Flip through a business daily, and chances are that you will come across some big firm or financial institution going through bankruptcy or teetering on one. The fate of the capital market and economies seem to be hanging in a balance, what with all these companies falling like a pack of cards wiping off trillions of dollars in its wake. 

Source FlickR - Man met bril

Economies experience cyclical peaks and troughs, but what we’re experiencing is a virtual collapse of the banking and financial institutions and not a mere trough. These are not random or freak events, but acts of wanton, avarice that went unchecked and accumulated into a heap of rubbish so high, that it had to collapse.  

The capital market offers innovative ways to enhance your savings, and get you good returns on your investments. However, as in any free market system, they are also open to manipulation by those who know the system well, and continue to exploit it to their advantage till the going is good. 

Then there are people you entrust your money with, namely the investment bankers and the fund houses whose job is to get you the best out of your investments. With all those millions in bonuses and incentives, they should be giving in their best. Or do they?.

According to the book “Sway” by Ori and Rom brofman, these monetary incentives can inhibit genuine intentions, and could sway you away from doing what is best.

You are so blinded by the lure of money, and the incentives (which are often based on short term performances), that you manipulate the system to get you those short term results sacrificing what is the best. It also doesn’t matter to them whether that short term decision could wipe off your hard earned assets, so long as their incentives are safe.

The casualty is usually the company, and the thousands of people who earn their livelihood out of it. The senior management is often privy to these practices, and encourages it too, because a lot is at stake and more often their own stakes. By the time they realize their folly, it’s too late, and is like an aircraft that is spiraling out of control. 

We are also so blinded by the limelight, and glamour associated with companies that skyrocket to their obscene billions, that we tend to overlook the discrepancies, and dismiss it off as minor aberrations. For instance, Satyam was awarded the corporate governance award few months before the scandal; Lehman brothers and Enron were similarly revered in the corporate world, and had a venerated existence until all hell broke loose.

I’m afraid these are not exceptions, and you can expect more big institutions to fall under the weight of their malice. Fiscal administrators across the world are stepping in to save these companies from certain doom because the progresses of the economies are intertwined with them. But what they need to teach them first are a few fundamentals.