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Who are you calling corrupt?

Published 19th April 2010 - 11 comments - 2351 views -

In the last few days it has been reported that Goldman Sachs (golden child of the financial industry) has allegedly been involved in fraud.

The SEC claims that GS knowingly marketed a CDO (collateralised debt obligation) that was comprised of sub-prime assets handpicked by hedge-fund manager John Paulson, who then insured himself against the failure of the fund. The fund did fail, and he pocketed $1 billion – the amount lost by investors. Goldman Sachs was paid $15 million to market the fund.

I won’t go into the full details, but the story makes for interesting reading.

I raise it here because it highlights continued problems with the financial system, and is the latest in a long line of financial scandals, including Enron, WorldCom, Lehman Brothers and other large companies. It also underscores the less than robust regulatory controls over the financial and business sectors, and the high degree of corrupt (or at least questionable) activities that take place in this area.

I specifically bring it up in this forum because corruption is a central issue within the topic of development, particularly in relation to aid and financial assistance, with much being made of the weak regulatory controls within developing countries.

While there is no question that governance issues pose a serious problem within the development sphere, as the current case being brought again Goldman Sachs (not to mention the wider debacle surrounding sub-prime markets, derivatives, hedge-funds and the  financial crisis) highlights, we in the developing world are hardly immune to corruption. Nor are our own regulatory and governance controls beyond reproach.

The impact of recent events has not only brought ruin on banks and investment houses, but thousands of individuals, businesses and in some cases entire countries (take for instance Greece or Iceland). The cost of bad financial dealings has been colossal, and it has principally originated in developed countries.

The idea that citizens in these countries should be deprived of basic social and welfare services as a result of these failings however, is unthinkable. The mistakes made by governing bodies is, after all, not the fault of the general public and the cost needs to be borne elsewhere. As such every effort is being made to bail out those impacted.

Yet this logic does not seem to apply to the developing world. Aid and financing is regularly held back from countries on the basis of regulatory weaknesses, and ultimately it is the individuals within these countries who pay the price.

While this is no way a clear cut issue, and the problems with corruption in developing countries extend far beyond regulatory failings, developed countries are not immune to significant financial failings either. It therefore appears incredibly hypocritical to withhold financial assistance for populations whose leaders have failed them.


Category: Aid | Tags: aid, corruption, financial assistance,


Comments

  • Lara Smallman on 19th April 2010:

    You’ve hit the nail on the head. Hypocrisy is rife. We are far from perfect ourselves (a future post I am working on), yet we dictate to others!


  • Jodi Bush on 19th April 2010:

    Yes, it underpins a lot of dealing with the developing world. Half the things we accuse countries of we’ve engaged in ourselves, or are still doing so! Talk about the pot calling the kettle black. Look forward to reading your article.


  • Clare Herbert on 19th April 2010:

    Good point Jodi! How dare we judge others for corruption when we are suffering from it too.


  • Luan Galani on 19th April 2010:

    Jodi, you do have a point! In Brazil it is even more hypocritical. Corruption, embezzlement cases undermines the governmental morale; politicians and the general public trade sharp blows and so on…but at the end, these same very people find themselves doing the same whenever they have such opportunity. One of the big problems here is it.


  • Iris Cecilia Gonzales on 20th April 2010:

    Jodi, when I read the title, I immediately thought of the giant investment firms who collapsed because of greed and corruption. You read my thoughts exactly!


  • Jodi Bush on 20th April 2010:

    It is the “holier than thou” attitude amongst developed nations that I think is problematic.

    @ Clare, Luan and Iris- it’s certainly a worldwide issue. Some would argue that difference is the fact that at least in the UK, US etc there are efforts made by governments to stamp out corrupt activities and enhance regulatory controls when problems arise. But if we’re honest it’s only when they hit the headlines that anything is done. While there is money to be made the status quo remains.


  • Ruth Spencer on 20th April 2010:

    Way to go, Jodi! This post is a terrific example of what I was talking about @ the launch event - nearly any topic/story relates to development in some way. The successes and failures of the Western world’s economic model have a rippled effect that knows no bounds, especially in the case of GS where there’s implications that the gov’t is heavily involved in its misdealings.


  • Jodi Bush on 20th April 2010:

    @ Ruth - thanks! :-D


  • Daniel Nylin Nilsson on 20th April 2010:

    I think there is a difference in that corruption doesn’t affect citizens daily life as much in stable democracies as in certain other countries. But on the high levels of governments and companies like Goldman Sachs, there is no reason to believe that “we” are less corrupted.


  • Hemant Jain on 21st April 2010:

    “It therefore appears incredibly hypocritical to withhold financial assistance for populations whose leaders have failed them.”
    This is such an important post Jodi. And yet I wonder what is the point of giving aid after aid to governments who will never pass it off to people. Joseph Heller did a remarkable job in coining the Catch 22 situation, didn’t he? smile


  • Jodi Bush on 21st April 2010:

    @ Hemant - coincidentally I started reading Catch-22 today! But yes. I think there are problems in giving aid directly to leaders who are known to be corrupt, but cutting off all source of funding to those countries cannot be fair the their people. There needs to be another means of getting vital resources to the populations. It’s not an easy situation though by any means.


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