Newspapers are full of alarming news. Like a slow, subterranean fire, the 14-months-old credit crisis continues its rampage, this time bringing down major U.S. banks and insurance companies. By 15 September, four of them had lost over 80% of their value on Wall Street. The worst hit, a 158-year old institution, investment banker Lehman Brothers, was reduced to only 6.4% of its pre-crisis market value and did not even succeed in selling itself out, in spite of the fact that one of its core businesses was precisely to broker mergers and acquisitions!

Seeking to reassure the public, Nobel Prize winner Joseph Stiglitz stated that the crisis was ‘less serious than in 1929’. Is it really? In the technical sense, I would not dream of challenging any statement by the well-known professor. More specifically, he rightly points out that there are many tools today which did not exist back in 1929 and which, if put to good use, can help us avoid a full-fledged depression. But in the moral sense, this crisis is possibly worse. Trust in the capitalist system has been shaken and almost totally destroyed, only a few years after it was proclaimed the victor of the ideological struggle with socialism and adopted as their new economic system by former communist countries.

From the start, one of the factors which has been making this crisis so scary is that nobody even pretends to know the extent of the damage. Bank presidents themselves seem unable to assess their real level of exposure. But what we do know is unsettling. Regulators have been lax, allowing brokers like Lehmans to operate with leverage ratios of 35 times or more. Creative financiers have transformed dubious debt into equity. Various techniques have been used to disguise and spread high-risk investments through often extremely complex schemes. On the dark side of the financial planet, extensive use has been made of any loophole in legislation, implying a reckless exploitation of the possibilities opened by the 91 tax heavens worldwide - jurisdictions with little if any banking regulations. No wonder, when push comes to shove, that real exposures are way beyond anticipated risks.

What is there to do about it? Last year at the TIGE conference (part of Initiatives of Change summer gathering in Caux), we were told by Raymond Baker, who is a Senior Fellow at the Center for International Policy in Washington, about his promising campaign to clean up part of the gray zones of the economy. Let’s hope that the American legislators as well as the World Bank will see it as their special responsibility in the circumstances to take the appropriate measures, mainly focussing on transparency and denying impunity to ill-acquired or criminal money.

Also at Caux, a group of eight leading industrialists and businessmen from Europe, India and Japan led by Dr J.J. Irani, a Director of Tata, set out to study how to restore trust. In their concluding paper presented by Jean-Pierre Méan, vice-president of SGS Group, the ‘Corporate Leaders Forum’ stated that ‘trust requires trustworthiness and a commitment to be truthful; this includes full transparency in accounting and compliance with accounting standards, honesty in business transactions and the refusal of any corruption’. They defined key factors for rebuilding trust: one is to find remedies to cure ‘short-termism’, a sickness largely responsible for the present crisis, particularly through the insistence of financial markets to ask for quarterly results and high returns on investments for the shareholders. Among the Corporate Leaders Forum’s recommendations: a need for executives to serve longer than three to five years terms, to revisit stock-option and bonus schemes - for instance by setting a maximum ratio between the highest and lowest remuneration in any company, to invest in training and fair treatment of the most strategic asset of any company: their employees… Few bankers were there, but Toru Hashimoto, Chairman of Deutsche Securities in Japan, put wholeheartedly his signature to the whole statement.

This initiative needs to grow and affect more companies and corporate leaders. Another TIGE conference is scheduled for 2009 in Caux (24 to 29 July). Oh, and in case you wonder what TIGE stands for, it is ‘Trust and Integrity in the Global Economy’. After many years when unethical behaviour seemed to make good business sense, we are now paying the bills. It is hard. Let’s make sure that the lessons are learnt. Everyone would agree that TIGE is exactly what we need right now and that it is time to cross-fertilize capitalism with a few ethical rules to make it the shortest way to a just and stable economy. It is time to get involved.

NOTE: Individuals of many cultures, nationalities, religions, and beliefs are actively involved with Initiatives of Change. These commentaries represent the views of the writer and not necessarily those of Initiatives of Change as a whole