Banks, Industry and Society: Informal Contracts and the Credit Crisis

BBC World News this past weekend held an interesting discussion on the current global financial crisis and its possible future effect on the world economy in its show The World Debate. The discussion surrounded the policies governments, CEO's, banks and international financial institutions used that brought us into crisis, and how those institutions could remedy or perhaps worsen the current crisis, and passively accept responsibility the gains and losses in their communities.

The World Bank and IMF were addressed, as a constant debate in developing nations became a catalyst in the current situation. In the past, economic conditions that forced many countries into an economic system of development to secure loans were seen as forcing the allowance of poverty through savings. With some successes, many countries' small growth were dissipated with a recent hit from developed nations which either never took their donated policies seriously, or were irresponsible in forcing and international financial system that leads to crisis rather than growth over time. This perspective is not new in the developing world, and with many countries either finally producing some growth, paying back loans, and even becoming economic powerhouses, sacrifices by developing nations and their losses coming from abroad.

Banks and CEO's were diligently attacked in the debate, seen as the cause and maintaining the concern of many in the process. CEO's in fact, which have been criticized over the years for being overpaid, used to disassemble rather than build up their companies, taking decisions which border on legality and failing their communities through immoral investments were targeted in the debate. While many CEO's have since then been replaced, the way CEO's and obtained and trained and valued will likely have to change. Banks, as corporations themselves have become nationalised in many countries, and in others are facing tough government and public scrutiny as the cause and result of the credit crisis. The problem of confidence, more confidence of banks to lend as opposed to the confidence the public and industry requires of banks in a society was addressed in the debate. Credit, as a necessity of a healthy economy for small and large companies alike, private individuals and governments, is and always was the centre of the problems. Banks and financial institutions, while being seen at the same standard as other industries are in fact legislated with a great deal of legal rights, and government protection. The exchange is that those banks agree to lend and operate in sensible actions and respect its increased power and responsibility over society and various industries.

The actions of governments will likely have a large effect on the international financial order and the way commerce is done in their own nations. The beliefs that credit is the sole problem of this crisis are neglecting the informal agreement between banks, government and industry that are necessary for society to operate. Immoral and illegal activities must be determined as such before confidence in society can ever be restored. Eventually a new informal agreement between nervous banks and governments need to be reached, but no constructive plan to reform this relationship seems to be on the horizon. Microcredit financing, and small and medium sized business credits, often a success story in developing nations, might be an alternative to frozen credit markets in developing countries. Return to basics and reaffirming the informal contract between banks, governments, industry and society is not only an imperative, but is the only alternative to the global economic challenge.