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Fiscal Cliffs, Slippery Slopes, and Other Financial Perils

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Now that $6 billion has gone down America's red and blue drain in the election, it's time to address other pressing issues. For example, the American economy is speeding toward the looming fiscal cliff. Meanwhile, the stress of recent years apparently hasn't improved many powerful individuals' sense of personal ethics. Go, America.

As pressing as our current problems are, the biggest peril facing America is the lack of strong, ethical, courageous leadership in both the public and private sectors. So-called leaders exhibit lack of willpower and moral compasses gone amok more frequently than ever before.

"Leading" us to the brink
Fiscal cliff fatigue may be going around -- the term is fairly overused -- but that mentally taxing overload's nothing compared to the pain most Americans will feel if $700 billion in tax hikes and spending cuts zap the economy all at once, starting Jan. 1.

The American economy wasn't exactly going like gangbusters to begin with. The current earnings season has already implied a slowdown's under way, and 2013's widely expected to be a stinker. Plenty of companies recently let loose with some ominous forecasts in quarterly results, and some plan mass layoffs. Colgate-Palmolive (NYSE: CL  ) announced 2,300 job cuts last month, for example, and 3M (NYSE: MMM  ) confirmed the gloom by labeling the current environment the "slow-growth economy."

The 7.9% unemployment rate is still a grim level of joblessness, and many job seekers have simply quit looking. Although some tout glimmers of housing market "recovery," questions remain. Take high levels of shadow inventory in real estate, which could become foreclosures, particularly if the economy takes another hit.

I'm pretty sure most Americans are hoping for a less painful plan than simply nailing the economy with the double whammy of tax hikes and spending cuts delivered in a fiscal shock-and-awe campaign. The middle class can't absorb more strain, and government spending cuts would likely slow things down too, bleeding more jobs and drying up more consumer spending. Like it or not, such changes would have serious impact, and it wouldn't be fun for most.

Despite the controversial (and terrifying) idea of teetering on the edge of such a precipice with a gathering of extremely politicized leaders who aren't known for their abilities to lead, another aspect of leadership has been called into question recently.

Current affairs
The scandal surrounding CIA director David Petraeus' career-busting personal indiscretions has made waves in Washington, but his behavior isn't even all that unusual these days.

It was tempting to wonder if some "memo" had gone out last Friday: "Hey, it's Resign Due to Ethical Issues Day." Lockheed Martin's (NYSE: LMT  ) incoming CEO Christopher Kubasik resigned on the very same day as Petraeus because of an improper relationship with an underling.

Maybe 2012 has also been The Year of Affairs to Remember, given the fact that quite a few corporate heads have been forced to resign because of improper relationships that point to the slippery slope leading to other ethical lapses.

Similar events occurred at Best Buy (NYSE: BBY  ) and Restoration Hardware (NYSE: RH  ) , the first of which has been struggling mightily with the competitive landscape, and the latter of which decided to go for a second chance in the public markets despite the scandal (and also faces a mighty difficult competitive landscape). Granted, both now have new head honchos, be that as it may.

Fix the (ethical) deficit
People in the highest levels of power in our society should be held to higher standards. Their vaunted titles actually should expose them to a higher level of scrutiny, not to mention responsibility. That responsibility relates to others. For CEOs, that's good stewardship of shareholder -- and, arguably, stakeholder -- capital. For public sector leaders, that's good stewardship of matters affecting the well-being of the American people.

Plus, the "slippery slope" argument underlines a psychological truth: The more someone bends the rules, the more they're tempted to stray. At some point, they may find themselves trying to "get away with" all kinds of failures in duties, or even higher levels of deception and even fraudulent behavior.

Whether it's refusing to try to find orderly ways to deal with America's horrific fiscal problems (you can't spend infinitely, nor spend the way to prosperity by endlessly borrowing) or refusing to put aside the distraction of personal desires, all manner of American leaders are exhibiting a lack of will, political or otherwise.

What we really need amid all this peril is a strong foundation, encouraging ethics, common sense, and the sense that trying to "do the right thing" is particularly expected of those in leadership positions. America has endured too many so-called "leaders" doing the politically or personally expedient things, the things that grant them reelections and gigantic paychecks and all the trappings that allow them to feel powerful, while letting the long-term health of our economy -- and our country -- suffer.

The sense that moral bankruptcy has been all too alive and well in the days before and after the 2008 financial crisis continues today. Given fiscal cliffs, slippery slopes, and other financial perils, hopefully more leaders will summon the courage to always seek to do the right thing for everyone their behavior impacts. We face many deficits these days, but the ethical deficit is worst of all.

Check back at for more of Alyce Lomax's columns on environmental, social, and governance issues.

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Read/Post Comments (9) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 15, 2012, at 1:15 AM, matthewluke wrote:

    "We face many deficits these days, but the ethical deficit is worst of all."

    No... I'm pretty sure the financial deficit is FAR worse. Almost positive about that. 99.25% sure.

    An ethical deficit among our leaders... we've shown an amazing ability to deal with this since... probably the beginning of human history. We've adapted quite well to our unethical leaders. This financial deficit though... that's definitely a much larger problem.

  • Report this Comment On November 15, 2012, at 8:58 AM, TMFLomax wrote:

    Hi WhichStocksWork,

    I think I'm just trying to make the point that the ethical deficit is probably underlying all other problems we have. Apparently these individuals often prove themselves unable to do the unpleasant yet courageous things that actually start fixing problems instead of creating them, or exacerbating them. That saying about nobody having the "political will" to do the difficult thing sometimes. Just my take. It all goes downhill from there. (I'm not trying to say the financial deficit isn't horrifying. It is. It's just that solutions aren't going to come from all these people in power who are ultimately self-serving and only concerned about their own power and paychecks.)

    Thanks for the comment though. Like I said, I'm not arguing that the financial deficit is a good or sustainable factor in our country.



  • Report this Comment On November 15, 2012, at 3:27 PM, Mathman6577 wrote:

    Good article. I think ethics and morals should be part of the discussion. Many financial crises (inlcuding the 2008 Great Recession) were the result of ethical and moral trangressions on the part of our leaders and fellow citizens.

    The pol's need to step up to the plate now to deal w/ a problem they actually created last year during the debt ceiling crisis. Enough of the posturing about whose fault it is.

    We elected our leaders to lead, not blame others for their problems. That includes politicians who blame weather for the problems of their states and cities and certain groups of people for their election losses. Business leaders are always complaining about politicians for the problems of their companies, even after they lobby Congress to get a favorable law passed.

    I remember a line from a 1980's movie I saw (I don't remember the name) where the chief of police was talking to one of his detectives and he said "You are a detective. I want you to detect."

  • Report this Comment On November 15, 2012, at 3:33 PM, Melaschasm wrote:

    Great article, I agree about the ethical deficit being a huge problem for the USA.

    Unfortunately you fell into the trap of believing the hype about the so called "fiscal cliff". Despite thousands of news stories to the contrary, there is not a single penny of spending cuts. We will spend far more in 2013 than 2012, even if we go over the supposed cliff. Even if you adjust for inflation, we are still going to spend more in 2013 if we do not change the budget.

  • Report this Comment On November 15, 2012, at 4:05 PM, czbill12 wrote:

    There is one painful elephant lurking (who may not have entered the room yet): Ratings agencies who may also be fed up, and take the U.S. credit rating down another notch if this cliff happens. Food for thought?

  • Report this Comment On November 15, 2012, at 5:40 PM, omahasandman wrote:

    Great article on the ethical deficit of our leadership. I've always believed that doing the right things lead to long term success, financial and otherwise. With regards to the fiscal cliff, I actually think that the market has already adjusted to the reality, and I sincerely think that it will be good for our country and markets (maybe not short term, but definitely long term). In my experience, ambiguity is the worst recipe for investment (even worse than negative). The fact that we have a huge deficit/debt problem that isn't being addressed is making it difficult for businesses to operate. Higher taxes, spread evenly, won't depress investment so much as it will finally give businesses some certainty that they need to guide my foolish opinion, that is a good thing.

  • Report this Comment On November 15, 2012, at 7:27 PM, TMFLomax wrote:

    Thanks for all the great thoughts everyone!

    Mathman6577, very good point -- the blame game is being utilized a LOT by many of these "leaders" in both the private and public sectors too. Completely unhelpful to our present circumstances. I love the "detective -- detect" quote! Yep, that's what these people are paid the big bucks for. And yes, avoidance itself is an ongoing problem that has led to many of our current problems -- all this kicking the can down the road stuff.

    Melaschasm: really, no spending cuts? Obviously I didn't catch that. Wow. Well, at some point you've got to pay the piper somehow, which has been a huge concern for years now. That just becomes reality. Sheesh.

    czbill12, that is a big elephant and I hadn't thought of it but it makes total sense to bear it in mind.

    omahasandman, It's also good to bring up the uncertainty, you're right. It is difficult to plan for investment with that sort of uncertainty, for individuals as well as businesses. My overall sense is that as investors, we can take advantage of a kind of "fiscal cliff fire sale" for the strongest, most high-quality companies' stocks, but it's definitely a time to be very careful. It is a scary environment, particularly because the leaders aren't living up to expectations and the market actually has been greatly distorted over the last 4+ years, you know?!

    Thanks for the discussion, everyone!


  • Report this Comment On November 16, 2012, at 12:48 AM, matthewluke wrote:


    The first credit ratings downgrade didn't hurt us at all (except for the extremely-short term). I don't think these credit ratings mean as much as they use to (and probably for good reason).

  • Report this Comment On December 12, 2012, at 10:48 AM, waldorick wrote:

    This tax law their talking about started back in 2002, and in 2008 many lost their jobs, and homes. So I don't understand if it lost jobs in 2008, how can it save jobs in 2012? A lot lot of are politicians make more then the $250,000 dollars a year that Obama whats to tax more, are they just trying to save money for themselves? When they had their campaigns they sounded like they cared about the dept, but I guess that's only if we pay for it? Their campaigns should say, "Pay down are dept by making the paraplegics pay more. We may have helped pass some of the laws that cost are country so much, but we don't use them so way should we have to pay? Well maybe national defence, and special services, and well we do get better health care coverage then most Americans, and our local law enforcers watching are neighborhoods, and the federal reserve banks, and the tax-cut only we can get because we make more money then most."

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