over the minds and   yes, the consciences of an enormous percent of the population. Not just of America, but of the whole globe.

After all, the recession that we’re dealing with is not just an American economic phenomenon. Nearly every country in Europe is struggling with the consequences of bad judgment and paralyzing consumer debt. In January, India was rocked by a major scandal when the chairman of a prominent IT outsourcing company confessed that he had been cooking the books to show a profit that didn’t exist. Some have gone so far as to label him “India’s Madoff.”

China’s government is still dealing with anger over contaminated consumer goods and the scandal over poorly constructed buildings that collapsed in the earthquake that struck the Sichuan Province in 2008 that killed as many as 10,000 students who died in buildings that were in clear violation of building codes. Kenya is still recovering from terrible riots after an election that was tainted by fraud. Again, I have to ask, “What were they thinking?”

The answer depends on whom you ask. Chicago Public Radio and National Public Radio joined to produce an episode of This American Life titled “A Return to The Giant Pool of Money.”¹ This program attempts to explain the causes of the recession in America by revisiting some of the people who had been interviewed about a year earlier for a program titled “The Giant Pool of Money.” Both programs offer a series of interviews with people who were caught up in the stream of the decisions and events that produced the failure of mortgage companies and investment banks. Some were borrowers, some were brokers, others were involved in creating new investment instruments. There is some commentary and explanation between the interviews that helps non-financial types like me follow the train of events.

I found it fascinating. The interviews gave some insights into the thoughts of people across the spectrum of players that helped to answer that persistent question, “What were they thinking?”

One borrower who was facing foreclosure revealed that he truly thought that he could handle his loan within a few months of receiving the money. But his plans fell apart, and his home went into foreclosure despite his heroics. He confessed that he that he was dumb to borrow so much, and the bank was just as dumb to loan him the money. So what was the mortgage banker thinking?

We might get a clue from a young mortgage broker who was heard bragging about his sudden wealth and his extravagant life-style in an interview for the first program. Just out of college, he was pulling in $75,000–$100,000 a month! He spent it as fast as he could on cars, homes, clothes, and big nights out with friends and “B-list celebrities.” After describing his life he said, “We lived to make mortgages. We made loans to very poor people with nothing, and we didn’t worry. We were the cool guys.”

He wasn’t the only one who made loans to very poor people who had nothing. As the pool of buyers who could actually afford to pay back their loans dried up, the banks and other lenders realized that they were running out of customers. In the drive to keep the cash cow of mortgages flowing through the system, lenders kept dropping the documentation that a borrower needed to secure a loan to the point that a borrower did not need any concrete proof at all. You just had to say that you had a job and assets, and the loan was given a nickname, “NINA”, which meant “no income, no assets.” Another nickname was “Liars' loans.” One man who made these loans admitted that everyone knew that they were bogus. He went on to say, “ I wish we’d never done them, but we did.”

What were they thinking? One motive was greed. A big reason for the push to sell these loans was that a broker could make a lot money. The push to sell loans was so intense that in Ohio, 29 people received loans that they really didn’t need and certainly could never pay back — because they were dead!

Lenders and borrowers also thought that housing was a sure thing. Everyone believed that the value of a home could only go up. If you got caught up in something you couldn’t afford, you’d sell the house and be done with the debt. The banker thought that they had time to recoup those pesky losses. They also worried that all the other lenders were doing this and they had to compete or die.

Many also thought that they could make money off of these loans and pass the risk on to others. Mortgages and other securities were being sold in “bundles” to insurance companies like AIG and big banks like Ctit Group. Another hot investment tool called derivatives were becoming popular. Few people really understood what derivatives were, but they looked like a sure bet — so sure that they were not subject to any regulation at all. And if a firm bought into a questionable investment, no matter. It seemed to everyone that they could wink at the already-weakened regulations, which often weren’t enforced. Besides, there weren’t enough regulators to keep an eye on what was going on. So why worry? How many times was Mr. Madoff reported to the SCC for possible fraud? But no one in charge found any cause for alarm,

Frank Bucaro, a popular and well-regarded motivational speaker who focuses on business ethics, says that everyone knew that this practice was dangerous. However, everyone was caught up in the short-term, and so difficult decisions were put off for some other day and some other time.

Of course, it isn’t just the banking and mortgage industry that is displaying a flagrant lack of ethics. I think of the men and women who have been caught up in sex scandals, the well-known athletes who are sanctioned and stripped of titles for drug use, the school teachers, youth leaders, and coaches who are jailed for possession of child pornography, bookkeepers and accountants who get caught embezzling funds, ministers who cross the lines of ethical behavior with congregants. What were they thinking? Maybe they thought that they’d never be caught. Maybe they thought they’d make it all right tomorrow or next week. Maybe a sense of excitement and power took over their better judgment. Who knows? But there is a price to pay. The more we hear about unethical behavior at all levels of our social institutions, the less we trust our government, our community institutions, our leaders, and our neighbors. The more we damage the fabric of our society, the weaker we become as a nation.

I don’t know enough about the regulations that govern our nation’s financial institution to make specific suggestions about changes that would prevent some of the fraud and other practices that have hurt us all. It seems to me that any lender who makes a loan should be required to bear some of the risk and not pass it along in a “bundle” to other institutions. I’d like to see some self-regulation of salaries and bonuses for CEOs and others, so that we don’t have people who have failed in their responsibilities receiving enormous amounts of money. Clearly, regulators need to be more vigilant, and we probably need more people with solid backgrounds in this field. Business schools should examine the role that they play in helping students understand the importance of ethics — not only for the health of the business community, but for the well-being of the global economy. I take heart in the latest chapter in the story of that mortgage broker who thought of himself as a “cool guy” and who came out the on the other side of his company’s meltdown with a lot less money in his pocket. He choked up as he told the interviewer that he has greater appreciation for what is truly valuable in life: his family, his self-respect, and his relationship with those he aspires to serve in the future.

As I listened to these interviews on American Life, part of me was saying, “I can’t believe you actually thought that! What an idiot! And part of me was cringing because I’ve used the same kind of thinking to get myself into a financial or some other kind of “fix.” I’ve bought stuff that I wanted but didn’t need. I’ve told myself that other people would think I looked sharp as I handed over the credit card for a new outfit that was more than a little over budget. I’ve let my kids talk me into something I knew wasn’t good for them because “everybody else had one,” and they were embarrassed because they didn’t. More than once I’ve given in to pressure to do something that I really didn’t want to do because I wanted someone to like me or to keep a job or to further my career. I’ve never done anything intentionally that harmed another person, but I do understand what it feels like to be under a lot of pressure or to have the ego yammering away in the background as I’m trying to make a decision.

We all face complicated ethical dilemmas about even the most ordinary decisions in life: What to eat? How to use our money? Where to shop? How to use our time? I can tell myself that I’m just one person, a grain of sand in a huge sandbox where the gods of the economy build up and tear down. But I also believe that every choice matters.

I don’t agree with the British philosopher, Bertram Russell who described a human life as “brief and powerless.” I think that I’d rather aspire to be someone who is, in the words of President Obama, (who played off a quote from Martin Luther King Jr. who borrowed the words of Unitarian minister Theodore Parker) “a person who is willing to put [her] hands on the arc of history and bend it once more toward the hope of a better day.” Let us all reach high for that arc of justice, and slowly but surely bend it toward this hurting planet.

May it be so!