Author: ken

“Greed”

NO LONGER GOOD

Greed has now become the preferred explanation for the Wall Street debacle. John McCain and much of Congress have joined in the chorus. There is no doubt that there are huge disparities in wages and bonuses between those working on Wall Street and those working elsewhere, and many have said to me in recent years that the compensation and profits made from hedge funds and investment banks are “crazy,” “obscene,” “unfair,” etc. That has been true for some time. But why is this being called “greed”? And why now?

Standing back from the events of the last month makes it clear how many factors contributed to the crisis: the mortgage lenders who saw only more business for themselves, the investment banks who packaged the securitized debt, the investment advisors following the herd, the regulators who stayed on the sidelines, and, of course, the poor suckers who took out loans they couldn’t pay. So we need someone to take the hit.

But it is not just the complexity of the problem that leads to this search for oversimplified explanation. We don’t want to know how flawed and how risky our financial system is — at the point when “free markets” and triumphed and all out pensions, health plans, college funds, and savings are invested. We want to believe that we should be secure. And if it turns out that we are not as secure as we thought, that risk has not been managed down to a negligible factor, someone must be to blame.

Gordon Gekko is famous for suggesting that greed is good. This is our revenge. Not only is greed not good, he himself and his ilk are bad. They let us down.

Health Insurance for Wall Street

Lehman Brothers appears to be in its final throes, and the big question on front pages now is whether the government will intervene. A few days ago, of course, it rescued Freddie Mac and Fannie Mae – though the drastic treatment the mortgage giants got will compromise their quality of life for years to come. Six months ago, Baer Stearns went through a comparable life-saving operation. There are reports of other financial firms setting off red alerts.

[CHECK OUT BELOW: ANOTHER SACRED COW – DEREGULATION]

At a time when markets are so interrelated and so many other institutions and individual investors have so much at stake, this may be the right thing to do. But more and more it does begin to seem that Wall Street is covered by a large and loose insurance policy. Some firms are just too big to be allowed to fail.

The mind thinks by analogy and metaphor, so here is one that comes to mind: Frannie Lou (I made the name up) lost her job at the moment she was diagnosed with cancer. As she was the family’s sole breadwinner, her 3 children face a bleak future. Food stamps will feed them, but she is behind on her mortgage, owes money on her car, and is scrambling to get child care. Without insurance, what will they do?

My example of Frannie Lou may not be the best analogy, but it is good enough to suggest how ordinary people are likely to perceive what is happening on Wall Street. Obviously, the collapse of Lehman Brothers would throw its 24,000 employees out of work, while Frannie Lou’s catastrophe affects only 4 or 5; the aftershocks of a Lehman collapse might destabilize our financial markets, while the collapse of Frannie Lou’s world would agitate and depress only her family and friends, and perhaps some others who would see in her fate an image of their own. To be sure, the employees and shareholders of Lehman will endure substantial losses, but the ordinary citizen, perceiving such an analogy, might well conclude cynically that government is only about the big and powerful – if our ordinary citizen hasn’t already made up her mind about that.

But what actually is the difference? Can it be explained, and who will bother to explain it? Usually such questions are characterized as matters of PR or “spin.” But what is “insurance” anyway? And who does get to decide who or what is insured? There is substance in the questions raised by analogy.

What we don’t know we know about this is that there is an active under-life to such decisions and actions. They reverberate in our minds as they are assimilated, as people try to make sense of them. And this is where our political process enters into the picture. We need our leaders to shape our thinking and guide our responses. And we need to reflect on the kinds of leaders we need. How they answer such questions will help us to decide how useful they are.

The Other Side of Racism

PALIN IS NOT A STRANGER

Whatever has been said — and whatever may be said — about Sarah Palin as McCain’s choice for VP, she is not a “stranger,” some one who is unfamiliar and frightening to us.

On the contrary, her small town background and small town virtues, her pettiness, her limitations, even her go-go boots, are all too familiar. We may be worried about her lack of experience. We may be embarrassed about her views. But we know who she is.

This brings up the fact that we do need to be able to idealize our leaders — at least to some extent. We do not want them to be too foreign, but at the same time they have to be better than we are. This is the other side of racism.

Perhaps this is my McCain’s “gut” urged him to choose her, the antidote to the “stranger.’ But what we don’t know we know about such a choice is that to trust someone we have to think they are at least a little bit better than we are.

Racism in the Election

THOSE WHO REMAIN “STRANGERS”

The media is preoccupied with when and how the “race card” will be played in the campaign. But it is already in play for most of us – unconsciously. The real questions are how to play it right.

The basic fact is that as long as there is an unconscious, we will all be prey to racist thinking. It starts in the nursery when children learn to discriminate their caregivers from “strangers.” They cry or recoil in the presence of “strangers” and we can laugh, then, because we know that those “strangers” usually will be assimilated into the mental categories of “friends” or “family” – or else the child will learn to conceal and control his suspicion and fear. For most Whites, need it be said, most Blacks remain “strangers.”

In full-blown institutional racism, such reactions eventually get to be aligned with economic or social competition and amplified by group pressure. It becomes virulent and destructive. But even if society wakes up to the problem, even if discrimination is prohibited and opportunities for jobs and education are extended, the mental category of “stranger” and the mistrust it arouses will remain in the mind. It becomes a part of unconscious perception.

5% of whites in a recent survey said race would not affect their vote, but 19% said it would affect others they knew. “Welcome to the murky world of modern racism,” Charles Blow wrote in The New York Times on August 8th , “where most of the open animus has been replaced by a shadowy bias that is difficult to measure. As Obama gently put it in his race speech, today’s racial ‘resentments aren’t always expressed in polite company.’ However, they can be — and possibly will be — expressed in the privacy of the voting booth.”

For me, the frightening fact is that, often, it will not even be experienced as resentment. It remains as a vague discomfort, an undetectable shudder, an uneasiness that is felt but usually not understood. As a result it will be attributed to something else – but it will form the basis for action.

What we don’t know we know about racism is how much we still recoil from “strangers,” how hard it is to trust those who are different.

Another Sacred Cow: Deregulation

UPDATE (SEPTEMBER 15)

With the collapse of Lehman over the weekend, the distress sale of Merrill Lynch and the looming collapse of Washington Mutual and AIG — and who know what else — the urgency of imposing some form of regulation is beginning to be more widely recognized. It is increasingly apparent that, without it, we are facing a financial disaster of unprecedented proportions.

Paul Krugman writes in this morning’s New York Times: “The real answer to the current problem would, of course, have been to take preventive action before we reached this point. Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock?”

He accuses our financial leaders of playing “”Russian Roulette,” but that is simply another form of denial. Taking such chances is based on believing that you really can’t lose.

WHAT WE CAN’T THINK

The mortgage crisis brings home again our need for some form of market regulation.  Without it there is little check on speculation or manipulation and great danger of markets running amok.  But regulation seems now to be in that great dead zone of ideas that we can’t get our minds to engage.

So haunted with associations to old style capitalism, so discredited, such a bad idea, we stop thinking as we get close to it.  Whether it is the fear of ridicule from our peers, or the fear of being ostracized, or just the fear of being seen as stupid or out of touch, we keep our minds at a distance from the danger.  The surge of growth that followed deregulation, the victory of capitalism with the breakup of the Soviet empire, the power of special interest and their lobbyists on Capital Hill, the evisceration of existing regulatory agencies — all have become sources of intimidation to anyone interested in curbing the power of corporations to compete freely in the market.

“Groupthink” has familiarized us with how groups censor and proscribe thoughts that deviate from an emerging consensus.  The failure of Kennedy’s advisors at the Bay of Pigs, Nixon and Watergate, even Bush and the famous WMD — all are good examples of how thought gets obliterated.  This dead zone of thought operates on a larger scale — but it too is fueled by anxiety and fear and is no less pernicious to rational solutions to the problems we face.

To be sure, old style regulation did stand in the way of growth, and deregulation did seem to fuel significant growth.  Moreover, critics will add, there remain a host of regulatory rules that businesses and banks must comply with. But, surely, there is a middle way now in playing an active role to guide the private sector away from the disasters of unbridled competition.  If Washington can’t do a good job of it, perhaps a quasi-private amalgam of senior financial statesmen, ratings agencies, and foundations could step up to the plate.  But in order for that to happen, we would have to face the need — and to do that we would have to keep the need in mind.

What we don’t know we know about deregulation is how frightened we are to do that.