Ina Drew has resigned. Why wasn't she fired?
Drew is the executive at JPMorgan being asked to fall on her sword for the $2 Billion+ loss in hedging trades. Jamie Dimon, who for four years has taken credit for running a tight ship in which he was responsible for steering JPMorgan through the financial crisis, will of course soldier on, beaten but not broken.
Aside from allowing her the dignity of not being fired, the resignation also, I have to imagine, preserves what must be a very generous severance package. All present reports refuse to disclose Drew's severance package. She was paid $15.5 million last year and almost $16 million in 2010. What justification is there for now allowing her to resign and potentially keep a severance?
The answer seems to be that Drew, like all the executives on Wall Street, deserves their stratospheric compensation. This of course was Dimon's point in his announcement of her resignation. He writes:
Ina Drew has been a great partner over her many years with our firm. Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events.
In other words, Drew is brilliant and has been valuable. She should not be blamed for losing $2 Billion. She still deserves what is reported to be a severance package of over $14 Million in equity rewards, according to the Wall Street Journal.
The canard of the best and the brightest is one we hear over and over. The basic fallacy here is the belief that these executives are so smart and so valuable that they can't be angered or let go.
The fact that these blow-ups keep happening has done little to quell the applause for the bankers. All the incentives are for the executives to take on risk. What happens when they lose? They resign. I am sure Ina Drew is smart and capable and no doubt she will be back at a hedge fund or a new firm as soon as she wants.
The bigger issue, however, is that there is still the feeling around that these executives deserve to be making tens of millions of dollars every year. Recall that back in 2009 after the best and brightest brought the country's best (i.e. biggest) banks to their knees at the federal taxpayers' dole, Ken Feinberg was appointed to oversee bonuses and compensation at those banks. He has told how the big banks decided that every single one of their executives had performed above average and deserved extravagant bonuses. In an article about Feinberg from 2009, Steven Brill writes:
To take a near-comic example, the firms did not present a single executive as meriting a pay grade below the 50th percentile of their supposed peer group.... In fact, all 136 of the executives (the 25 top earners for each of the seven companies, less 39 who left during the year) were depicted as well above average, typically in the 75th percentile or higher. And the peer groups they were supposed to be in were often inflated; for example, someone running a unit might be portrayed as a chief executive because, the argument went, he ran a really big unit.
Citigroup and Bank of America, Brill writes, "concluded that everyone in their executive suites was above average when compared with peers at other giant banks that didn’t need a bailout." The banks then proposed that their average executives deserved bonuses of between $10-$21 million. After months of negotiating and cajoling, Feinberg talked them down, so that in the end, the average banker received a year-end bonus of $6.5 million at Bank of America and $6.2 million at Citigroup.
Those paltry $6 million bonuses were in a year that the banks went bankrupt and had to be bailed out. No wonder the best and the brightest like Drew deserve $14 and $16 million when times are good. Of course, the incentives to take risks are still there. If your risks work out, you make a fortune. When your risky trades go bad, you resign and take your winnings and your severance.
These bankers have nothing at risk and everything to gain by taking risks. Four years after the financial crisis, it seems that little if anything has changed.
Cornell West was one of the first celebrity academics to arrive at Occupy Wall Street last week. Because amplified sound is prohibited in Zuccotti Park—the protesters have never applied for a protest permit—the speaker's words are repeated by the audience to make them audible for larger groups. Thus West's refrain issued repeatedly in the dark and across Wall Street. The protests, still small on the ground, are growing wings in cyberspace. New protests are springing up in cities across North America, from Los Angeles to Boston and from Seattle to Toronto. Seven hundred people were arrested Sunday during a peaceful crossing of the Brooklyn Bridge (including at least 20 Bard College Students). Seven hundred United/Continental airline pilots joined the demonstration over the weekend, as did 15 U.S. Marines. Unions are pledging their support, suggesting that the protests may get a real boost from traditional organizing. Clearly, "Something is happening here, Mr. Jones." "Don't be Afraid to Say Revolution.
Suddenly--very suddenly--too suddenly?---we are living through a time of revolutionary possibility. In Tunisia, Egypt, and Libya, the possibility of revolution was joined with action. Dictators were overthrown, and a sense of possibility ignited. In Syria and Bahrain, the revolutionary movements are being suppressed, violently, quashing the hopes of local revolutionaries. Still elsewhere—in Israel, Spain, Greece, and most recently in the United States—the spirit of revolutionary hope is alive as well.
Skeptics abound, for good reason. Whether these springtime Arab blossoms will grow into hearty summer stalks is still not known. Indeed, it is unlikely. The real powers in Egypt, the military, remain in control, aligned with the Muslim Brotherhood, and the more liberal democracy protesters have seen their dreams thwarted. Revolutions must not only tear down, but also build up; and building revolutionary institutions takes time. And yet, something is in the air. Everyone wants to judge the protesters. Are they good or bad? Before we judge, let's ask: What does this revolutionary moment mean? There is something going on here, but it is less radical and more dismal, than many of its supporters realize. That is not an indictment of Occupy Wall Street. But some reflection is called for. And a few points are in order.
1. The Question of Hope: There is something very noble, yes even hopeful, in the fact that many hundreds and even a few thousands of people are trying to have their say and make a difference. The numbers on the interweb are much larger, but the feet on the ground are significant, especially at a time of acknowledged bourgeois narcissism. What is it that motivates pilots, marines, doctors, lawyers, and businessmen—not to mention the unemployed and underemployed—to occupy city squares in the Middle East, major boulevards in Israel, and parks in New York City, all to call for political change?
In an age when most people are content to be left alone by government to pursue their own private desires and dreams, how is that people around the world are suddenly acting and participating in politics?
2. One answer is public happiness. Arendt named the joy one experiences when acting in public "public happiness." Public happiness is the great treasure of all of those who live through revolutionary times and feel the exhilaration of acting in such a way as to make a difference in the world. One sees the joy in the faces and voices of the protesters. It is similar to the joy evidenced by Tea Partiers at the beginning of that revolutionary moment, before the Tea Party was taken over by ideologues. These protesters are learning, as do all revolutionaries, that freedom is found neither in the freedom from government nor in the welfare state bureaucracy, but in the "public happiness" found in acting together with others in public.
3. Another answer is anger. Where has the anger been? Banks have been bailed out; worse, so have the bankers. It is infuriating to hear bankers who have destroyed their companies and cost investors trillions defend their right to million-dollar bonuses. These are salaried employees who invest billions of dollars with great upside potential and no downside risk. These folks are not evil. The vast majority are not criminals. But they certainly are not the geniuses they think themselves to be, and most do not merit the exorbitant paydays that they have come to view as an entitlement.
Why is it that when AIG bankers insisted their contractually mandated bonuses be upheld after AIG received $182 billion from taxpayers, everyone gave in, but when pensioners demand their contractually guaranteed pensions, talking head after talking head says we have to get real and cut the pensions. The talking heads are right: the public union contracts that mayors and governors negotiated are as un-affordable as they are overly generous. But I am aghast that the senseless and unsustainable contracts of the bankers are seen as inviolable while those of public employees are rendered mere pieces of paper.
And then there is Ken Lewis, the CEO who drove Bank of America to insolvency. Lewis was not fired, nor has he been compelled to recoup the billions in bonuses he authorized for Merrill Lynch executives in 2008, the year Bank of America acquired the all but bankrupt Merrill Lynch. Indeed, all that “Pay Czar” Ken Feinberg demanded was that Bank of America limit the average size of bonuses in 2009 to $6.5 million.
And when Lewis himself finally resigned, he left with his own $125 million golden parachute, on top of the many millions he took home while bankrupting his company during the boom years. Three years later, excessive compensation of failed executives continues, as the NY Times reported just this week.
It is not radical or revolutionary to be incensed at the unqualified entitlement that pervades certain members of the financial community. There is a great deal in the Manifesto of Grievances put out by Occupy Wall Street that, as Henry Blodget admits, is downright reasonable (although much also that is nutty). This anger has been missing from our public discourse. Because of Occupy Wall Street, it may be finally coming to the fore. This is a good thing.
Anger need not be indiscriminate. There are plenty of good people on Wall Street and excellent businessmen and women. There is no need to demonize a whole profession, nor is there a value in simply insulting the wealthy. One of the ugly aspects of the Occupy Wall Street movement is the indiscriminate anger at all wealthy people, as if being wealthy were wrong. Let's hope that the protests can focus their irate passions at the fraud and hubris of those who have continued to pay themselves multi-million dollar bonuses when their firms would have failed and gone belly up but for the generosity of their countrymen.
4. A third reason for these protests is The Loss of Governmental Legitimacy. Without a doubt, there is a growing sense that the powers that be have lost their right to rule. This was true in Egypt and Tunisia and is also the case in Israel and the U.S. Respect for government is a record lows, and for good reason. Illegitimate is a mild word for what many Americans are feeling. As my colleague Walter Russell Mead writes:
"Watching so many second class talents struggle against first class problems is a dispiriting exercise, especially when one reflects on the costs of failure. It is no secret anywhere that our leaders are failing. The Europeans know their political class is floundering; the Japanese have despaired of their politicians for almost a generation; in the US the only people less popular than President Obama are his Democratic allies and Republican adversaries in the US Congress."
There may be no better example of utter government incompetence and malfeasance than the Fannie Mae and Freddie Mac fiascos. If the Occupy Wall Street Protesters want a real, live culprit, here they have one. That the Democrats are protecting Fannie and Freddie is, quite simply, just as wrong as their refusal to bring criminal or civil suits against executives who engaged in fraud.
The vacuum in leadership fanned by a global wave of anti-elite anger risks radicalizing politics in dangerous ways. Occupy Wall Street is, like the Tea Party, driven by an apparent disdain of government, elites, and traditional institutions. These protests began with a call to action from a Canadian group called Adbusters and its embrace by an organization of hackers called Anonymous, a group closely associated with Wiki-leaks. These are groups that also were intimately engaged in protests in the Middle East and around the world and they represent, above all, a particular view of democracy. The hope, it seems, is that if you just tear down all barriers to information, allow for absolute transparency, and present citizens with the facts, a citizen democracy will emerge that ushers in a more rational and fair system of government. This is actually a technological version of the communicative rationality theories made popular by Jürgen Habermas in the 20th century—the idea that in a system of transparent and perfect communication, democratic reason will lead to rational decisions. As a result, we don't need leaders, or elite institutions. A radical horizontal democracy is enough.
The call is for a "people-powered" movement. Of course not all the protesters embrace this, but Occupy Wall Street is propelled by the belief in the power of networked individuals, as well as a profound suspicion of all traditional and institutional power centers. The dream is to replace a government by governors and politicians with a government by the collective wisdom of the masses.
It is thus no accident that the masks worn by many protesters pay tribute to Guy Fawkes, the English Catholic who was tortured and sentenced to be quartered (he killed himself instead) for his participation in the Gunpowder plot whose tagline read: “people should not be afraid of their governments, governments should be afraid of their people.”
The Tea party, as I noted earlier, provides us with an interesting comparison. It also began, initially, with individuals venting their anger. There was, and remains, a joy amongst the Tea Party faithful, one that comes from finding a public voice and engaging in public action. And it is a very similar joy that one can embrace amongst the protesters in Zuccatti Park. Very quickly, however, the Tea Party got directed by ideological leaders who have hijacked the Republican Party, an event that is both the source of its political strength and its intellectual incoherence.
What needs to be seen, though, is that there is a profound convergence between the Tea Party and Occupy Wall Street. On both sides, there is deep dissatisfaction with Democratic representative government. The current zeitgeist seeks to replace democratic government with people power, to replace authority with transparency, to reject professionalism and expertise for cloud governance. Thus, both the Tea Party and Occupy Wall Street need to be seen in connection to the extraordinary and surprising (again, to the mainstream media) success of the Pirates in Berlin. What all these movements share is a suspicion of representative democracy and traditional institutions.
5. It might be helpful to recall, as Hannah Arendt reminds us, that the fundamental elements of totalitarian governance are: 1) its disdain for government institutions and political limits; 2) its embrace of mass movements that overwhelm national boundaries as well as traditional moral and political limits; 3) its disdain for politics as usual; and 4) its susceptibility to coherent narratives rather than a confrontation with factual reality.
Let me be clear: I don't see fascist or totalitarian dangers at this point in the Occupy Wall Street or in the Tea Party movements . But that is largely because neither group has a message that is compelling to a large enough section of the population. Their marginality is at this point diminishing their threat. And yet, there are common elements to at least be aware of:
1) Opposition to the state: both the Tea Party and Occupy Wall Street have a deep hostility to the state, as did totalitarian movements (but not fascist movements). That said, the TP is focused on state borders in a way that is closer to fascism than totalitarianism.
2) Both are MOVEMENTS, and thus to persist cannot have realizable goals, but must have goals that continue to shift and grow so that adherents always have issues to be motivated by.
3) Both display an aversion to facts and a tendency toward coherent myths at the expense of truth. The Tea Party imagines that all government spending is bad, even when confronted with the fact that it wants funding for certain entitlements, emergencies, and the military.
Occupy Wall Street wants to bring down Wall Street, empower the 99%, and eliminate student debt. They don't seem to realize that the standard of living they aspire to was possible because of the speculative boom that Wall Street's excesses made possible, and that the loss of debt-financing for students will decimate universities that depend on such funding and make a college education inaccessible to most Americans. BOTH organizations seem to believe that the solutions are clear, but neither side is actually willing to confront the depth of our economic and political problems and think about the collective sacrifice that would be required to address them. Furthermore, both the Tea Party and Occupy Wall Street have innovative and absolute readings of the U.S. Constitution. The Tea Party has somehow decided that the government regulation and taxation are unconstitutional. Occupy Wall Street has convinced itself that it has a constitutional right to protest without seeking permits. On both sides, the din of an echo-chamber of like-minded views compresses interesting opinions into unquestioned facts.
4) Both groups have bogeymen that stand in for all evils. The Tea Party excoriates immigrants and public unionists. Occupy Wall Street rails against bankers and anyone on Wall Street. Such blanket hatred can, of course, become dangerous.
6. What distinguishes Occupy Wall Street is its youthful and optimistic faith in technocratic solutions. I hope I have made my sympathies with the protesters clear; and yet, there are good reasons to ask serious questions of Occupy Wall Street.
In 1970, Hannah Arendt reflected on the Student Protests of the 1960s and said:
"This situation need not lead to a revolution. For one thing, it can end in counterrevolution, the establishment of dictatorships, and, for another, it can end in total anticlimax: it need not lead to anything. No one alive today knows anything about a coming revolution: 'the principle of Hope' (Ernst Bloch) certainly gives no sort of guarantee. At the moment one prerequisite for a coming revolution is lacking: a group of real revolutionaries." --Ms. Arendt, 1970.
The reason that a revolutionary moment will succeed or fail to turn into a real transformation is the lack of real revolutionaries; revolutionaries, Arendt writes, are people who face the reality of the present and think deeply about meaningful responses and alternatives. Is there a serious and thoughtful confrontation with reality that underlies Occupy Wall Street?
The answer to this has to be no, at least, not yet. It is simply a mistake to think that our current problems flow from a lack of transparency and elitism. On both scores, it is more likely the opposite that is the case.
We are not suffering from a secret cabal of evil masterminds who plotted to bring down the world economy. The problem was not secrecy. On the contrary, the ballooning debt of the last 20 years, the massive student levels of student debt, the internet bubble, the real-estate bubble, the rise of speculation, the replacement of pensions with market-oriented retirement investing—none of these were secrets. Plenty of smart people warned us that we were walking on thin air, but we chose, collectively, not to listen.
Nor is elitism our present problem. In fact, we might have been served better if the so-called elites had actually acted a bit more like elites, and stood apart from the madness of the crowd feeding at the trough of easy money. If we had more true elites—people who felt themselves justified to judge the thoughtless, greedy, and common behavior of our bankers, politicians, and consumers—they might have been able to better deter us from our merry way. It may very well be that we are suffering today not from the cabal of elites, but from the absence of an elite culture that might be able to meaningfully resist and question the folly of crowd behavior.
If we really want be revolutionaries, as Arendt counsels, we must first of all face our present reality. Rather than secret evil machinations, our current world crisis is the result of millions of every day people acting thoughtlessly—knowing that they could not afford that new house, but buying it anyway; knowing they were selling and buying worthless bonds, but giddy at the possibility of flipping them to someone else at a handsome profit. Of course there was greed. But that is not going away. The information was there as well, we just did not want to see it. Transparency will not solve that.
7. The media coverage of the protesters has been excoriated. Some of it has been awful, focusing on the dirty laundry, or ignoring the protests altogether. There have also been demands for demands, which are answered either by vague manifestos or claims that this is a movement without leaders, one that like a startup will find its market as it grows. As Heather Gold notes it is telling that the metaphor for the protests comes from the lingo of internet startups. The revolution is offering a new product—the disaffected anger of the left and the center, combined with the need to believe that our lives matter and that we can make a difference. It is putting that anger out into the world, mixing it with the joy of public acting, and seeking a market for that potent brew.
The protests are growing and multiplying and undoubtedly they will lead to more clashes with the police. The question of violence will emerge, whether from the protesters’ camp or from the police. We should expect mistakes to be made on both sides. That should not diminish the demonstrators or what they are fighting for. We must break a few eggs to make an omelet, as Arendt writes in her essay, The Eggs Speak Up. Politics is, as Max Weber reminded us, not like a nursery. It is a mistake to be hyper-critical of Occupy Wall Street at this point. They will make strategic errors, (like bringing down the website of the new agency designed to regulate the banks!--why that target?). Despite inevitable missteps, the protesters are succeeding, it seems, in breaking enough eggs to finally wake some people up to the terrible tragedy that is unfolding around us. In this, they are similar to the Tea Party and yet also an antidote to the ideological rigidity that the Tea Party has adopted. For this reason alone, we should welcome Occupy Wall Street.