Hannah Arendt Center for Politics and Humanities
1Oct/120

New Book from the Hannah Arendt Center

The Hannah Arendt Center's latest book, The Intellectual Origins of the Global Financial Crisis, is now shipping. We had forty advance copies at the conference last weekend and they all were sold. As the financial crisis lumbers into its fifth year, this book looks at the deeper cultural, philosophical and moral foundations for the crisis.

Here is a short excerpt from Roger Berkowitz's Introduction:

When this crisis hit, I happened to be teaching Hannah Arendt’s The Origins of Totalitarianism. Two of Arendt’s insights struck me as having particular relevance to our present situation. First, Arendt confronted a similar phenomenon in which the crisis of totalitarianism was being normalized. The world has long known dictators. Hitler and Stalin, so it was said, were proof positive of the continuity of human frailty. Against this view, Hannah Arendt argued that it was mistaken to understand totalitarianism as simply the latest form of tyranny. Indeed, one should not understand totalitarianism, for to understand it is to normalize it and to desensitize ourselves to the fact of its extraordinary evil.

Against the effort to understand, Arendt counsels comprehension. By comprehension, she means, “the unpremeditated, attentive facing up to, and resisting of, reality—whatever it may be.” The factual reality of totalitarianism, as Arendt comprehended it, was that in our world today any and every evil is possible and can even be rationally justified by otherwise well-meaning people. What is needed, she argued, was that we face up to the fact that totalitarianism, genocide, and administrative massacres were now ever-present dangers in our times. Originally titled “The Burden of Our Times,” Arendt’s book The Origins of Totalitarianism seeks not to explain totalitarianism but to face up to its singular actuality. Arendt’s passion was, as she later wrote, “to think what we are doing.”

Crises offer particularly good opportunities to think what we are doing. A crisis “tears away façades and obliterates prejudices” and thus allows us “to explore and inquire into whatever has been laid bare of the essence of the matter." When she discusses the crisis of education, Arendt affirms that the essence of education is natality—the fact that, born into a preexisting world, human beings must be educated both to fit into and also to remake that world. What we need to ask amid our contemporary crisis is: What is the essence of economics today that the crisis lays bare?

Surprisingly, since she is rarely cited as an authority on economic affairs, Arendt offers an original and thoughtful road map to think through the financial crisis, one that begins with the insight that the essence of economics is unlimited growth. In her telling, the seeds of the financial crisis are not in economics itself, but in the importation of economics into politics, or rather the dominance of infinite growth—an economic principle—in the realm of politics, where it does not belong.

Arendt develops her thesis about the dangerous subordination of politics to economics in The Origins of Totalitarianism. She argues that imperialism is the most important intellectual foundation of totalitarianism. At the root of imperialism is the transfer of the economic principle of unlimited growth to politics. Imperialism has its economic roots in the “realm of business speculation”—specifically the bursting of an investment bubble in the 1870s. As national entrepreneurs sought new markets, they enlisted state support for economic expansion. “Expansion as a permanent and supreme aim of politics is the central idea of imperialism.” The rise of imperialism, Arendt argues, means that politics becomes subservient to economics.

 Arendt fears the confusion of economics and politics and especially the elevation of economics over politics. Since politics demands the imposition of limits and “stabilizing forces that stand in the way of constant transformation and expansion,” she argues that imperialist expansion brought with it a grave and destabilizing threat to the political order. When politics under the sway of economic imperatives is forced to expand on the world stage, political leaders must offer ideologies that give meaning to an ever-larger, undefined, disconnected, and homeless mass, a population that replaces a citizenry. Under the economic imperatives of growth, politics becomes world politics.

The book contains essays by Tracy Strong, Jerome Kohn, Antonia Grunenberg, David Callahan, Alex Bazelow, Sanjay Reddy, Hunter Lewis, Dimitri Papadimitriou, David Matias, Sophia Burress, Liah Greenfeld, Robyn Marasco, Olivia Custer, Miguel De Beistegui, Drucilla Cornell, Taun Toay, and Roger Berkowitz, as well as fascinating interviews with Paul Levy, Vincent Mai, and Raymondo Magliano Filho.

The Hannah Arendt Center
The Hannah Arendt Center at Bard is a unique institution, offering a marriage of non-partisan politics and the humanities. It serves as an intellectual incubator for engaged thinking and public discussion of the nation's most pressing political and ethical challenges.
16Mar/120

Confronting Reality on Wall Street

This week, Greg Smith announced his resignation as an executive from Goldman Sachs in a highly publicized Op-Ed piece for the New York Times, aptly titled “Why I am Leaving Goldman Sachs.”  The letter describes a transformation in the “culture” of the giant investment firm that has gone from a business with integrity to one which is now “as toxic and destructive” as Smith has ever seen it during his twelve year tenure. “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”

Such behavior being tied to a Wall Street firm is not exactly surprising. And in Goldman's case, one wonders where Mr. Smith has been. In the last few years, a number of Goldman's clients have sued the bank, including ACA Financial Guaranty, Basis Capital, an Australian hedge fund, and ABP, a Dutch pension fund. Each argues that Goldman materially harmed them by selling them bad products. And Goldman already paid out $500 Million dollars to settle the Abacus case, in which Goldman was accused of illegally profiting by deceptively selling worthless paper to its customers.

There is a sense in which one looks at Mr. Smith's holier than thou revelation that Goldman was not the noble corporation he once thought it was and asks: really? Haven't you read anything Michael Lewis has written over the last 10 years? Not to mention Matt Taibi—the author of a take down of the mythic Goldman Sachs culture that was published two years ago.

Smith derides his former employer for focusing on profit above the well-being of the client. He puts this is stark business terms. He writes:

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

What Smith takes as a simple truth, is anything but. Trust is in short supply, and yet people work with Goldman and others because they believe that Goldman will make them money. As long as they think that Goldman will make them money, they don't really care that Goldman will make more money or that Goldman is looking out for itself. Clients continue to flock to Goldman because making money is what everyone cares about, not trust. One client of Goldman Sachs was even quoted as calling Smith “naïve” for believing that the business he is in was ever about anything but profit.

Frank Portnoy, writing in the Financial Times, argues that what is really at stake here is the definition of a client. Goldman is now a huge public firm with a few big clients it serves as advisors, and then thousands if not millions of smaller clients who simply buy its products. Goldman needs to have the trust of its major clients, but not is smaller ones.  Just as Coca-Cola has an obligation to make sure that what it is selling is actually Coca-Cola, Goldman has a responsibility to sell you what it tells you it is selling you. But neither Coca-Cola nor Goldman are obligated to tell you that their products aren't healthy for your body or your wallet.

The Goldman myth is just that, at least today. After Goldman went public it transformed from a small investment bank with $1.4 billion in investments in 1998 to a huge corporation with investments of $13.96 billion in 2008, using a leverage ration of 26 percent. Does anyone really think that such a company is not driven by the bottom line?

Reconciling ourselves to reality—telling ourselves the truth—is one of the first demands of ethical life.

One such truth is that business today is very different than it used to be. One needs to confront and comprehend such a truth, especially if you want to resist it. And that is the problem with too many of the responses to Greg Smith's letter.

Yes, Smith seems naive and snarky. And why did he give us his resume at the end of his letter? He clearly has some issues. But the basic point he raises—that business should be conducted with some basic ethical standards beyond that of minimally following the letter of the law—is one worth discussing. There are some clients who want to work with bankers that treat them both kindly and respectfully, and they should know to avoid swimming with the sharks. And there is a real question whether pension funds and other institutions are sophisticated enough to swim in the waters with the likes of Goldman. And finally there is the worry that so many of our brightest young people want to work for firms at which the unmitigated search for profit—restrained only by the letter of the law—is the cultural demand. We need more discussions of such questions. So, as distasteful as I found Smith's letter, I must admit I am happy he published it.

A better airing of many of these same issues happened at the Hannah Arendt Center's 2009 Conference, The Intellectual Origins of the Financial Crisis. A number of our panelists touched precisely on this question of the cultural change in business and Wall Street in particular. The book of essays based on that conference will be published this year.

In the book is included an interview with Vincent Mai, at the time the Chairman and Partner of AEA Investors. In this interview, Mai offers an insiders' perspective on the cultural changes that the financial world has undergone. With more eloquence and also more awareness than Greg Smith, Mai offers an account of an inverted world, one in which trust, reputation, and respect have been replaced by a whole new set of values.

I don’t mean that everybody was a saint and today they’re all sinners. Far from it. But there was a set of ground rules that governed the way you did business which imposed a discipline which was central to the way Wall Street worked. It was the same in all the firms. And I’ve watched with a combination of fascination and horror at the way the world has changed, turned upside down.

Mai's story of the way the world of Wall St. has been turned upside down is fascinating reading, and worth more of your time than another 10 commentaries on Greg Smith. The book with Mai's interview won't be out for a few months still, but for now you can read it here. I recommend you do so for your weekend read.

RB

 

Roger Berkowitz
Roger Berkowitz is Associate Professor of Political Studies and Human Rights at Bard College, and Academic Director of the Hannah Arendt Center for Politics and the Humanities. He is also the author of "Gift of Science: Leibiniz and the Modern Legal Tradition", as well as co-editor of "Thinking in Dark Times: Hannah Arendt on Ethics and Politics".