In April 2013, debt levels
in Asia were reaching record levels as international lenders were extending
short-term loans to a growing middle class. Non-mortgage consumer credit in
Asia outside of Japan had increased 67% from 2007 to reach $1.66 trillion by the
end of 2012. This credit included credit cards and loans for cars, electronic
products, and appliances. Outside of Japan, Asian car and motorcycle loans
nearly doubled from 2007 to 2012, to reach a record $219.7 billion. Appliance
and electronics loans also more than doubled, reaching a high of $10.9 billion.
Meanwhile, credit-card loans grew by 90% to reach a record $234.1 billion,
according to Euromonitor. The incentive for the banks is not difficult to
fathom. At the time, more than half of the world’s middle class was expected to
be in Asia by the end of the decade. That translates yearly into more than 100
million additional people per year. For the banks, this was an opportunity
since at least the beginning of the decade because growth was not possible in
the European Union and the United States on account of the financial crisis of
2008 and the ensuing European debt-crisis that extended well into 2013. The European Commission of the E.U. was also working on regulatory proposals that would limit the incentives of mortgage servicers to produce too many “bubble-creating” mortgages.
So Western banks had an incentive to look east for fruitful markets. Interesting, government regulators in China, Malaysia, and Indonesia had began reining in mortgage, credit-card and auto/motorcycle lending, perhaps in fear of an Asian financial crisis. Had Western bankers learned their lesson, or were they unwittingly bringing their reckless mentality to Asia? Two levels of concerns can be extracted from this case. I contend that the more immediate concerns were crowding out attention that ought to have been paid to the larger, but longer-term, problems.
One sort of concern suggests that the international banks may have been providing too much credit to people entering the middle class. Such borrowers, similar to the sub-prime mortgage borrowers in California, Arizona and Florida, may not be able to handle their new debt-loads. At the beginning of 2013, debt levels relative to individual income in many Asian economies, including Malaysia, China, South Korea, Thailand, Indonesia and India, were already up to 30% higher than in the United States. This would suggest that the Western bankers were again poised to be reckless. Citigroup’s claim that it was expanding its lending to the middle class in Asia in a “disciplined manner” can thus be challenged. More particularly, the financial-growth incentives facing the bank, given the continued weak economies in Europe and North America, can be critically analyzed. Did Citigroup's bankers accurately anticipate whether another debt melt-down might have resulted from the trend in debt-loads, or was this low-probability, high-risk scenario too long-term oriented to be factored in sufficiently? I don't know the answer to this, but I submit that baleful consequences that are larger and presumably further off tend to get pushed aside by the human mind, given the preoccupation with today, hard-wired by natural selection.
Even if we take Citigroup at its word that it was lending in Asia in a “disciplined manner” in spite of the rather unique opportunity for bank profit there, we can ask whether international banks have a responsibility to society, and even the species itself by resisting the temptation to immediately extend the rising middle class higher in spite of "growth pains" that could be anticipated. To a banker, this might have seemed like muzzling the golden goose, particularly given the soft economies in North America and Europe at the time. What if his or her competitors would have stepped in anyway? Responsibility involves some voluntary restriction on a company’s financial self-interest that may require industry-wide commitment. What are the chances that no one would cheat? Very low, I submit. Nevertheless, duty, a word mostly lost to today's short-sighted narcissism, is not meant to be convenient; otherwise, it would not operate as a tug on a banker’s conscience.
The upsurge in auto loans in Asia is a case in point. That is, is is responsible to facilitate an expansive auto market especially in China's major cities, which had already been known to be notable polluters. After 2000, the number of cars in use in China was doubling every year. Meanwhile, the Chinese were building an “interstate" highway-system that would dwarf the network of highways in the contiguous United States. Loans enabling an exploding middle class to buy cars increased the global demand for oil, resulting, other things equal, in a higher price at the gas pump. Would the magnitude of the surge in projected fossil-fuel use in China drain the Earth’s oil reserves before alternative sources of energy could pick up the slack, or should the Chinese too be able to enjoy a car economy like those in the West? It would be too easy for the Western bankers to resound with the latter at the expense of the former due to the allure of greater profits over duty to the species.
So Western banks had an incentive to look east for fruitful markets. Interesting, government regulators in China, Malaysia, and Indonesia had began reining in mortgage, credit-card and auto/motorcycle lending, perhaps in fear of an Asian financial crisis. Had Western bankers learned their lesson, or were they unwittingly bringing their reckless mentality to Asia? Two levels of concerns can be extracted from this case. I contend that the more immediate concerns were crowding out attention that ought to have been paid to the larger, but longer-term, problems.
One sort of concern suggests that the international banks may have been providing too much credit to people entering the middle class. Such borrowers, similar to the sub-prime mortgage borrowers in California, Arizona and Florida, may not be able to handle their new debt-loads. At the beginning of 2013, debt levels relative to individual income in many Asian economies, including Malaysia, China, South Korea, Thailand, Indonesia and India, were already up to 30% higher than in the United States. This would suggest that the Western bankers were again poised to be reckless. Citigroup’s claim that it was expanding its lending to the middle class in Asia in a “disciplined manner” can thus be challenged. More particularly, the financial-growth incentives facing the bank, given the continued weak economies in Europe and North America, can be critically analyzed. Did Citigroup's bankers accurately anticipate whether another debt melt-down might have resulted from the trend in debt-loads, or was this low-probability, high-risk scenario too long-term oriented to be factored in sufficiently? I don't know the answer to this, but I submit that baleful consequences that are larger and presumably further off tend to get pushed aside by the human mind, given the preoccupation with today, hard-wired by natural selection.
Even if we take Citigroup at its word that it was lending in Asia in a “disciplined manner” in spite of the rather unique opportunity for bank profit there, we can ask whether international banks have a responsibility to society, and even the species itself by resisting the temptation to immediately extend the rising middle class higher in spite of "growth pains" that could be anticipated. To a banker, this might have seemed like muzzling the golden goose, particularly given the soft economies in North America and Europe at the time. What if his or her competitors would have stepped in anyway? Responsibility involves some voluntary restriction on a company’s financial self-interest that may require industry-wide commitment. What are the chances that no one would cheat? Very low, I submit. Nevertheless, duty, a word mostly lost to today's short-sighted narcissism, is not meant to be convenient; otherwise, it would not operate as a tug on a banker’s conscience.
The upsurge in auto loans in Asia is a case in point. That is, is is responsible to facilitate an expansive auto market especially in China's major cities, which had already been known to be notable polluters. After 2000, the number of cars in use in China was doubling every year. Meanwhile, the Chinese were building an “interstate" highway-system that would dwarf the network of highways in the contiguous United States. Loans enabling an exploding middle class to buy cars increased the global demand for oil, resulting, other things equal, in a higher price at the gas pump. Would the magnitude of the surge in projected fossil-fuel use in China drain the Earth’s oil reserves before alternative sources of energy could pick up the slack, or should the Chinese too be able to enjoy a car economy like those in the West? It would be too easy for the Western bankers to resound with the latter at the expense of the former due to the allure of greater profits over duty to the species.
The viability of the species enters the equation of course because of the scientifically-proven link between carbon emissions by humans and climate change in which both the atmosphere and oceans of the planet have been warming since well before 2013. To be sure, it could indeed have been argued that the Asian middle-class deserved the same freedom and ease provided by owning a car in the twenty-first century that the American and European middle-classes enjoyed in the twentieth century. Fair is fair, right? However, the global climatic threat to the species had not been pressing during the industrial revolution and through the ensuing shizogenic (i.e., a maximizing variable) consumerism of the twentieth century. By analogy, even though a person starting to smoke at 50 can point to a person starting at 20 and say, “I should be able to have my years of smoking too,” the person who smokes at an older age faces more health risks than the person who smokes when young. Is it worth a heart attack to a 50 year-old to insist on having years of smoking too? Similarly, the question of the additional oil for more cars, as well as more coal-sourced electricity powering electronics and appliances—all being facilitated by the upsurge in loans—can legitimately be answered differently when it is accurately (and thus justly) feared that unless the carbon-use trends reversed themselves everywhere, the species would likely face dramatic negative effects all too soon, with the very survival of the species itself perhaps hanging in the balance further out.
As these diverging patterns demonstrate, the threat of over-population is not uniform across the globe. source: fashionzombie.net
In terms of public policy, if corporate social responsibility is not strong enough given the addictive allure of profit-seeking to ward off even current use that could result in a very different climate, perhaps resulting in a new equilibrium beyond the bounds of human habitation, then government regulation may be humanity's only option to pick up the slack. Because the problem is global in nature, this option is also problematic.
Because the interests of the government of China and other countries do not take kindly to economic costs inflicted on their respective peoples for fear of political unrest and economic recession, the absolutist interpretation of national sovereignty might finally have to be compromised in order, ultimately, for the species to survive or at least not be inundated even in the twenty-first century with climatic havoc. To the extent that the explosion of the human population is the root cause of the increase in carbon (and methane) in the atmosphere and oceans, even government regulation enforced at the global level would be difficult, even ethically, especially as countries fear an older demographic in a declining base. It would be a lot to ask bankers to take this on. Nevertheless, societies and governments can legitimately ask banks not to exacerbate global warming by acting so as to dramatically increase human consumption too much given the business environment. As the managerial role is profit-seeking by design and incentive, however, it is not likely that bankers would agree. Hence I have viewed corporate social responsibility as a creature more of marketing than duty, especially in societies in which the honor of duty is not valued.
Because the interests of the government of China and other countries do not take kindly to economic costs inflicted on their respective peoples for fear of political unrest and economic recession, the absolutist interpretation of national sovereignty might finally have to be compromised in order, ultimately, for the species to survive or at least not be inundated even in the twenty-first century with climatic havoc. To the extent that the explosion of the human population is the root cause of the increase in carbon (and methane) in the atmosphere and oceans, even government regulation enforced at the global level would be difficult, even ethically, especially as countries fear an older demographic in a declining base. It would be a lot to ask bankers to take this on. Nevertheless, societies and governments can legitimately ask banks not to exacerbate global warming by acting so as to dramatically increase human consumption too much given the business environment. As the managerial role is profit-seeking by design and incentive, however, it is not likely that bankers would agree. Hence I have viewed corporate social responsibility as a creature more of marketing than duty, especially in societies in which the honor of duty is not valued.
Source:
Kathy Chu, “Consumer Loans Surge Across Asia,” The Wall Street Journal, April 22, 2013.
