Risk & Other Four-Letter Words
Wriston, Walter B.
1986
We Were an LDC Once Too
The worry beads labeled "loans to less developed countries" have been rubbed bare, and needlessly so. Some of the rhetoric of concern flows from various forums of Third World gatherings, some from scholarly studies, and a lot from the pages of our daily newspapers. It is produced by people with short memories or near vision who see only problems. In the course of my banking career, I've lent money to France, Britain, Italy, and about every country in Latin America, and at the time each borrowed it was in bad shape, otherwise none would have had to borrow. All those loans were repaid in time. That experience is not unique. | |
The drumfire of criticism of loans and investments to developing countries is a far cry from the genuine excitement that greeted President Kennedy's announcement of the Alliance for Progress. It was only yesterday when our government was urging the private sector to assist the developing world. Our present climate of accusatory rhetoric is apparently designed to prove that we did in fact heed President Kennedy's words. | |
In the atmosphere thus created, the general public, which often gets its expert advice through the newspapers, has understandably | |
p.161 | formed some erroneous and potentially dangerous opinions about helping the developing countries. It is widely believed, for example, that all LDCs are poor; that money and capital are the same thing; and that banks can make loans whenever and wherever they choose. Perhaps the greatest contribution one can hope to make in this situation is to return to fundamentals and attempt to define what it is we are talking about. |
Calling a dog a horse does not change it into a horse even if done in a firm voice or on nationwide television. But labels are important. The mathematician Pascal once wrote that "definitions are never subject to contradiction ... nothing is more permissible than to give whatever name we please to a thing." In view of this, he said, "we must be careful not to take advantage of our freedom to impose names by giving the same name to two different things." | |
Part of our problem now is that we have indeed given the same label not only to two but to many diverse nations. The term "less developed countries" lumps together India with its six hundred million people and Singapore with fewer than three million; Tanzania, where nine out of ten people live in the country, and Argentina, where eight out of ten live in the cities; Brazil with annual gross national savings of more than fifteen billion dollars and Sri Lanka with less than four hundred million dollars in gross national savings. | |
Another commonly ignored fact about developing countries is that each nation in this diverse group is at a different stage of development, and has vastly different resources and national goals. Per capita income, in the non-oil-producing LDCs, ranges from a low of ninety dollars in Bangladesh to a high of ten thousand six hundred dollars in New Caledonia. | |
What many LDCs do have in common is a desire to accelerate their growth in order to raise the living standards of their citizens, while at the same time they share an inability to generate enough internal savings to finance that acceleration. Their chronic need for foreign investment and credit is something for which they deserve more praise than criticism. It is | |
p.162 | testimony to their concern for the welfare of their own people. Stagnant, poor societies that do not worry about raising their people's living standards do not perceive that they have capital shortages. Historically, in fact, the stagnant countries have been the best places to hoard gold, collect diamonds, and build palaces. |
The developing countries, which do want to raise the lot of their citizens, have been assisted in their efforts by large transfers of resources from the industrialized countries ever since the Second World War. The nature of those transfers has evolved steadily over that period of time. In the beginning, most aid took the form of grants to former colonies. This was followed by official loans on concessionary or preferential terms. In almost every instance, however, as soon as a country created conditions which made it possible to borrow commercially, it began turning to commercial banks and other private financial institutions. By the end of 1967, the share of lending by private creditors in the total external public debt of the LDCs had risen to about 30 percent, and it is now probably in the neighborhood of 40 to 45 percent. | |
Whether this trend toward private financing will continue cannot be predicted with certainty, since no one can be sure what policies governments might choose to adopt. But to the extent that normal economic forces are permitted to operate, private international finance will undoubtedly continue being increasingly important to the LDCs. Since there will be a strong continuing need for the developing countries to attract more external capital than official sources can hope to provide, private capital will move toward those countries that manage their affairs in such a way as to be a good credit risk. | |
Bear in mind that in the United Nations classifications there are only seven industrial countries in the world, about fourteen more are called semi-industrial, and all the rest are developing. | |
There are five different kinds of loans that banks make to these countries, almost all very short term, and it is important to differentiate among them. Newspapers say Citibank, or | |
p.163 | Chase, or Morgan, or whoever, has fifty million dollars in loans to Italy. That's like saying Bank of America has fifty million dollars in loans in New York City. It means absolutely nothing. When the figures are taken apart, you find that the bank has fifty million of loans to Fiat, which is a company in Italy making automobiles that has enough exports to earn the foreign exchange to repay the loan. It has zero to do with either Italy or its government. Fiat is a private company. The second kind of loan is an infrastructure loan. Take a company in Italy like ENI, which is a government agency, that decides to build a power plant. It has projections of usage and payments and payback schedules just like any commercial company, and a loan to it has nothing to do with whether the government is good, bad, or indifferent, or any other thing. The third kind of loan in a foreign country is a loan to a U.S. subsidiary that's guaranteed by the Export-Import Bank. It has zero risk, even though it comes up in the Italy total. The fourth kind of loan is a loan to a Siemens or Hoechst subsidiary in Rome, guaranteed by the parent company in Germany. There is no Italian risk in it whatsoever. And the last kind is the so-called balance-of-payments loan to the government itself, which uses it to finance its international trade. In that case the banker is trying to evaluate whether the government's financial track record is good, bad, or indifferent. |
Bankers do not take a position on the government per se, only on its record, and consequently are criticized for making loans to repressive governments, but if you look at the map of freedom in the world, about 75 percent of the world has authoritarian governments. I don't like them. I grew up in this country, and I believe in it. But banks and other companies do business with countries with whom the U.S. Government has diplomatic relations. It's a very tough problem, because if private institutions like banks are thought to be making political judgments, then they are said to be "meddling in the internal affairs of other countries." The problem is compounded by the fact that today's allies may be tomorrow's enemies. The only judgment that you can make is whether you | |
p.164 | believe the will is there to create an economic climate that will permit the repayment of the loan. |
The whole process is simply a case of history repeating itself. In the absence of political restraints-and frequently in spite of them-the foreign creditor and the foreign investor have always been major sources of capital for developing countries. The United States is a prime example. Foreign capital financed both our public and our private sectors. In 1854, the Secretary of the Treasury presented a detailed statement of U.S. government and corporate securities held abroad, and according to this report almost one-half of all American debt was in foreign hands. | |
The Dutch floated a bond issue to help build Washington, D.C.; the Manhattan Banking Company was owned by a Welsh nobleman, the Boston Copper and Gold Mining Company was incorporated in London; the Arizona Copper Company was Scottish; and the Alabama, New Orleans, Texas and Pacific Junction Railroad was 100 percent British-owned. | |
As in every other developing country, the U.S. was built with borrowed money. We started borrowing abroad about the time the Pilgrims landed at Plymouth Rock, and did not get completely out of debt to foreign creditors until the First World War. As a typical developing country, we imported more than we exported year by year, and we paid the interest on one year's borrowings out of money we borrowed the next. Our exports did not begin to exceed our imports until 1873, and even then our net exports were not enough to pay the interest on our accumulated debts. We were still a borrower until well into the twentieth century. | |
Even today, foreign capital controls directly fourteen companies on the Fortune 500 list, and several foreign banks rank among the top fifty banks in the U.S. Two hundred years after we became a nation, I am glad to say, we are still attracting foreign capital to create American jobs. | |
Although the development pattern is the same, the LDCs of the eighteenth and nineteenth centuries did have one significant advantage over those of today: There were no balance-of-payments | |
p.165 | statistics in those days. No enterprising analyst could measure external debt against gross national product because GNP figures had not yet been invented. Our current tendency to take our economic blood pressure every few minutes, and then confuse short-term events for significant trends, obfuscates thought on many problems. The LDCs are no exception. Whether you consider instant statistics part of the problem or part of the solution, they are here to stay and today's LDCs have to live with them. So do bankers. There have been a lot of countries that have had problems with their balance of payments-Zaire, Argentina, Poland, Korea, Peru, Turkey, and Italy are a few examples. Tomorrow, there'll be a different set of countries on the list. |
The important point is that the process is in the control of human beings and the machinery exists for solving debt problems. The International Monetary Fund is a skillful organization with which the private sector works closely. For thirty-odd years in Citibank, we've hooked our international loans to the conditions set by the IMF and the World Bank. So do most other banks. In Zaire, for example, about which everyone was distraught several years ago, the IMF worked out a settlement. | |
There will always be some loans that are bad news, but governments have an opportunity to work them out. One early problem we had was in Liberia, where, a number of years ago, the loan was used to build an executive mansion budgeted at one million dollars. It came in at twenty-two million, and there were unpaid suppliers all over the world. We talked President Tubman into getting assistance from the International Monetary Fund, which he did. The debt was all rescheduled and repaid. That's the real answer-that it's within the capability of men and women to put in place a program that will, in fact, make a sound debt structure. | |
The ability of Mexico to manage its affairs and get public underwriting on Wall Street, which it has done, stands out as a superb example of economic management under difficult conditions. | |
The amount of money that has gone out from the commercial banking system to developing countries has been large by previous standards. It fluctuates all the time, but most of the money goes to finance exports. One must remember that all exports in the end are financed by the people who expected them. That's why the Arabs have had to finance the export of oil by channeling their surpluses through the international financial system into loans and investments to the oil-importing countries. | |
In the final analysis, the only thing that finances trade is reverse trade. Nothing else is capable of doing it, and the difference is made up by capital inflow and borrowing. It's a seamless process. Banks run a sovereign risk program on every country in the world. Every quarter, they evaluate the political risks, the economic risks, the state of the economy and cut back or increase their exposure as their judgment dictates. | |
For the developing country trying to produce the kind of climate that attracts private capital, the American experience should be reassuring. It demonstrates that there is nothing intrinsically wrong about carrying a large external debt and that capital can be successfully imported over a very long period of time-so long as it remains capital and it is treated as an asset and not as an enemy. | |
There is no mystery about the definition of capital. Every economist from Adam Smith to Karl Marx has agreed that capital is nothing but stored-up labor, either your own or someone else's. Somebody has to work hard enough to earn a wage and then exhibit enough self-denial to save some of what he or she earned. There is no other way to create it. To use Marx's phrase: "As values, all commodities are only definite masses of congealed labor time." Whether the commodity is money or goods, whether it belongs to a capitalist or a communist, makes no difference. It is valuable because somebody's labor is stored up in it, and that is what you are paying for; or what you are borrowing; or, if you are running a controlled economy, what you are trying to allocate. | |
If you raise the price of a commodity, what you are really doing is trying to exchange the amount of labor stored in that commodity for a larger amount of labor stored somewhere else. Neither Adam Smith nor Karl Marx would have any quarrel with that statement, but this basic fact often gets lost when we fail to define terms. | |
Each year's grain harvest illustrates the point. The grain bin holds the result of last year's labor. You can do one of two things with it: You can bake some bread and eat it, or you can use part of it to plant next year's crop. If you do the first, you have consumed your capital; if you do the second, you have invested it. | |
The problem is precisely the same for the capitalist farmer as for the commissar of agriculture. The problem for both is how much of the grain will be used for baking today's bread and how much can be saved to reproduce itself in next year's harvest. The answer determines how much people are going to be eating not only this year, but next year and the year after next. This is a hard fact of life which cannot be hidden very long by even the most ingenious and creative political oratory. | |
The fundamental truth that always outs at the end of the day is that political manipulation never creates wealth-it can only allocate shortages. Even then, the allocation process can only fool people for a limited period of time. | |
The reality of the need to work to produce capital is true under any economic system. Although individual LDCs are experimenting with a wide spectrum of economic alternatives, the majority are committed to raising their citizens' living standards by accelerating economic growth. In every instance this requires a net inflow of resources from abroad. Whether these external funds will actually speed up development depends a great deal on the use made of funds after they arrive, whether they are used as tomorrow's capital or to bake today's bread. The rate of growth of any developing country will always depend more on how it makes that decision than on the amount of funds coming in from abroad. Indeed, it will significantly | |
p.168 | influence whether or not funds will flow into a country at all. |
Many LDCs are trying to modernize their agriculture, expand their manufacturing, and, in some instances, transform traditional barter societies into members of the world monetary family. At the same time their social objectives require expenditures for schools, hospitals, housing, and other building blocks of modern society. | |
These are all worthy goals; in fact, the effort to achieve them is the whole purpose of economic development. But if a country's policymakers ignore the need for capital to reproduce itself, if they keep converting it to current consumption, then tomorrow is never going to be better. Not only will the seed corn have been eaten, but outsiders observing this will cease sending their capital to such a society. Capital can only be attracted. It cannot be driven. This is true because there is a limited amount of capital for which there is an unlimited demand. Accordingly, capital moves toward the best blend of good return and safety that can be found somewhere in the world at any given time. | |
Countries that disregard these fundamentals find themselves with economies suffering chronic shortages of everything except inflation. | |
In the constant worldwide search to get something for nothing, some have embraced the idea that the elementary facts about capital formation might be overcome by relying solely on donors. It is proposed that loans be eliminated entirely and replaced by outright grants from governments or from international agencies such as the World Bank and the International Monetary Fund. Bothersome problems like debt service and repayment would then no longer arise. Alternatively, it is proposed that concessional loans be provided with maturity schedules so close to infinity and interest rates so close to zero as to accomplish the same result. The entire world savings is huge, growing at a rate of probably five hundred billion dollars a year or more. But it is not big enough to finance the impossible something-for-nothing | |
p.169 | dream for the simple reason that the world's people have not yet stored up enough labor to pay for it, even if people who worked hard and saved their money could be persuaded to do so. |
A developing country that wants access to the private savings stream on a continuing basis has to adopt policies that reflect a clear understanding of what a bank is, what it can do, and what it cannot do. | |
The principal difference between a private bank and an official agency is that governments spend tax money, which they extract from the labor of their citizens, while banks are the custodians of whatever money people have left when the tax collector gets through with them. People who forgo current consumption to save money are very particular about what is done with their savings. They expect to be paid some interest and they expect to get their principal back when it is lent out. They also know that this will happen only if their money is put to the productive use of creating wealth. | |
In short, private banks can, and do, help developing countries create wealth, but they cannot help allocate shortages. | |
A significant number of developing countries have come to appreciate this fact. They have also recognized that the policies needed to maintain external creditworthiness with private banks are the very same policies needed to meet their own national development objectives. | |
The importance many countries attach to their external creditworthiness, and their ability to maintain it, has been demonstrated again and again. When problems do arise, and it is almost certain that they will from time to time, the adjustment process that is triggered can and does work. Countries undertake these adjustment policies with the expectation that private banks will respond positively to demands for credit from responsible borrowers. This expectation has not been disappointed. | |
The capacity of the international banking system is so large in relationship to the demands of the developing countries, even taken collectively, that there is no question of its ability | |
p.170 | to handle the capital flows involved. There is, however, always the question of whether public opinion in the industrialized countries, particularly the United States, will become a major constraint on the expansion of such activity because lending to developing countries is perceived by many as intrinsically too risky. A lot depends upon the public and official perception of the private banks' capability in evaluating the countries in which they have significant assets. |
For the welfare of the developing countries themselves, therefore, it is essential that the private banks' credit standards not be lowered. Private banks must maintain selectivity among borrowers and be guided by the actuarial principle of spreading risk and avoiding concentration. While many developing countries are now, and will remain, creditworthy borrowers, some will not achieve that status for a long time to come. This is one reason why the available official aid funds will have to be increasingly focused on these poorer nations, and the amounts available enlarged as much as possible. | |
Meantime, the constant search for a new crisis swings a sharply focused but badly aimed public spotlight from topic to topic, periodically putting loans to LDCs in the limelight. A few years ago, we were assured by experts that all loans to utilities in the U.S. were shaky because when the price of fuel went up, regulatory bodies would not permit the increased costs to be passed through to customers, and few utilities could sell equities in the market. In a very few years, bankers were soliciting utility loans and Wall Street houses vied to sell their securities. In short, the adjustment process works in economics as it does in politics. | |
Perspective is now and always has been the best antidote for hysteria about passing problems. It is also a check upon grandiose plans that are touted from time to time as having repealed the iron laws of economics. The continuing ability of private banks to play a major role in the external financing of the developing countries will be affected significantly by how borrowers and lenders act to create a true public perspective of the risks and rewards involved in it. | |
The best way to allay these fears is to eliminate from our dialogue some of the unrealistic and overly political elements and get people to focus on issues that can be of true benefit to the people living in the developing countries. The details of economic development are extremely complex. The basic economic principle involved is very simple. | |
To look at what has gone wrong in some developing countries since 1982, we have to start at what went wrong in the rest of the world. First, there had been a worldwide recession starting in 1979, which left some thirty million people unemployed in the OECD nations; second, there was a quantum jump in the price of oil from two dollars a barrel in 1973 to thirty dollars by 1982; third, an unprecedented decline of world exports in 1979 and 1980 led to the lowest commodity prices in years. This global trauma was enough to unseat many governments, substantially alter trade flows, and drive many countries into liquidity crises. | |
The technical lending problem that surfaced in many less developed countries was the lack of private investment. Too much was financed by debt and too little by equity. In many countries, this state of affairs was as much a political decision as an economic one, brought on by national policies that tended to equate foreign capital with exploitation. Those countries that attracted foreign capital, and let it flow in and out without let or hindrance, did not have problems of the magnitude of those with restrictive investment policies. These policies were not put in place entirely by accident. Senator Daniel Patrick Moynihan made the point in a brilliant article in magazine a decade ago. What he called the "British Doctrine" was carried around the world by the students of the London School of Economics who returned home after their studies and took official positions that influenced policy in the developing world. Indeed, many of these former students became finance ministers. The Fabian Society's ideas, taught by the London School of Economics at that time, held that profit was synonymous with exploitation; that public ownership of the means of production should be substituted for | |
p.172 | private ownership; that foreign investment capital constituted an invasion of national rights; and that there was plenty of wealth to go around, if only it were fairly distributed. |
As one developing country after another picked up and expanded these ideas, with local twists and turns, foreign investment was actively discouraged by myriad regulations and in some cases frozen out altogether. Without that layer of equity to absorb the massive shock of worldwide recession, projects financed entirely by debt soon got into trouble. With the blinding clarity of hindsight, bankers, along with many others, made a mistake in not recognizing the seriousness of this structural defect, which would become readily apparent at the advent of a worldwide recession. The developing countries that followed this policy of freezing out foreign capital made the mistake of assuming that more debt would always be available in world capital markets. Some western governments encouraged and applauded this "British Doctrine" for others, although not adopting it themselves. Many developed countries, my own included, made a mistake in pursuing stop-go monetary policies that drove up interest rates and helped produce the worldwide recession which caused so many social and financial strains. | |
As world recovery occurs, and one country after another puts in place economic policies that bring right their balance of payments, their access to markets will return, but perhaps on a somewhat different basis from before. It is reasonable to expect that access in the future will be somewhat easier for those nations that welcome a layer of investment than for those that do not. The latter will have a much more difficult time in raising from private sources, both local and foreign, the amount of money they need to keep their economies growing. | |
At any given time there are basically two kinds of money circulating in the world. There is money that the tax collector controls and there is money that remains in the hands of individuals after the tax collector got through with them. These two kinds of money behave in very different ways. | |
The kind of money that has recently passed through the hands of the tax collector will be sent wherever some government or international agency staff thinks it ought to go. | |
The other kind of money-the money that escaped the tax collector's net and remains in the private sector-will go only where it wants to go. It flows toward the best blend of risk and return. It can be attracted, but it cannot be pushed. | |
It is this second kind of money that is entrusted to the world's commercial banks. It is for this reason that comparing the loans and other assets of commercial banks to those of governments or international lending agencies is a textbook example of comparing apples to oranges. And yet this fundamental confusion is at the bottom of much of the debate about the international debt situation. | |
Much of what we read and hear about the role of commercial banks in international lending seems to raise the question: "What be the role of private banks?" | |
That is the wrong question. The real question is: "What be the role of private banks?" And the answer is that you may be able to pull a wagon with a piece of rope but you cannot push it. Unlike the tax collector, the commercial banker is not equipped with sticks and stones. Nor should he be. | |
As the pool of money made available by the tax collectors of the world has seemed to be less capable of satisfying the needs of the debtor countries, more and more arguments have been advanced that attempt to make private funds behave like public funds. It can't be done. | |
The second fundamental thing to be considered is that we are not living in the same world we grew up in. Since the first commercial communications satellite went up in 1964, we have been moving closer and closer to a one-world international market. The monetary and fiscal actions of governments are instantly communicated all over the world and the market's judgment shows up in the form of currency exchange rates. There is no way to hide bad policy from the millions of decision-makers that constitute the world market. Some governments | |
p.174 | have not yet grasped the full implications of the information standard and continue to believe you can fool the world market over time. Technology is against them. |
An individual country may place legal or regulatory obstacles to the free flow of electrons just as it may censor its postal services or its media. But the net result will be to disadvantage its own citizens, banks, and businessmen in their efforts to compete in the one-world marketplace. Placed in this context, it is clear that international banks have not created this one world financial marketplace; a one-world marketplace has created international banks. A government that places its own banks at a disadvantage will not succeed in changing the pattern. It will only succeed in transferring much of its banking activities to some foreign country. | |
Behind the speed of electronic transfers and global marketplace, banking fundamentals still apply. In fact, they have never changed. The simple fact is that while lenders can reschedule or stretch maturities, only the borrower can take the actions necessary to repay debt. If a corporation cannot earn money by selling a product in sufficient quantities at a price the market will pay, and at a profit, that company cannot repay the loan no matter how long the term is extended or how low the interest rate. There is no magic wand, no bold new plan that will solve the problem, because whether you count on your toes or use a one-megabyte microchip, two and two is still four in every language. Unlike a business corporation, a country has almost unlimited assets in its people, its government, its natural resources, its infrastructure, and its national political will. As lenders, banks can supply time for an adjustment process to work-and they do work-but they cannot put that process in place. That can only be done by the country itself. This observation is true of all governments-yours, mine, or any other. Bad economic policies can ruin any economy over time. We have all seen in our lifetime countries destroyed by inflation. Recently we saw the City of New York almost go down, but we also saw it pull itself back to economic health by the novel economic device known as balancing the budget. | |
p.175 | Today, a few years after the scare headlines produced by some world leaders, New York City enjoys an investment-grade rating on its bonds and access to the market. There was no bold breakthrough. It was simple Benjamin Franklin economics. |
Although people now love to focus on the approximately $40 billion of commercial bank interest payments on LDC debt and wonder what can be done about it, they often overlook the fact that this amount is about 11 percent of the $361 billion import bill paid by the developing countries. We all know that if the OPEC nations would drop the price of oil by ten dollars a barrel, or if countries selling manufactured goods would cut their prices and stretch out their terms, or if industrialized nations would mount massive aid programs, then no doubt things would improve for the developing countries in the short run. But in the longer run, all these measures would tend to relieve the pressure to build solid economic growth. | |
And so, too, would measures such as capitalizing interest on LDC debt. Whether you capitalize all future interest, or only that portion of it which exceeds a "reasonable rate" (whatever that might be), you do not cure the problem. You only hide it. The global marketplace will not be fooled. If the market perceives that a particular country prefers to issue an unlimited amount of its own interest capitalization notes, rather than do what it, and only it, can do to regain its strength and discipline, then the market will shun this paper, no matter what its rate or terms. | |
National governments in all countries have been debasing their currencies for more than two thousand years, and so there is very little mystery left about how they do this, or even how to stop it. We know what measures must be taken to right an economy over time. We know that the IMF has overseen dozens of successful programs and we know that the nature of these programs is similar no matter what language is spoken. They are all based on the fact that no one can do for a borrower the things it must do for itself. | |
There were very few at the IMF meeting in Toronto, when | |
p.176 | the first wave of the debt crisis hit in 1982, who would have predicted how far we have come in the adjustment process. Mexico led the way, and 1983 was a year of sacrifice, adjustment, and negative growth. These programs have worked. Mexico's public sector deficit fell from 18 percent of GNP in 1982 to 8.5 percent in 1983 and still further to approximately 6.5 percent in 1984. Three years ago, Mexico's current account deficit was $13 billion and by 1983 it became a surplus of $5.5 billion, for a swing of $18 billion in two years. The trade surplus more than doubled, to $13.7 billion. All this enabled the Mexican government to raise $5 billion in new money, which was first thought by some to be impossible and then said to be too little. Out of this program, which is not without cost, growth resumed in 1984 at 2 to 3 percent, and it should accelerate to 5 or 6 percent in 1985. All this was done by a skillful financial team and a determined Mexican government. It is a pattern that can be repeated by many other countries. |
The dramatic improvement in the balance of payments position of the 110 non-OPEC developing countries is another case in point. This deficit in 1981 was about $108 billion; by 1983, it was cut almost in half, to about $55 billion. This was done by the governments involved, with the help and advice of the IMF. Those that were successful went back to basics. When governments tilt the landscape, money flows may reverse direction. Commercial banks are the conduits through which much of the world's money and credit flows. It is certainly possible to dam up the conduits, but if you do, the ultimate result will be catastrophe when the dam finally breaks, as it surely will. | |
The most productive role our commercial banks can play in the prospective world environment is to keep the conduits open and to play our traditional role of reminding all who will listen that there are no magic solutions to problems brought on by bad monetary and fiscal policies. These problems can be cured only by a return to sound policies. These policies take time to work, and while the banks can help supply that time, | |
p.177 | only political will can put the proper programs in place. Those programs do not make headlines, but they have worked in the past and will work in the future. Benjamin Franklin, more than two hundred years ago, summed it up in two sentences: "If you know how to spend less than you get, you have the philosopher's stone.... Take care of the pence and the pounds will take care of themselves." |
That is as true today as it was then. | |