PEOPLE AND POLITICS BY MOHAMMED HARUNA

 

That Clean Bill of Health for Ndidi

ndajika@yahoo.com

 

Today the seventy-something-year-old Ponzi-schemer, Bernard Madoff, is a household name world-wide. But just in case you never heard of him, he was (is) the quintessential “419er” who swindled his mostly American clients, several of them major hedge funds whose boards are graced by Nobel laureates in Economics, of about 50 billion dollars over a period of several decades of trading on the New York Stock Exchange.

           

He finally got his comeuppance early this year when he was convicted and sentenced to prison for over 100 years for his crime which basically consisted of using one client’s money to pay the one before; akin to digging one hole to fill another or, better still, fleecing Peter to pay Paul.

           

Madoff may be the biggest financial swindler in modern times but he has merely carried on a tradition that is as old as since the discovery of money.

           

Here at home most readers would easily remember how in the eighties and nineties our local Madoffs – their kingpin was Umanah E. Umanah, remember him? - exploited the credulity, some would say, the greed of thousands of Nigerians to fleece them of their hard earned incomes and savings by promising them unbelievable returns on their deposits in the phantom financial companies they had established. Their schemes ended only when military head of state, General Sani Abacha, set up the Failed Bank decree which put so many dubious bankers and other many financial scammers in the slammer.

           

The recent sacking of the management of five banks by the Governor of the Central Bank of Nigeria (CBN), Mr. Sanusi Lamido Sanusi, on the grounds of the mismanagement of their banks’ deposits shows clearly that the lessons of Abacha’s Failed Banks decree were either never learnt or they were quickly forgotten.

           

Either way there are at least three explanations. First is the essential character of the modern financial system itself. Second is greed. Third, and related to greed, is the self-interest of our political leaders.

           

Let’s begin with the first explanation. It is hard, if not impossible, to put this explanation more clearly than Professor Paul Krugman, the 2008 Nobel Economics laureate and an economic columnist with the New York Times (NYT), did in his column of March 27 under the title “The Market Mystique.” Krugman went down memory lane to show how America’s tightly regulated banking system up to the ‘80s may have been boring and relatively small but served the country well. Then Ronald Reagan came along as president in 1980 and completely deregulated the system.

           

After that the system, said Krugman, “became anything but boring. It attracted many of our sharpest minds and made a select few immensely rich.”

           

Here, I’ll crave your indulgence to quote him at length. “Underlying the glamorous new world of finance,” he said, “was the process of securitization. Loans no longer stayed with the lender. Instead they were sold to others, who sliced, diced and pureed individual debts to synthesize new assets. Sub prime mortgages, credit card debts, car loans – all went into the financial system juicer. Out the other end, supposedly, came sweet-tasting AAA investments. And financial wizards were lavishly rewarded for overseeing the process.

           

But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap tricks. Above all the key promise of securitization – that it would make the financial system more robust by spreading risk more widely – turned out to be a lie. Banks used their securitization to increase their risk not reduce it, and in the process, they made the economy more, not less, vulnerable to financial disruption. Sooner or later things were bound to go wrong, and eventually they did. Bear Stearns failed; Lehman failed; but above all securitization failed.

           

Replace the sophistication of America’s securitization with the primitivism of Nigeria’s and Krugman might as well have been talking about last year’s meltdown of Nigeria’s financial system, with or without the infectiousness of the post-Reagan financial system. The collapse was inevitable given the way our banks, hiding behind their size as a result of their 2004 consolidation, gave out loans, secured, under-secured or not at all, to all and sundry as if money would soon go out of fashion. Complicit in all this, of course, was the Nigerian Stock Exchange whose manipulation of share prices was at the heart of the meltdown.

           

Our local version of the post-Reagan financial system was a huge temptation to make supposedly easy money that millions of men and women, the poor and the rich, stocks brokers and their clients alike, could not resist, thanks to the greed that is latent in all of us.

           

In all this, however, the biggest villains were not the bankers for some of whom the chickens are returning to roost. To me the biggest villains are those who are supposed to regulate the financial system but woefully failed to do so. Among these regulators, the CBN and the Security and Exchange Commission (SEC) stand out because it is as clear as daylight that if these two institutions did their job, we would have avoided, if not the financial meltdown itself, at least the scale on which it occurred.

           

Yet even as Sanusi was booting out the top management of the five banks he judged the guiltiest of the financial shenanigans that eventually led to the collapse of our stock exchange, absolutely nothing has been said about those at the CBN and SEC whose criminal negligence, to put it mildly, caused all this wahala.

           

And as if to add salt to our collective injury, SEC’s Acting Director-General, Ms. Daisy Ekinoh, told newsmen last Thursday that her commission has cleared the substantive D-G, Dr. Ndidi Okereke-Onyiuke, of any responsibility for the collapse of the Nigerian Stock Exchange. Apparently, it did not matter to the SEC that the lady’s chairmanship of a company – Transcorp International – that traded on the floors of the NSE reeked of conflict of interest. Also apparently there is no word like vicarious responsibility in the dictionary of the SEC.

           

Next time any of the leading politicians from the ruling Peoples Democratic Party tells you that their government has no sacred cows, refer them to the one at the NSE who, back in 2003 got away scot-free with defiling our Constitution and breaking our electoral laws by organizing a huge fund raiser for the party’s presidential ticket at Sheraton Hotel Abuja under a phantom organization called Corporate Nigeria ahead of the 2004 elections.

           

Only the combination of an essentially unregulated financial system, greed and the self-interest of our policy makers can explain why fat cats like the NSE D-G can still be laughing all the way to their banks after they have ruined so many Nigerians.