And What Might Make Them

It has been close to 8 years now since we first found out that bankers routinely fixed the rates they charged to exchange funds, the “Libor.” The Times recently found that little has changed. (See, Tracking the Libor Scandal)

In April 2008 a New York Fed official was told by a Barclay’s employee: “We know that we’re not posting, um, an honest” rate, and, as a result, the head of the New York Fed suggested reforms to the head of the Bank of England. Some changes were made, but at the height of the financial crisis shortly afterwards, “the big British bank reported bogus figures.” Barclay’s settled for $450 million.

In December 2012, UBS settled criminal changes for $1.5 billion. In February 2013, the Royal Bank of Scotland paid a $612 million fine. The Dutch firm Rabobank settled charges of criminal wrongdoing for $1 billion in October 2013, followed by a $2.3 billion fine levied against Citigroup, JPMorgan Chase, Deutsche Bank, Royal Bank of Scotland and Société Générale. In October, Lloyds settled changes for $380 million. The following April, Deutsche Bank was fined $2.5 billion and required to fire seven managers. UBS settled for $203 million in May 1015, as the Justice Department annulled the non-prosecution agreement it had made because of the banks blatant repeat offenses.

More recently there has been another round of criminal accusations and multibillion-dollar penalties involving a scheme to manipulate the value of the world’s currencies. Four large global banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to a series of federal crimes and paid enough penalties to wipe out nearly all the revenue that major investment banks generated from their foreign exchange businesses last year.

There is more, but this is enough to make the point that nothing much has changed over the years. But why?

There are essentially two reasons. One is that bankers feel themselves to be part of a club, an in-group. One employee at Barclays wrote in an email, “Always happy to help.” Another commented that they wanted to “fit in with the rest of the crowd.” Their loyalty was to each other, to other bankers not their customers and certainly not to the public. A Dutch banker reassured a colleague: “Don’t worry mate — there’s bigger crooks in the market than us guys!”

This sense of being a club is reinforced by the fact that employees frequently move back and forth among banks. Moreover, there is a “revolving door” between the banks and the agencies assigned to monitor them.

The second reason is that the “crimes” they committed seem abstract and victimless in a way that matches the anonymity of the perpetrators. The banks are penalized for the misdeeds of their officers. That means that the banks shareholders and customers get stuck with the bill, and club members go free.

Just now, however, there does seem to be the stirrings of change. The head of the Bank of England recently noted: “The banking scandals that followed the financial crisis are evidence that something fundamental is wrong.” And Christine Lagard, head of the IMF spoke of the necessity of leadership from the top, where chief executives and boards can reward ethical behavior that benefits the collective good, not just the deals of an individual rainmaker. According to The New York Times, “She lamented the fact that banks in the United States and Europe had paid $230 billion in fines with nary an individual at any firm being held responsible for what went wrong.”

“She spoke of the need for a Wall Street culture of ‘greater virtue and integrity’ and for banking to revive the idea of . . . it’s ‘purpose and broader responsibility to society.’ After all, she continued, “the goal of the financial sector must be not only to maximize the wealth of its shareholders, but to enrich society by supporting economic activity and creating value and jobs — to ultimately improve the well-being of people.”

These can be mere words, but they now come with the threat that if nothing changes the regulators will go after the individuals who are responsible for wrong-doing, and then they might actually break up the banks. The cozy clubs could be disbanded.

Perhaps more importantly, the top regulators now face the risk of being implicated themselves if nothing changes — and that risk might actually get them to work more aggressively at forcing the system to change.

An Epidemic of Suicides

Loneliness? Stress? Failure?

A year and a half ago, Times’ columnist Ross Douthat noted that “More Americans now die of suicide than in car accidents, and gun suicides are almost twice as common as gun homicides.” According to a new paper by the Nobel laureate Angus Deaton and his wife, Anne Case, it’s not getting any better. The increase in suicides has sent “white death rates modestly upward in the richest nation in the world.”

Douthat attributed the increase to the loss of traditional social ties, causing an upsurge of loneliness. He cited a study published in The New Republic: “one in three Americans over 45 identifies as chronically lonely, up from just one in five a decade ago.”

A conservative, Douthat is none the less able to see the cost to individuals in leaving their small and confining communities for the stimulation and opportunity of our sprawling cities. To expand and grow, to escape the people who want you to be just like them, you have to leave. But then, often you end up isolated, vulnerable, and despairing.

Progressives will see the data as a sign of our “fraying safety nets and . . . punishing economic climate,” and they note how suicide rates are not climbing in Europe which has more generous social benefits. People there are less likely to feel abandoned and punished for not being successful. At the same time, in America, suicide rates are not rising among blacks and Hispanics, perhaps because those cultures have always tended to provide more support for those facing illness, disability, and joblessness through extended families.

Douthat sees leaving our traditional communities as a choice. But, perhaps, it is not a choice at all, so much as a developmental imperative and a matter of survival. The modern world may require us to be more independent, more separate, and more lonely.

Increasingly, we are all forced to adapt to instability and change. Our corporations no longer offer fixed or even reliable careers to their executives and upper-level workers, beset by the continual threat of mergers, take-overs, divestments, restructurings and downsizing, all demanded by investors seeking ever greater “shareholder value.” Lower-level employees are threatened by high unemployment rates and inadequate salaries. Professionals face a world in which much of their expertise is duplicated by smart machines or outsourced to those less well trained as costs are being continually trimmed.

Modern economies are also beset with financial manipulation, fraud, cronyism and attacks on oversight and regulation. And this is not to mention the increasing risks of natural disasters brought about by climate change.

The modern world, in short, requires us to be nimble, adaptive and ready to rethink our own identities. That demand is no longer abnormal, surprising or shocking. But it does mean that we can take less and less for granted. We are all adrift on a sea of change, and it takes courage and emotional strength to keep afloat.

Loneliness is just one of the consequences of this new reality. It leads some to search for illusory certainties, fundamental truths they can affirm without much supporting evidence. Others seek constant diversion or withdraw. Many get depressed and contemplate suicide.

Some thrive, but many sink.

The Myth of Welfare Dependency

Why Do We Believe It?

Well-meaning people worry about it, while others use it as an argument against helping the poor. Some scholars have even written about it. And it has had a huge impact on public policy, justifying cutbacks in welfare programs. But last week, a director of the Poverty Action Lab at MIT, Abhijit Banerjee, released a paper with three colleagues that suggested it just wasn’t so. People actually benefit from the support of welfare and rebound.

After carefully assessing the effects of seven cash-transfer programs in Mexico, Morocco, Honduras, Nicaragua, the Philippines and Indonesia, the researchers found “no systematic evidence that cash transfer programs discourage work.” (See Eduardo Porter in The New York Times.)

It remains a strong idea, however, a form of folk wisdom, something akin to common sense in the public mind. But Professor Banerjee noted that “Ideology is much more pervasive than the facts,” adding that the United States’ own experience with both welfare and its “reform” does not really support the charges.

So why do we hold to this conviction? What does believing this do for us that the truth would not?

To begin with, it suggests that we project onto the poor a perception of laziness. Do we dispose of our own sense of laziness by attributing it to the poor?

But are we, in fact, lazy and resentful of work? Most people offered a choice would choose work, along with the self-esteem and sense of belonging that comes along with it — not to mention the money.

It may be relevant that so many of us feel overworked, a fact that I wrote about on my blog last July: “Americans now put in an average of 112 more hours per year than the British, and 426 hours (over 10 weeks!) more than Germans.” We work harder that ever because corporations are reluctant to hire new workers, often preferring to redistribute the work of those they let go among those who remain. As economists have noted, this trend contributes to our continuing high rate of unemployment.

But it also means that we stay late at the office, work on weekends, give up vacations and comply as best we can with the increasing demands of our jobs. Our families suffer, our health declines, the happiness and pleasure we find in life erodes. Men often subtly boast about the demands of work, seeing that as a sign of their importance. Women typically are seen as suffering from the conflict between being mothers, wives and successful executives. But everyone feels it, and everyone suffers.

Maybe this is why we continue to think that the poor, given the chance, would choose to escape the demands of work. It may not be work itself we want to escape, projecting that desire onto the poor, but the taxing demands of overwork. We project it because we cannot change it, but we also cannot really complain or protest if it has become a sign of our value.

Work was once seen as more rewarding. It offered us careers, a stable place in society, security and self-esteem. But now, it is resuming its historic role as Adam’s curse, as we are doomed to live by the sweat of our brows.


Conflicts of Interest or Worse?

The blatant fraud of Volkswagen’s emissions was disclosed just a few weeks ago. Now it appears that virtually the entire automobile industry is compromised. The “cozy” relationship between those designing cars and those testing them, as The New York Times put it, demands a bigger and better explanation than the desire of any one company to beat its rivals.

According to a researcher for the International Council on Clean Transportation, responsible for overseeing the testing of emissions: “There is a financial dependency between the technical services and manufacturers that at some point should be rethought to improve the confidence in the system.” But why wasn’t that recognized from the start?

Those of us who are professionals are schooled to understand the dangers of such conflicts of interest. Leaving aside the obvious dangers of willful collusion, there is the risk that objectivity will be lost, biases will creep into perceptions, desires will shape outcomes. That happens under the best of circumstances, which is why we know that research has to be carefully designed to correct for such inevitable distortions.

But maybe the problem in the automobile industry has an entirely different explanation. Maybe that industry, like the financial industry, far from being worried about the problem, views compliance as a nuisance, an obstacle to get around, perhaps even a challenge to their ingenuity in defeating pesky regulations. Their single goal may be to get bigger and bigger and make more and more money, regardless of the indirect costs to the public.

It appears now that the auto industry, in Germany at least, like banking here, has an active revolving door so that the difference between one company and another, or between a company producing cars and one testing them, or between all those companies and the governments that regulate them are fluid and constantly shifting as people move back and forth. That would mean, increasingly, that such goals would be shared. And there would be a widespread complicit understanding that the façade of regulation and compliance needs to be maintained to avoid public outrage and the risk of government intervention that would disturb this “cozy” arrangement.

If that is the case, there is no conflict at all. All parts of the industry are aligned in the service of growing and generating profits. Like a sport, encouraging fierce rivalries, what becomes paramount is ensuring that the sport itself thrives.

In other words our assumption that there are inherent adversarial relationships inside the industry, protecting the public, is an outsider’s perspective, kept alive partly through ignorance, and partly though an unwillingness to grasp how vulnerable and unprotected the public really is.

This industry-wide collusion would not require clandestine meetings or secret communications. Subtle psychological processes, implicit understandings, unarticulated and unconscious assumptions would do the job. People moving around the industry can easily spread the necessary information in personal communications.

Nor would everyone need to be actively engaged. To be sure, it would require tacit acceptance by virtually everyone, but their silence would be guaranteed by the well-known shunning and ostracism that is the lot of whistle-blowers.

All that would be required is for most people just to look away.

What is a Democracy?

Or an Oligarchy?

Jimmy Carter is something of an expert on elections, having monitored 100 of them in 38 countries since 1989. In addition, he ran for U.S. President, once successfully, once unsuccessfully, and that was after an earlier political career in Georgia. You may not agree with his views, but he knows democracy inside out.

Interviewed by Oprah recently, he made the shocking statement: “We’ve become, now, an oligarchy instead of a democracy.” Democracy is one of those cherished ideas we take for granted. Because we vote, we must be a democracy, right? But Carter has a point. According to Wikipedia’s simple definition: oligarchy is “a form of power structure in which power effectively rests with a small number of people.”

Carter commented to Oprah: Our government is “just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members. So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over.”

Other experts have made similar points. Thomas Piketty noted our “drift towards oligarchy,” and the Princeton sociologist Martin Gilens pointed out in his classic study, Affluence and Influence, that the majority of voters seldom get what they want, having little influence on public policy. Then there is Jeffrey Winters’ book Oligarchy that illustrates how our form of “civil oligarchy” relieves our wealthy from the need to raise armies or build fortresses to protect their wealth. In “civil oligarchy,” that job can be turned over to government. The only thing oligarchs have to do to protect their wealth is ensure their control of the political process. Otherwise, the extreme wealth that sets them apart and provides the basis of their power could be whittled away or confiscated by taxation.

So having elections doesn’t ensure “democracy,” but we have a strong tendency to believe otherwise. We ritually affirm that we are one, that we were founded as one, and that, indeed, there is no better one. We could call that an illusion, but that seems inadequate in the light of the tenacity and fervor we bring to the subject.

What, then, should we call that belief? Ideology? Myth? Faith? I don’t know that it matters, so long as we appreciate that it is not a simple fact. It is an idea, woven into our national identity, that can make us anxious and insecure were we to think otherwise, that might foment civil unrest if we began to wrestle with the implications of it more seriously, and that, most importantly, supports the control of the oligarchs, because if we can’t think about it we can’t do anything to change it.

Our politics is full of such ideas, which is another reason being a candidate for office is so difficult. As Carter said in his interview with Oprah: “There’s no way now for you to get a Democratic or Republican nomination without being able to raise $200 or $300 million, or more.” But then there is the problem of how speak to an electorate that can’t face certain realities.