Borrowing from Peter to Pay Paul
Stephanie A. Miner, the Mayor of Syracuse NY, has an important op-ed essay in The NY Times Thursday. Syracuse is one of hundreds of cities around the state and tens of thousands around the country that are struggling with the potentially disastrous effects of out-of-control pension costs. Where this crisis is heading can be seen in California, where San Bernadino has become the third California city to declare bankruptcy. These cities are dying. They are caught in a bind. Either they decide not to pay their promised debts to pensioners; or, in honoring those debts, they so fully raise taxes and cut services as to ruin the lives of their citizens.
In Syracuse, Mayor Miner understands well the depth of the problem. First, public employee labor costs are too high not because salaries are high, but because pension costs and medical benefits are rising without limit. Second, revenues are being slashed, both from the recession and from cutbacks from the state and federal governments. Finally, the middle and upper class flight from cities to suburbs have left the tax base in cities low at the moment when poorer city dwellers are disproportionately in need of public services.
The result is that cities are faced with a stark choice: Do they pay older citizens what has been promised to them? Or do they cut those promised pensions in order to provide services for the young? This is a generational conflict that is playing out across the country.
Miner is worried that the response by NY State is making the problem worse. In short, Governor Cuomo and the legislature have decided to let cities that cannot afford to fund their burgeoning pension obligations borrow money to pay those pensions. The kicker is, that the cities are being told to borrow money from the very same pension plan to which they owe money.
If this sounds suspicious, it is. As Danny Hakim—one of the best financial reporters around—wrote almost exactly one year ago in the NY Times, this is a desperate and dangerous move:
When New York State officials agreed to allow local governments to use an unusual borrowing plan to put off a portion of their pension obligations, fiscal watchdogs scoffed at the arrangement, calling it irresponsible and unwise.
And now, their fears are being realized: cities throughout the state, wealthy towns such as Southampton and East Hampton, counties like Nassau and Suffolk, and other public employers like the Westchester Medical Center and the New York Public Library are all managing their rising pension bills by borrowing from the very same $140 billion pension fund to which they owe money.
The state’s borrowing plan allows public employers to reduce their pension contributions in the short term in exchange for higher payments over the long term. Public pension funds around the country assume a certain rate of return every year and, despite the market gains over the last few years, are still straining to make up for steep investment losses incurred in the 2008 financial crisis, requiring governments to contribute more to keep pension systems afloat.
Supporters argue that the borrowing plan makes it possible for governments in New York to “smooth” their annual pension contributions to get through this prolonged period of market volatility.
Critics say it is a budgetary sleight-of-hand that simply kicks pension costs down the road.
Borrowing from the state pension plan to pay municipal pension costs is simply failing to pay the pensions this year and thus having to pay more next year.
Hakim, as good as he is, allows Thomas P. DiNapoli—the state’s comptroller—to get away with calling the scheme “amortization.”
The state’s comptroller, Thomas P. DiNapoli, said in a statement, “While the state’s pension fund is one of the strongest performers in the country, costs have increased due to the Wall Street meltdown.” He added that “amortizing pension costs is an option for some local governments to manage cash flow and to budget for long-term pension costs in good and bad times.”
But how is this amortization? The assumption or hope is that the market will rise, the pension fund will go up, and then the municipalities will owe less. That is hardly amortization. No, it is desperate speculation with public monies.
The crisis in our cities afflicts the whole country, according to a study by the Pew Center on the States.
Cities employing nearly half of U.S. municipal workers saw their pension and retiree health-care funding levels fall from 79% in fiscal year 2007 to 74% in fiscal year 2009, using the latest available data, according to the Pew Center on the States. Pension systems are considered healthy if they are 80% funded.
The reason to pay attention to the problems in cities is that cities have even less ability to solve their pension shortfalls than states. The smaller the population, the more a city would have to tax each citizen in order to help pay for the pensions of its retired public workers. The result is that either cities get bailed out by states and lose their independence (as is happening in Michigan) or the cities file for bankruptcy (as is happening in California).
Mayor Miner, a Democrat, takes a huge risk in standing up to the Governor and the legislature. She is rightly insisting that they stop hiding from our national addiction to the crack-cocaine of unaffordable guaranteed lifetime pensions. Piling unpayable debts upon our cities will, in the end, bankrupt these cities. And it will continue the flight to the suburbs and the hollowing out of the urban core of America. Above all, it will sacrifice our future in order to allow the baby boomers to retire in luxury. Let’s hope Miner’s call doesn’t go unheeded.
-RB
Nihilism and Globalization
What a week it has been in the world of corporate criminality and governmental spinelessness!
On Monday, the British Bank HSBC agreed to pay a fine for $1.92 billion for repeated and systematic violations of two U.S. laws to prevent money laundering. The bank transferred hundreds of billions of dollars for its clients, likely enabling crimes ranging from tax evasion to terrorism. Once again, no one will be indicted, let alone found guilty. The reason: concern that criminal charges would hurt the bank’s business and, because it is so big, destabilize the financial system. The story is too familiar: A bank that is too big to fail gets away with criminal activity with simply a fine. While $2 billions sounds big, it is less than one quarter’s profit for HSBC. Oh, and the banks said it was sorry, sort of: “We accept responsibility for our past mistakes,’’ HSBC’s chief executive said in the statement. Mistakes are not crimes.
Meanwhile, on Tuesday in London, British authorities did make some arrests, something U.S. authorities still seem unwilling or unable to do.
In a predawn raid, police took three men into custody at their homes on the outskirts of London. One of the men is Thomas Hayes, 33, a former trader at UBS and Citigroup, according to people briefed on the matter who spoke on condition of anonymity. The other two men arrested worked for the British brokerage firm R P Martin, said another person briefed on the matter.
These arrests come in the LIBOR rate-fixing scandal, one of the biggest financial scandals ever uncovered. By colluding to fix interest rates that banks use to lend to other banks, banks ensured that they would make more money on their own student loans, mortgages, and municipal financings and consumer loans. The suits by injured parties will be keeping lawyers well paid for a decade.
On Wednesday, Bill Hwang, a high-flying hedge fund Director, pled guilty of wire fraud on behalf of his now defunct hedge fund Tiger Asia and admitted to improper trading by the firm. But Hwang himself walked out of court an innocent man, as the NY Times reports:
Federal prosecutors did not bring charges against Mr. Hwang himself. But he and his head trader, Ray Park, settled a parallel lawsuit brought against them by the Securities and Exchange Commission. Mr. Hwang and his fund will pay $44 million in fines, and he agreed to a five-year ban from the securities industry.
Once again, no one in the United States is being indicted or going to jail. And yet the federal prosecutor claimed victory for the investing public, seemingly unworried about the law-abiding public:
This criminal activity by a hedge fund operator, one of the biggest in the world, is unacceptable,” Paul J. Fishman, the United States attorney in New Jersey, said in a statement. “The investing public must be reassured that they are investing in markets that are operated fairly.
Also on Wednesday Deutsche Bank, the largest German banking behemoth, announced that its offices were raided by German investigators as part of an investigation into tax evasion by two of its top executives. Deutsche Bank has many problems, including a continued investigation to its role in the LIBOR rate fixing scandal that has already claimed settlements from Barclays in England and UBS in Switzerland (see Tuesday and Thursday).
On Thursday, the Swiss financial giant UBS announced that it was close to agreeing upon a $1 billion settlement with regulators in the U.S., Britain, Switzerland and Canada around the LIBOR rate fixing scandal (see Tuesday above).
While some minor players are being charged, once again there seems to be no interest in holding any major players at the bank responsible. As the NY Times writes,
The Swiss bank has reached a conditional immunity deal with the antitrust arm of the Justice Department, which may protect the bank from criminal prosecution under certain conditions The Justice Department’s criminal division, however, could still take action against the bank. UBS also has said it is working with Canadian antitrust authorities by handing over e-mails and other documents implicating other banks.
Over the weekend, hundreds of demonstrators around England protested against Starbucks for its tax minimization strategy. Starbucks capitulated, in part, agreeing to pay a one-time voluntary tax payment to England, something that sets the dangerous precedent of tax blackmail and does nothing to address the underlying problem. Let’s be clear. Starbucks broke no laws. But it did use creative accounting to minimize its taxes. For example, the profitable Starbucks franchises in England paid large fees to Starbucks’ subsidiary firms in low-tax countries for use of Starbucks branding, logos, and for the use of the firms’ coffee recipes. In effect, Starbucks laundered its corporate profits in high-tax England by transferring its profits to lower-cost jurisdictions. This is legal. The business community mysteriously finds it ethical. The protesters are rightly incensed. The real question is why, after hearing about such shenanigans for years, do legislatures continue to refuse to pass basic legislation making such tax minimization standards illegal.
The big story of the week remains the ever-growing insider-trading scandal that has been revolving around the Greenwich hedge fund SAC Capital run by Steven Cohen. Now 12 employees and alumni of Cohen’s firm have been indicted for insider trading (six while working for SAC and six for misdeeds after they left to start their own firms). Cohen himself has not been accused of wrongdoing, but the latest of his allegedly criminal underlings, Matthew Martoma, was Cohen’s right hand man for two years. And the prosecutors know that SAC sold its large positions in two drug-development companies and then shorted the stocks in those companies based on inside information from a trial of those drugs. And they know that Martoma and Cohen had a 20 minute phone conversation discussing their investment in those companies over the weekend before they sold their shares the following week. There is no clear evidence that Martoma told Cohen about his illegally obtained information. While both men remain innocent until proven guilty, Cohen’s firm SAC Capital is clearly a place that intentionally or not encourages illegal activities. Cohen points to his large compliance office of 30 legal and support officers, but one has to wonder about the priorities at the fund.
Actually, not much wonder is necessary. As Jesse Eisinger writes in an excellent essay in Thursday’s New York Times, few of SAC’s investors seem to care about the apparent ethical culture of laxity that surrounds his firm.
Astonishingly, investors don’t seem to mind terribly. They added as much as $1.6 billion in new capital to SAC’s flagship fund from 2010 to the end of 2011, when the insider trading investigation was in full bloom, according to Absolute Return, an industry trade publication.
At least some big institutions have begun to contemplate thinking about perhaps withdrawing money from Mr. Cohen. Congratulations. What took them so long? Citigroup’s private bank has told its clients not to put in new money, according to Bloomberg. What about getting their clients out? Why hasn’t bank given that advice before this?
The biggest, most sophisticated investors certainly put an enormous amount of pressure on hedge funds. But almost none of it is about ethics and clean culture. It’s about performance. A fund that runs a few ticks lower than its peers for several months running can get put out of business.
Many institutional investors have so perfected the art of looking the other way that they make bystanders on a New York City subway platform look like models of social responsibility.
The operating standard is to allow fund managers — or affiliated businesses or employees — to go as far as they can until the moment they are caught doing something wrong. Through their actions, Citigroup, Blackstone and the others are sending a message that they will forgive rotten ethics for great returns.
Eisinger asks the right question: At what point does “willful blindness turn to complicity”? It is hard to resist that basic conclusion.
While all these scandals were unfolding, I led a discussion on Monday evening about The Intellectual Origins of the Global Financial Crisis at the last great bookstore in New York City, Book Culture, up near Columbia University. We had a standing room only crowd and ran out of chairs (thank you all). The discussion featured excellent panelists, all of whom are contributors to the new book of the same name published by Fordham University Press and edited by myself and my colleague Taun Toay. The other panelists were Robyn Marasco, Paul Levy, and Vincent Mai.
One of the main issues raised was the sea change in values. In his contribution to the volume, Vincent Mai, former Chairman of AEA Investors and now of Cranemere LLC, writes:
The first thing is just a complete change in the values of the people who are in the financial community in Wall Street, and in the culture. And, as I said, it’s not to say that the people in my era were all angels and that they’re all devils today. But, having said that, there has been a huge cultural shift.
Mai tells that when he began
there was a set of ground rules that governed the way you did business that imposed a discipline that 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.
Paul Levy, Managing Director of JLL Partners, reminds us that good people work in business but he laments that these people are increasingly trained in narrow specialties and without the broad interests nurtured by excellent liberal arts educations. Levy writes,
I am no saint, but I can tell you that when I started my working careers as a corporate lawyer I wanted to be financially successful, although I did not have a firm view on how to get there.
Nowadays, Levy laments, college graduates make $150,000 per annum and quickly expect to make $300-$400,000 and soon more than $1 million. He writes: “Getting money has become the goal, instead of building the person.”
Robyn Marasco resisted the notion that greed is behind our current problems. Greed, she writes, is often good.
Moralizing against greed is no match for the realist recognition that what is often called greed—greed for life, greed for love, and greed for knowledge—is constitutive of human striving, what Spinoza called conatus, what Schopenhauer names the will to life, what Nietzsche terms the will to power. Greed is, indeed, good, if by it we mean a dynamic and energizing force that resists satisfaction in any particular object.
Our conversation touched on the moral hazard created by the lack of criminal sanctions on any of the main players in the financial crisis, something that the news summary from this week highlights. Above all, we spoke about the upending of values and the question of how to change or restore earlier values that have been lost. And, of course, we talked about Hannah Arendt.
Few thinkers saw more clearly than Arendt the connection between what Nietzsche called the devaluing of the highest values and what we today call global capitalism. Ethics requires setting limits to behavior and the political bodies that set such limits are the trustees of firms, city councils, state governments, and national legislatures. Whether these ethical limits are legal or moral, they establish common sense criteria about what is right and what is wrong.
Arendt sees that globalization—what she at the time understood as imperialism—is actually a political corollary of nihilism, the illegitimacy of all moral and political limits. If we as a people no longer feel sure that certain behavior is simply wrong, we will be willing increasingly to lower our ethical standards in order to compete with firms and nations that operate according to lower or different standards. There seems to be no ethical limits to the depths to which our companies will sink in the pursuit of profit; and profit becomes the only meaningful and objective criteria to judge success in a world in which all other values are relative and questionable.
Arendt’s insight into the intellectual origins of the rise of capitalist rationality is the impulse behind The Intellectual Origins of the Global Financial Crisis. The book grew out of the 2009 Hannah Arendt Center conference and its recent publication is as timely as ever. On this week of seemingly endless examples of corporate malfeasance, our new book is your weekend read.
--RB
The Humanity of Robots
The Wall Street Journal ran an interview this week with Luke Muehlhauser, the Executive Director of the Singularity Institute. The Journal asked: Will Artificial Intelligence Make us Obsolete? Muehlhauser's answer was, well yes. In his words:
Cognitive science has discovered that everything the human mind does is done by information processing and machines can do information processing too.
The first statement is clearly false, or at least depends on a strangely mixed up idea of "information processing." The old determinist canard that humans are simply complex machines has not been proven or discovered by cognitive science. And even if humans do process billions upon billions of bits of information it is not at all clear that such a humanly fallible process is reproducible. That is not the claim that cognitive science can make.
But cognitive science can claim that machines can be built that act in ways that are so like humans as to be almost nearly indistinguishable from them. Or, they can even be better than humans in doing many quintessentially human tasks. So machines can not only beat humans at chess, they can make moves that seem like moves only a human could have made, as Gary Kasparov learned to his dismay in the second game of his rematch with Deep Blue. Machines can create paintings that appear to be fully creative, as does Aaron, the painting machine created by artist and computer scientist Harold Cohen. And machines can increasingly make ethical decisions in warfare, as the robo-ethicist Ron Arkin has argued—decisions that are more humane than those made by human warriors.
Too much of the debate over artificial intelligence is caught up in the technical and really irrelevant question of whether machines can fully replicate human beings. The point is that if machines act "as if" they are human, or if they are capable of doing what humans do better than humans, we will gradually and continually allow machines to take over more and more of the basic human activities that make up our world. Already computers make most of the trades on Wall Street and computers are increasingly used in making medical diagnoses. Computers are being used to educate our children and write news stories. Caregivers for the elderly are being replaced by robotic companions. And David Levy, artificial intelligence researcher at the University of Maastricht in the Netherlands, argues that we will be marrying robots in the near future. It is not that these robotic lovers or artificial artists are human, but that they love and paint in ways that do or will soon pass the Turing test: they will be impossible to distinguish from human works.
Undoubtedly one reason machines are acting more human is that humans themselves are acting less so. As we interact more and more with machines, we begin to act predictably, repetitively, and less surprisingly. There is a convergence at foot, and it is the dehumanization of human beings as much as the humanization of robots that should be worrying us.
-RB
Destructive Criticism
Nikita Nelin continues his report of the Burning Man Festival in Nevada, 8/15/12-9/5/12. You can read his first post here.
“Art washed away the dust of everyday living.”
-Pablo Picasso
Here, on the Playa, you are covered in dust. “Playa,” is what this stretch of desert is referred to as. It is Spanish for “beach.” Someone thought it was funny. Maybe this is irony? Maybe a gesture to what is obviously missing? Maybe a metaphor to what has been created in its place. Either way, I like the sound of “Playa.” Here, you get a Playa name. There are few rules about the name except you cannot name yourself. “The Playa names you.” Here are no trash receptacles and yet there is no trash left behind. Here, you participate, you take stock, ownership, time. Here, you juxtapose the here to the there, and back again, just to see what can happen -- to see what remains when the dust is washed away.
I have been off of the Playa for less then 24 hours. I am in Circus Circus hotel in Reno. What more appropriate place to orient one's self. Hunter S. Thompson did it. I may as well steal that little bit. The Playa still feels like the here. The there is quite unclear to me right now. Here, in the circus, I can practice making time work again as an abstraction rather than a point of location. In the mean time here is a little something of what remains and what does not.
The ornate temple, filled with messages from loved ones to the departed. The forty foot man with his 60 foot base, stapled with an alpha symbol on one side and an omega symbol on the other, a nod to the theme of this years Burning Man (Fertility 2.0), and honoring the equilibrium of the genders. The smaller projects round the playa: a ten foot wooden head, with a cave and deck, decorated with Osho Zen pictures, and phrases of compassion; the glittering three letters of EGO, which from a far looks simple and gregarious but upon close encounter is revealed to be made from intricate carvings reaching towards the religious and sociocultural milieu; a brass, broken heart (I sat in it); a laser harp (I played it), a wooden hive which held space for sunrise tea ceremonies (I drank it). All of them, and more, I saw, and lived inside, and then I watched them burn. All those I experienced, I celebrated, and I acknowledged their passing -- all those except for one. The one I had worked on; Burn Wall Street.
My initial invitation here was as a reporter -- to work on, and write about the Burn Wall Street project. The project was the largest non-temple, non-Man, Playa built to-date. Two city blocks. Five buildings. Two weeks on site to put the walls together, and up. It was first meant to make a statement and to encourage unity. The mock approach, to build buildings with names like “Bank of unAmerica,” “Goldman Sucks,” “Merrill Lynched,” “Chaos Manhattan,” you get the picture. The idea was to unite through outrage. Otto Von Danger stated clearly, “the Tea Party and Occupy are getting [worked over] by the same enemy.”
Yet, once they finally burned I did not celebrate. I felt no sense of relief or unity. I just saw buildings burning. Fire in windows. And as much as I wanted to feel a sense of completion or inspiration, I just kept coming back to those windows, and the idea of people. This is not an easy entry for me. I want to tell you about everything beautiful I saw, all the unity, all the dimensions of gratitude -- a chaos so gifted and dense that it approaches the image of the divine, a vision of what Burning Man approaches for me. But first I have to tell you about irony, anarchy and terrorism.
I arrived to Reno on a Wednesday. A guest of Joe Olivier, a brilliant engineer who became involved with Burning Man in 2001 and has since been a central player in the development of the event. This year Joe (a.k.a. Exact Lee) committed to the Burn Wall Street project. Like me, he was impressed with the scale of the installation and the potential of its resonance. If we consider Burning Man to be space created for the creative engineering of the human experience, who better then an engineer to be central in its evolution.
This concept of engineering (of experience, of environment, of society) is key here, and something I want to return to in a future post. Burning Man is both a test lab, and a sample of society. When we begin to extrapolate we begin to see this act of “engineering” in every facet of our regular world. Similarly, the identification of everything built on the Playa as an “installation,” has reach into the regular world. All is an installation, in one part because it is intent with creating an experience, and in another, because it is acknowledged as impermanent (remember, everything burns). No wonder I felt so disoriented once I left the playa and drove into Reno yesterday. I was reentering the familiar, and yet I continued relating to everything I saw as an installation (a patch of grass, which I had not seen in almost three weeks, a stream with trees and a canopy, the bright outlines of Reno’s casino center, the Wal-Mart installation, the curved golden arches, of a fast food joint, etc...). Could we, in fact, be engineering our society, removed from the words of Ozymandias? What is our creative intention? What experience are we burning to facilitate?
Back to the story.
After a day spent in Reno, Joe drove me into the desert. It was a surreal site. At the time there was only the base of The Man, the outline of the Temple, and the BWS territory. Otherwise just the cracked white desert floor and dust storms. I made introductions, helped fetch some water, and fell asleep.
I was awoken at 6 a.m. to the sound of someone yelling through a bullhorn. “Get up, mother fuckers, up, up, up.” I put on my goggles and bandana (both necessary for protection from the dust storms) and went out to find my place. It would not have been enough to just watch. If I was to understand anything, if I was to have something to write about, I had be involved, to participate (for a definition of “participate” please reference my earlier post).
Here is the thing, it is quite awe inspiring how quickly we can assimilate to the demands of our conditions. Scorching sun, one plate, one spoon, one cup, dust storms and 16 hour workdays, become normalcy rather quickly. We can even become accustomed to a type of chaos, a disorder of environment and circumstance, a certain disorganization. Such chaos breeds surprise and even serendipity. You are in a desert. You are thirsty, exhausted. Someone wanders by with gatorade and sits down to tell you their story. How they got there. It is something akin to the sense of deja vu.
My first day, I painted some, I butchered chicken carcasses without gloves, and then I landed on a build crew. Mind you, despite the wishes of my Russian father I have never had to build anything. I barely knew how to use a screw gun. Aren’t there special angles for optimal hold?
I spend the next nine days helping to build. No one was prepared. The build was run by two former military men whose idea of leadership was the application of pressure. The problem was that we were behind schedule and the original designs were not holding up well in the environment, and we had five buildings to put together. Oh, yeah, and there were only two real carpenters on crew.
The crew consisted of three classes. There were the war veterans who had joined the project either out of anger at our political system or out of their loyalty to Otto Von Danger (the artist behind the project, a staple name at Burning Man and a veteran suffering from Gulf War syndrome). There were the wanderers who wanted a ticket into Burning Man, and thus joined the project. And there were the professionals who through some strange chain of events ended up at 10 o’clock on the playa (the Playa is designed as a clock with the Man as the central point, and all distance is measured by time): a teacher, painter, and women's rights activist from Reno who ultimately began to function as a leader of a wall-build crew; a former brew master from the midwest who had been laid off without cause some months before and stumbled upon an ad for Burn Wall Street on the internet; a former ad man for a legal firm who had also been laid off some months before the build; a mother of two from Michigan who had lost her home some months before; among others... 
This last group fascinated me most. For them the projects' ideals communicated directly the experiences of their everyday lives. They were there with a purpose. BWS could be a voice to their outrage. They were the last to leave the build. When others began to abandon the site, me included, these were the people that held it together, these were the people we who fled felt guilty towards.
As the project deteriorated the morning bullhorn became meaner and more demanding. A meeting would be held in the morning. There would be threats: those who tried to leave the site would be “thrown off the playa.” Then the bullhorns would disappear. They would reemerge through out the day to monitor the progress, or the lack-thereof, and then again would be gone.
Decisions were made. Some walls had to be deconstructed as we had been putting them together in a way that could not hold up. Put together, take apart, rinse, repeat. “We had built and taken this thing apart twice already,” someone remarked.
Two of buildings were to be cut a floor short. Graffiti art was to be sacrificed (the graffiti artist having been, um, “thrown off the playa.” He was now sitting in a jail outside of Reno having been busted for hitchhiking). Construction would grind to a halt as either the winds were too harsh for the cranes, or another meeting of the red and blue hats was called (1 green, 4 red, 8 blue, and 50 white, is how you knew your place). The crews would huddle down for cover in front of the wall corners that had been built but were yet to be hoisted up to be made into buildings, drink water, smoke, eat granola bars. The playa was littered with them, the corners. In their own right the corners had become an installation. An interactive maze in which everyone got lost. Kind of pretty, almost. Chaos. Send someone out for more nails, lost. Send someone out for a drill, which were always lacking, lost. Send someone out for extra muscle, lost.
I am told that each Burning Man build takes on the aura of the idea that bore it. Each person who has worked on the temple reports it to be a transcendent experience. An overwhelming challenge of deliberation and connectivity. The Man Crew reports cohesion and pride. They build the symbol of the city, the structure that due to its size and positioning will help orient the 60,000 participants round the Playa . Burn Wall Street became a collision of disorganization, ego, and faithlessness. Even those who despite the stumbling blocks continued to trudge forward could not inspire the rest of us to follow. The rest of us chose self preservation instead. The concept did not hold together. The ones in charge became the embodiment of what the project was meant to mock.
Ultimately, what was needed was built. The rest, the corners never to be hoisted up, were salvaged as wind blocks for various camps. Carpenters from the Department of Public Works (DPW) showed up as a favor to Exact Lee, and did what we were failing to do -- work together. They are specialists in this, sort of like the special ops of Black Rock City.
It was a Saturday. I had been there for eleven days and the event itself was to begin on Sunday. My girlfriend was due to arrive that day and the last thing I intended to do was enter the event, the celebration phase in that special state of disaster that BWS had brought out in me. People all over were setting up camps. The night before I had moved away from the project and entered my camp. I was determined to get ready for the next phase of this experience, having in part been counseled by some Burning Man veterans from my camp to step away from BWS before it ruins my first BM experience. After all, I was here to report on all of it, not just the anarchy at ten o’clock.
Yet, that day I continued to make runs from the camp area to BWS. In an art car, a converted F-350 that looked like a wooden tank with the turret missing, I ran breakfast and lunch out to the build (the bus with the stove having already been driven into the camp area previous night). I had also been charged by Joe to offer up rides to anyone needing to leave the site and build their camp. I like to think I was evacuating people, providing a route of transition.
The final vision of the construction was a monstrosity. Burn Wall Street was the ugliest installation on the project; in this it was a success. It was not meant to be beautiful. So askew was it from the other carefully crafted designs of the Playa -- the magic, white polished wood, curved, ornate, awe and wonder inspiring, carefully thought out and nurtured pieces all over the clock of the city -- that Burn Wall Street called attention to itself by its “outofplaceness.” It was a game of “what does not belong?” Yet, an odd trick of perspective made it so that many people did not immediately notice the two-block structure disturbing the sky. As they arrived, their eyes, yet to adjust to this carefully intentioned landscape, overlooked the ugly and unintentioned. And this calls into question the perspective of everyday. How is it that we have allowed ourselves to become so accustomed to the monstrosities in our vision? Why, have we so easily accepted the most dysfunctional structures of our everyday life? Could it be that we participate not only by building, but also by accepting what we see?
Burn Wall Street was due to burn on Friday. The smaller projects would burn on Thursday. The Man would Burn on Saturday and the Temple on Sunday. All of Friday a skeleton crew of volunteers held the demolition perimeter around the site. A number of the original volunteers were still there, to the end. The highlight of the project was to be the controlled burn and the fireworks/demolition/TNT of Burn Wall Street. Yet, the winds, and concern from the safety authorities of Black Rock City dictated a postponement of the Burn. Burn Wall Street would Burn on Saturday, after the Man.
Irony, it ended up upstaging The Man. Irony, it became what it rebelled against, it swallowed all kind intentions. It became a war zone; maybe we create what we know. Is that a lesson? Too cliche; too tired.
Friday a new perimeter was created. To the disappointment of the artist the explosives would have to be canceled. He would have to be satisfied with simply burning something.
I am told that on Saturday, as volunteers took their places again around the perimeter, Otto Von Danger, and his chief lieutenant, showed up on site with a meal they had prepared with their own hands. Do we identify “this” as irony, submission, redemption, at last an invitation of all parties to the table?
At 1 a.m., on Saturday morning, I watched Wall Street burn. Following the euphoria of the Man burn -- a celebration of something, a cumulative acknowledgement to the culture created and its transiency -- Burn Wall Street felt like the death of something. There was no gratitude, no closure, no more dialogue.
Someone asked me, “why not have built the buildings upside down?” Why not? That would have made it art. That would have made the burn more about statement then destruction. That would have been a conversation. No. I saw buildings burn. I saw horror. Before the fire started, the buildings, with their windows lacking glass or any other sign of life and care, still seemed a bit abstract to me, like toys. But filled with fire, like rows and rows of odd teeth missing, their crevices aflame, I thought of life. I thought of New York. I saw people in those windows. To me, this became a vision of anarchy and a metaphor for terrorism. And for that I am grateful because it crystalized something that my humanist roots have been suggesting all along.
Ultimately, if we are to have a conversation about change, there must be room at the table for everyone -- a chance for every story.
Our society is failing. The theory of our being has broken down. We are approaching the state of chaos, an opportunity for building something. Not entirely doing away with, but regrouping on what we have, and setting about with a new intention. Mocking, belittling, only affirms fear -- it creates the enemy, and it silences.
What Burning Man, what the Playa, the beach, this small social experiment, this slice of life teaches me is that the dust of everyday living, a harsh rock, a desert, an opportunity -- not to be escaped from, but built upon.
-Nikita Nelin
P.S. I now know how to build a square house. Father would be happy.
The Fecundity of the Unexpected
Readers of the Hannah Arendt Center blog are well acquainted with the pension train wreck that is heading our way. It is not only public union pensions but also those corporate pensions that still guarantee defined benefits that are radically underfunded. And what hides the immensity of the problem is continued unrealistic assumptions about long-term future returns.
As was reported recently, Maryland—to take just one example—continues to assume a 7.75% annual return on its public pensions, which is even higher than the 6.6% 100 year historical average on stock returns.
While there is blame to go around—including feckless politicians and Wall Street hucksterism—the root of the problem may be a general unwillingness on all sides to realize that the last 100 years may have been an aberration. This is the argument that legendary investor Bill Gross makes in a report he sent to PIMCO clients this week.
Gross takes aim at the oft-repeated "truth" that over time stocks will return a real return of 6.6%. He argues that the returns over the last century were predicated on a Ponzi scheme, giving extra returns to shareholders at the expense of laborers (declining real wages) and government (declining real taxes). As those trends reach their limits, it is inevitable, Gross writes, that real returns must decline as well:
The legitimate question that market analysts, government forecasters and pension consultants should answer is how that 6.6% real return can possibly be duplicated in the future given today’s initial conditions which historically have never been more favorable for corporate profits. If labor and indeed government must demand some recompense for the four decade’s long downward tilting teeter-totter of wealth creation, and if GDP growth itself is slowing significantly due to deleveraging in a New Normal economy, then how can stocks appreciate at 6.6% real? They cannot, absent a productivity miracle that resembles Apple’s wizardry.
And it is not only stocks that will suffer. With treasuries yielding 2.55% (less than inflation), it is increasingly unlikely that long term bonds will provide meaningful returns. The sad result:
Together then, a presumed 2% return for bonds and an historically low percentage nominal return for stocks – call it 4%, when combined in a diversified portfolio produce a nominal return of 3% and an expected inflation adjusted return near zero. The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.
The consequence of these reduced expectations for public and private pension funds (and also for retirees with 401k plans that assume healthy investment returns) are dire. Simply put, throughout society, we are living beyond our means. We are in denial and continuing to make unrealistic investment assumptions. Gross draws the inevitable lesson for pension plans:
Private pension funds, government budgets and household savings balances have in many cases been predicated and justified on the basis of 7–8% minimum asset appreciation annually. One of the country’s largest state pension funds for instance recently assumed that its diversified portfolio would appreciate at a real rate of 4.75%. Assuming a goodly portion of that is in bonds yielding at 1–2% real, then stocks must do some very heavy lifting at 7–8% after adjusting for inflation. That is unlikely. If/when that does not happen, then the economy’s wheels start spinning like a two-wheel-drive sedan on a sandy beach. Instead of thrusting forward, spending patterns flatline or reverse; instead of thriving, a growing number of households and corporations experience a haircut of wealth and/or default; instead of returning to old norms, economies begin to resemble the lost decades of Japan.
We should applaud Gross for saying what many of us suspect: that the efforts of technocrats who populate pension plans to predict future returns is unpredictable at best and more likely subject to rosy biases. And yet even Gross then goes on to assume the tone of an all-knowing sage, something that seems de rigueur for public commentators today. We will solve the problem, Gross assures us, by turning to inflation.
Maybe Gross is right. But whatever the future holds, we must first confront the fact that as things now stand, we face a collective reduction in our wealth. How we respond to the reality of that threat will define the United States in coming generations. Either we can continue to insist that we are a wealthy nation and go on spending and living as if nothing had changed, or we can adjust our expectations downward.
Or we can somehow seek to unleash new forces of wealth creation that would generate the kind of economic growth and social and economic change that will lead to unexpected transformations in who we are.
We should neither take Bill Gross' prognostications as prophecy nor deny the reality he describes. Gross offers merely a hypothesis about the future, something far different from a fact. We do not have an adequate understanding of human nature and human economy to predict the GDP for this year, let alone for 2030. Human spontaneity, chance, and freedom mean that predictions of the future are simply calculations based upon the assumption that such and such will happen if men act rationally and nothing unexpected happens. In such cases it is helpful to recall Pierre-Joseph Proudhon's remark (loved by Hannah Arendt) that "the fecundity of the unexpected far exceeds the statesman's prudence."
Read more from Bill Gross here. You can also read more on Pensions as Ponzi schemes here and here.
-RB
*This post originally appeared yesterday on Via Media.
Ryan Lizza Asks: Does the President Matter?
Ryan Lizza has a must-read essay in The New Yorker on the challenges of presidential leadership. The first thing to note is that when Lizza began asking President Obama's team about their vision for what they want to accomplish in a second term, they hesitated to answer. "Many White House officials were reluctant to discuss a second term; they are focused more on the campaign than on what comes after." When pressed, Obama's team offered a litany of hopes for a second term, including: climate control, immigration reform, and a more robust foreign aid agenda. Also mentioned are housing reform and energy reform. While these are all important, they aren't what really ails the country. The American system of government is paralyzed. Corruption is becoming rampant on Wall Street and K Street. Our pension system is underfunded. Unemployment and underemployment are dangerously high and there are structural changes to the economy that require bold leadership.
The question raised is what leadership is and why it is so difficult in contemporary politics. Here is Lizza on one example of Obama's unwillingness to pursue his own agenda:
In 2010, Obama negotiated a new Strategic Arms Reduction Treaty with the Russians and won its passage in the Senate. But, despite his promise to “immediately and aggressively” ratify the C.N.T.B.T., he never submitted it for ratification. As James Mann writes in “The Obamians,” his forthcoming book on Obama’s foreign policy, “The Obama administration crouched, unwilling to risk controversy and a Senate fight for a cause that the President, in his Prague speech, had endorsed and had promised to push quickly and vigorously.” As with climate change, Obama’s early rhetoric and idealism met the reality of Washington politics and his reluctance to confront Congress.
Lizza explores the incredible difficulties recent Presidents have faced in pursuing their agendas. One takeaway is that the idea of a presidential mandate is a myth.
•"The idea of a mandate from the people defies the intentions of the Founders and is contrary to the way that most early Presidents viewed their role."
•"The concept of a mandate was essentially invented by Andrew Jackson, who first popularized the notion that the President “is the direct representative of the American people,” and it was later institutionalized by Woodrow Wilson, who explicitly wanted the American government to be like the more responsive parliamentary system of the United Kingdom."
•"But the idea [of the mandate] is mostly a myth. The President and Congress are equal, and when Presidents misinterpret election results—especially in re-elections—they get into trouble."
Lizza argues that Presidents don't have the importance or authority that they claim and we ascribe to them. And yet, there are exceptions.
The last two presidents who successfully amassed large majorities to pass transformative legislation were Lyndon Johnson and Ronald Reagan. What unites Johnson and Reagan—different in temperament and politics—was an uncanny quality of leadership. They were able to bring opposing sides together to accomplish grand and important visions. It is just such political leadership that we desperately need and clearly lack today.
Is such leadership possible anymore? When one looks to politics and sees that unyielding partisanship, consultant-driven talking points, and PR campaigns, one must wonder if a President can actually lead. Whether in Europe or in the US, it seems as if leaders are on strike, only acting when they absolutely have to. It is not simply a matter of lacking vision, although it is that too. More, it is that leaders are so careful and pre-packaged that politics has come to be more about marketing than about thinking and action.
Politics, Hannah Arendt argued, requires courage. It demands a risky and rare willingness to experiment and seek to bring about new directions in the world. To act politically demands doing things that are spontaneous and new; politics requires actions that are surprising and thus attract attention and generate interest, drawing people together around a common idea. Arendt's point was that a political leader can only attract citizens to their vision when they act in ways that are surprising and noteworthy. The political leader must take the risk of leadership that can either succeed or fail. When it succeeds, the surprising and new act generates enthusiasm and followers. When it fails, the people reject it.
Leaders are those who take risks and are willing to fail. To look at Mitt Romney and President Obama is to see what happens when leaders are afraid to lose. We must now confront the fact that the need to raise money and the rise of consultants and the dominance of public relations has sapped politics of the spontaneity, thoughtfulness, and fun that can and should be at the center of political action.
How can we today resuscitate a political culture of risk-taking and leadership? How can we make the president matter again? Do Occupy Wall Street and the rise of the Pirate Parties in Europe presage a new style of political leadership? These are important questions, and will be the topics of the Hannah Arendt Center's Fifth Annual Conference: Does the President Matter? The Arendt Center Conference will take place on Sept. 21-22, 2012 and will feature Keynotes by Ralph Nader, Bernard Kouchner, Rick Falkvinge, and Jeff Tulis. It also features talks by John and James Zogby, Todd Gitlin, Ann Norton, and many others. We hope you will join us.
-RB
The Best and the Brightest
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.
-RB
Moral Leadership and the New Era of Responsibility
I had the pleasure of discussing and debating at a Hannah Arendt Center event last night with John Cassidy, staff writer of The New Yorker and author of How markets fail : the logic of economic calamities as well as Dot.con : the greatest story ever sold. The topic was the presidential election.
I asked Cassidy about Matt Taibbi's recent comment that Obama was going to win the election easily. Actually, Taibbi's phrasing was more colorful:
But this campaign, relatively speaking, will not be fierce or hotly contested. Instead it'll be disappointing, embarrassing, and over very quickly, like a hand job in a Bangkok bathhouse. And everybody knows it. It's just impossible to take Mitt Romney seriously as a presidential candidate.
The view that Obama will cruise to victory is widespread. Cassidy largely affirmed it, although he rightly said that much depends on the continued economic recovery. If the economy turns south again, that plays into Romney's claim that he as a businessman is better able to right the ship of commerce.
I am no prognosticator. I think the election will be quite close and do not think Obama will win in a landslide. But where I really differ with Cassidy and Taibbi is over the question of whether Romney is an interesting candidate and on what he is running. To my mind, this election will be decided less on policy and social issues and more around a moral debate. It is here that Romney becomes interesting.
The President of the United States is not first and foremost a policy maker. He (or she one day) is the moral leader of the nation. FDR knew this well. As he once said:
The Presidency is preeminently a place of moral leadership. All our great Presidents were leaders of thought at times when certain historic ideas in the life of the nation had to be clarified.
The United States is at an inflection point. The 20th century has had three great presidential moments. In the 1930s, amidst the depression, FDR led the country down a new path and helped create the modern welfare state. In the 1950's, Eisenhower, a Republican, did not seek to roll back the New Deal and confirmed the new direction of the nation. Ronald Reagan's presidency was the beginning of an effort to resist the welfare state. We are now in a strange limbo, where much of the country has embraced the conservative credo while still remaining addicted to and desirous of their particular welfare perks. This is an untenable situation in the long run.
Obama is a defender of the status quo, but his defense is timid and pragmatic. He doesn't really believe in the welfare state as a moral good so much as a pragmatic necessity. It is all about budgets and saving money and rational arguments. We must, he tells us, spend now so that we can cut later. What will we cut later? Does he believe that everyone should have a pension in addition to social security? Should Wall Street bankers have received bonuses in 2009 after they were bailed out by taxpayers? Should they have been fired? Should public pensions be honored or cut? Should we have unlimited taxpayer supported healthcare after we retire at 63 or 65 and then live for decades afterward? Should people who bought homes they can't afford be given new mortgages so that they can stay in their homes? On all of these questions, the President has offered technocratic answers rather than moral visions. Amidst an economic but also a moral crisis, the President has not been a leader.
If Romney wins the election, it will not be because he has better jobs policies or economic policies. It will be because people see in him a leader. His one strength, whatever you think of him personally or politically, is his history of leadership. He did build one of the largest and most successful private companies in the United States. He did win the governorship of one of the country's most liberal states and govern effectively with democratic legislators. And he did take over a failing Olympic Games in Salt Lake City and made it a success. People downplay these accomplishments and say there is no evidence he can lead as President. That is of course true. But the promise that he can lead is the key to Romney's appeal.
On one level, this is an election between two pragmatic, centrist, technocrats. They differ on much and most deeply on social issues. They also differ on taxes (especially on taxing the wealthiest amongst us). These are important differences. But most people do not vote on policy.
The election will be decided on who makes the better claim to being able to lead the country. Obama is still searching for his theme and what he wants to accomplish. He of course is a deeply intelligent and moral man. On social issues, he can be a leader, as his endorsement (finally) of same-sex marriage proves. But the election will not likely be decided on social issues.
So what is the moral issue at stake in this election? It is clear. Romney and the Republicans are saying: we have spent too much, taken on too much debt, and lived beyond our means. Government programs, however well meaning, have not made us better off. We need to retrench. Romney has defended a very minimal welfare state to stop people from starving, but he clearly doesn't have much sympathy for people who are poor, unemployed, and homeless. His moral promise is a return to an America of individualism that promotes success and tolerates failure. It is a moral vision that galls many liberals and even some conservatives, and yet it clearly has enthralled many Tea Party enthusiasts around the nation.
Obama's moral issue is, thus far, fairness and inequality. It is simply wrong and unfair that the very wealthy are paying so little in taxes while the middle class is struggling. And he is undoubtedly right. But a Buffet Rule, as justified as it surely is, is too small an idea to build a campaign around. Obama is hemmed in by his own unwillingness to moralize the economy. He will not take on the wealthy, and his instincts are to work with Wall Street, not against them and to value individual responsibility over government support. He is simply constitutionally unable to take a populist tack. He cannot give the speech FDR gave in 1936 where FDR said:
We had to struggle with the old enemies of peace: business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me – and I welcome their hatred.
So if Obama is not going to become a populist, what option is left?
Over three years ago in his inaugural address, Obama called for a "new era of responsibility." He talked about shared sacrifice. He talked about living within our means and admitting that we were living beyond ourselves. He said:
Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends -- honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism -- these things are old. These things are true. They have been the quiet force of progress throughout our history.
What is demanded, then, is a return to these truths. What is required of us now is a new era of responsibility -- a recognition on the part of every American that we have duties to ourselves, our nation and the world; duties that we do not grudgingly accept, but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task.
This is the price and the promise of citizenship. This is the source of our confidence -- the knowledge that God calls on us to shape an uncertain destiny. This is the meaning of our liberty and our creed, why men and women and children of every race and every faith can join in celebration across this magnificent mall; and why a man whose father less than 60 years ago might not have been served in a local restaurant can now stand before you to take a most sacred oath. (Applause.)
His inauguration is the last time that Obama really set out a far-reaching moral argument that responds to the economic crisis and the crises of our times. The vision he then hinted at was one of shared sacrifice towards a renewal of American values. One that admitted with the Republicans that we had promised ourselves too much, had lived beyond our means, and had become too entitled in our expectations. It was a vision that returned an ethic of work and grit, but also one that affirmed American ideals of fairness and justice.
It is the vision that most Americans seemingly affirm, that involves both a pullback of entitlement programs and a progressive increase in taxes. It is a moral vision of common sense. It may be too late for President Obama to embrace that vision again. And yet a meaningful articulation of a new era of responsibility is, quite possibly, the path to a vision of moral leadership open to the President.
It is worth taking a look back at Obama's inaugural speech. It is your weekend read.
-RB
Note: Matt Taibbi is a Bard graduate ('92.)
The End of Democracy in Detroit?
It was Winston Churchill who said that democracy was the worst form of government, except for all the others. We have been living in passive agreement with Churchill's witticism for half a century. But slowly, harrowingly, fatalistically, people around the world are giving up on democracy.
Greece, the birthplace of democracy, and Italy (well, it's Italy) are now both governed by unelected technocratic governments charged with carrying out austerity programs that democratically elected leaders would not or could not bring about.
According to Gillian Tett, the Financial Times columnist, "the situation calls for very firm, forward-looking action that is almost impossible in a rowdy democratic political system at the moment." Tett is not alone in seeing the failure of democratic leadership in crises and the inability of democratic politicians to allocate pain and sacrifice amongst their constituents.
We in the United States are showing a similar predilection to trade democracy for technocratic management. Michigan is at the forefront of this trend. Governor Rick Snyder has been aggressive in appointing emergency managers to take control of city finances. In Pontiac, Flint, Benton Harbor and other Michigan cities, the mayors and town councils have been fired and rendered obsolete, replaced by a manager appointed by the governor.
In New York, Nassau County is now under the rule of an "oversight board" that controls its budget and finances. In Michigan, financial managers have the power to void labor contracts, privatize public services, and dismiss elected officials. These managers serve at the will of the governor, but they have no set term.
Tomorrow we may learn whether Detroit, Michigan's biggest and once proudest city, will also succumb to an emergency manager. The only alternative, it seems, is a consent decree with the State that will turn the city over to a manager jointly selected by the city and the state from a slate of candidates approved by the governor. The problem, once again, is that democratic governments have simply been unable to make the hard decisions needed. The result is that Detroit is bankrupt and in need of a state bailout and the state is treating Detroit like the spoiled child it is, just as the European Union treats Greece and Italy. Money will come, but only if the children agree to be treated like children.
I can only point out so many times that Wall Street bankers also acted like spoiled children, but they received their bailouts and undeserved bonuses without the demeaning financial oversight. Hypocrisy, however, is not an argument for or against such oversight, even if it does reveal that there are issues beyond simple economic calculation at play. In Europe, there are prejudices against the laziness of southern peoples, and here in the U.S. racial prejudices are no doubt active, as can be seen by one commentator's likening Detroit's citizens to addicts:
As those of us in surrounding communities watch the ongoing tragedy unfolding in Detroit, we really need to hope that this once great city can stop its decline, and begin to recover. But just like with an alcoholic, the city's so-called leaders must first admit they have a problem, and that they are unable to fix it on their own. Unfortunately, they do not appear to have reached that point yet. I guess a nice way of putting it would be to say that they are in denial.
Patronizing rhetoric aside, the basic problem is that the people of Detroit—like the people of Greece and Italy—are unwilling to govern themselves and are welcoming technocrats to take over that task. We witness once again how easily people will abandon democratic freedoms for the promise of a bailout. The current argument in Detroit is less about whether to give up self-government—a foregone conclusion—but how much money Detroit can extract in the deal for doing so.
The Romans had a provision in their law for the appointment of a dictator during emergencies, especially at war. A dictator, as Andreas Kalyvas reminds us, was not a tyrant. A dictator in Roman law was a 'temporary tyranny by consent' while a tyrant was a 'permanent dictator.' The Roman Republic recognized that crises required decisive action that a sprawling democracy was frequently unable to muster. The dictator was not illegal, but was a constitutionally approved office that was appointed for a set term, after which time power would revert back to the people. In other words, a dictator was a constitutionally regulated and democratically agreed upon safety valve for the failures of democracy.
Modern democracies have largely avoided such emergency powers, and for good reasons. It seems, however, that such resistance is fading. Will it be until we have no choice but to appoint an emergency financial manager to do the job we won't do for ourselves? But then again, who would appoint such a person?
For Hannah Arendt, this was and remains a crucial question. For human beings are political beings who actualize their freedom in public action with others. The entire premise of what Arendt once called the "dictatorial intervention" is to replace politics with the temporary tyranny of the educator. It is to admit our immaturity and call for a tyrant who will treat us as children. And yet that is, precisely, what it seems we want.
-RB
Is Economic Inequality Becoming a Problem for Americans?
Is economic inequality becoming a problem for Americans? The common sense today is that OWS has put inequality on the agenda today in a way that is new in American politics. And today Eduardo Porter makes the argument that OWS is having some traction on the question of income inequality. While Americans traditionally are tolerant of inequality, that may be changing.
Our tolerance for a widening income gap may be ebbing, however. Since Occupy Wall Street and kindred movements highlighted the issue, the chasm between the rich and ordinary workers has become a crucial talking point in the Democratic Party’s arsenal. In a speech in Osawatomie, Kan., last December, President Obama underscored how “the rungs of the ladder of opportunity had grown farther and farther apart, and the middle class has shrunk.”
There are signs that the political strategy has traction. Inequality isn’t quite the top priority of voters: only 17 percent of Americans think it is extremely important for the government to try to reduce income and wealth inequality, according to a Gallup survey last November. That is about half the share that said reigniting economic growth was crucial.
Seventeen percent seem a low number of citizens concerned about inequality, but looking deeper, Porter argues that attitudes are changing.
A slightly different question indicates views have changed: 29 percent said it was extremely important for the government to increase equality of opportunity. More significant, 41 percent said that there was not much opportunity in America, up from 17 percent in 1998.
Statistics on income mobility are notoriously hard to measure and contested, but the surveys indicate that optimistic Americans are losing that sense of mobility and possibility. Even if people can and do often earn more than their parents, the vast rifts opening up between rich and middle class means that increasingly Americans live in different worlds. These vast divisions are now seen as a problem not only by liberals, but also by conservatives like Charles Murray, whose book Coming Apart bemoans the loss of a common sense of American values. There is a way in which the truly extraordinary gaps in income are unraveling the social contract that holds the country together.
In other words, even for those who are accepting of inequality and who believe in a meritocracy, excessive inequality cannot be justified. As Porter writes:
One doesn’t have to believe in equality to be concerned about these trends. Once inequality becomes very acute, it breeds resentment and political instability, eroding the legitimacy of democratic institutions. It can produce political polarization and gridlock, splitting the political system between haves and have-nots, making it more difficult for governments to address imbalances and respond to brewing crises. That too can undermine economic growth, let alone democracy.
Read more here.
-RB
Pension Ponzis: Questions About the Public Interest
The public pension crisis is eroding the American social contract. While many are up in arms against Governor Scott Walker's heavy-handed attack on public unions, the fact is that Democratic governors in NY and California are also struggling with the inevitable need to reduce public pensions. Governor Jerry Brown in California admitted recently that public pensions were a Ponzi scheme. That is obvious. What is now sinking in as reality is that the Ponzi scheme is out of money and falling apart.
The Pew Center on the States published a study in 2011 called the Trillion Dollar Gap. The first sentence states the point:
$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.
A mere one year later, the gap had increased 26%!
The gap between the promises states have made for public employees’ retirement benefits and the money set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009-a 26 percent increase in one year-according to a Pew report.
The gap is actually much bigger than the Pew Center numbers suggest, since the report is based on the official numbers that use way too optimistic expectations of returns.
The Pew Center Report continues, stating the reason this matters so much:
Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher taxes or cuts in essential public services.
Municipal bankruptcies are mounting. Prichard, Alabama and Central Falls, Rhode Island both filed for bankruptcy, and they have had to vastly reduce the pensions promised to their public employees. The city of Stockton, California is in bankruptcy court now, and it must pay $30 million every year in pension costs, even as it only sets aside .70 cents for every dollar it must pay.
The crisis is spiraling. In essence, cities and states around the country will have to decide whether to honor their legal debts to public employees or pay for services like police, fire, and parks needed by their current residents. The only other option is a bailout from the federal government, but the size of the problem is enormous and such a bailout seems highly unlikely.
In the meantime, states continue to juggle money around to keep the Ponzi scheme going. Just this month New York State decided to let municipalities and public entities borrow money from the state pension fund to make their payments back into the state pension fund. This is nonsense. Dangerous nonsense.
And while New York State did finally pass a version of pension reform last week, the reform falls far short of what Governor Cuomo wanted and what is needed. The Assembly raised the retirement age for public employees (not for policeman and firemen) to 63 from 62, whereas Cuomo sensibly asked it be raised to 65. As it stands now, the New York State pension plan is expected to consume 35 percent of the New York State's budget by 2015. This is up from a mere 3% in 2001. More.
For anyone who cares about government and wants government to succeed, the pension problem must be addressed, for it threatens not only economic disaster, but political cynicism beyond even today's wildest dreams. Across the country, teachers, policemen and firemen, not to mention civil service employees and others, will see their promised pensions shrink precipitously. Not only will this devastate retirement nest eggs for millions of people, it will fray the social contract—pitting young against old and taxpayers against public employees.
It is bad enough that we will have to renege on pensions owed to public service employees (as municipalities in Rhode Island, Alabama, and California are already doing), but it is worse that we will do so after bailing out Wall St. bankers and allowing taxpayers to pay their contractually-obligated bloated bonuses. That these seven-figure bonuses were paid and yet we are unable and unwilling to pay contractually obligated pension costs is both a fact and an example of why the bailout of the bankers was so deeply wrong and misguided.
The issues around public pensions are complicated. They involve contractual promises made to workers that simply cannot be honored as well as pitting public servants against everyday taxpayers. There is also the fact that public employees are paid significantly more than similarly educated private employees at all but the highest levels of income and education. A recent Congressional Budget Office study concluded that:
- Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.
- Average benefits for federal workers whose education ended in a bachelor's degree were 46 percent higher than for similar workers in the private sector.
- Workers with a professional degree or doctorate received roughly the same level of average benefits in both sectors.
The CBO chart below shows clearly the relative overcompensation of public workers against their private-sector counterparts. While one could turn this around and argue that private-sector workers are underpaid, the fact is that the current level of benefits for public-sector workers is bankrupting our municipalities and states. We can argue all we want about what is fair pay, but the current pay levels are clearly unsustainable. More, they are threatening to devastate public services as we continue to cut services in order to pay outsized benefits to retired public-sector workers.
Do public employees deserve to make more than private employees? Should we say that someone teaching in public schools deserves more than one teaching in private schools? For some, the answer is yes and there is a sense that it is more noble and thus valuable to serve in the public interest. Some might even turn to Hannah Arendt to justify such a claim, that a public-service career is more public-spirited and thus more socially valuable than a private-service career.
As much as I value public-sector employees, it is a mistake to put them on a pedestal. It is unclear whether most public employees are more public-spirited than their private-sector counterparts. It is also unclear whether public school teachers and professors are better, more important, or more noble than their private school counterparts.
What is clear, however, is that public employees have a private interest in taking more and more of the taxpayer-generated revenue for themselves. In other words, public employees have a private interest in diverting public funds from public services to their wages and pensions. In this sense, the increasing numbers of public employees and their increasing wages and benefits threaten to hollow out public services in our country.
This is not to condemn public employees. Nor is it to deny that at the higher incomes, wealthy Americans should pay more in taxes to support governmental services. But we should be honest and contest the prejudice that public employees have the public interest at heart. And we need to have an adult debate about what to do about underfunded and ballooning public pensions.
-RB
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
The Commonality of Occupy Wall Street & the Tea Party
Are the Tea Party and Occupy Wall Street part of the same phenomenon? Both are populist responses to increasingly out of touch political, business, and intellectual elites. Many on the left point out that the Tea Party is predominantly white and older. That is true. And yet these privileged, older, white people feel they are losing control of their country. They are resentful. Many on the right point out that the Occupy Wall Street movement is largely made up of privileged liberal arts graduates. They are right. But these graduates have been sold a false bill of goods, told that their gold-plated educations would guarantee them the ability to live well while doing what they want. They see their colleagues working on Wall Street making millions in questionable ways. They are also resentful.
Beyond resentment, both sides also can articulate claims of justice. For Tea Partiers, the coddling of illegal immigrants has become a defining issue of the unwillingness of the elite to enforce the law. For Occupiers, the extraordinary wealth of the upper 1% (actually, the top .5%) is a rallying cry that something truly is wrong with our political system.
This week in the New York Review of Books, Sam Tanenhaus takes a closer look at the Tea Party phenomenon and its influence on Republican politics. One surprising conclusion is that the Tea Party is not the force that is driving Republicans to their most conservative and right wing positions. On the contrary, Tanenhaus portrays the Tea Partiers as more moderate than extremist:
In The Tea Party and the Remaking of Republican Conservatism, Theda Skocpol and Vanessa Williamson, Harvard scholars who have interviewed adherents of the new insurgency in different regions of the country, report that
fully 83% of South Dakota Tea Party supporters said they would prefer to “leave alone” or “increase” Social Security benefits, while 78% opposed cuts to Medicare prescription drug coverage, and 79% opposed cuts in Medicare payments to physicians and hospitals…. 56% of the Tea Party supporters surveyed did express support for “raising income taxes by 5% for everyone whose income is over a million dollars a year.”
These views, which are aligned with those of moderate Republicans and Democrats, corroborate the findings in a 2010 New York Times poll of Tea Partiers, which concluded: “Despite their push for smaller government, they think that Social Security and Medicare are worth the cost to taxpayers.”
The Tea Party that Tanenhaus describes is one that overwhelmingly wants to preserve social security and Medicare, two programs that are often targeted angrily by Republican politicians. While the Tea Party activists are eager to shrink government, they do not seem to welcome an decimation of the welfare state.
What unites the Tea Party and Occupy Wall Street movement is a conviction that America is abandoning its exceptional history as a land of freedom, law, and equality. For the Tea Party, we are experiencing a cultural decline, one epitomized by illegal immigration and welfare—two issues that have been wrongly painted in overly racial hues. For Occupy Wall Street, the decline is imagined as a takeover by the rich of an American meritocracy and also of our democratic politics—although often forgotten is the fact that the wealthy are neither homogeneous nor exclusively conservative.
What the Tea Party represents is the latest version of a long-standing conservative insurgency in the United States, a movement that has wielded influence but never had the votes or power to dominate the Republican party or the country. Occupy Wall Street offers a new force in recent American Politics, a left-wing insurgency. As such, it has much to learn from and even work with in the Tea Party. One might begin by thinking more deeply about the place of the Tea Party in American politics, and for that there are few better places to begin that Tanenhaus' essay. Enjoy it for this weekend's Weekend Read.
Mitt Romney, Serving the Private Interest
Governor Mitt Romney released his taxes for the last two years today. He refused to release earlier records. These two years of records are from the years when he knew he was running for President for the second time.
We can assume they are to some degree cleansed of the most egregious of offenses. That said: Wow!
As my friend John Drabinski just wrote:
Romney has Cayman Island, Luxembourg, and Swiss bank accounts (I'm sure that's patriotic), made over $20 million and paid a 13.9% rate (wtf?!), and I'm telling you, if folks don't flip out over this, then we deserve what we get in this country.
Romney's tax rate is below 15%! That is even below the capital gains rate and the unjustifiable carried interest rate for hedge fund investors. Why? Because he has tax havens and secret Swiss bank accounts that he uses to reduce his taxes. He just closed a Swiss bank account (not fast enough I guess).
This is disgrace. Someone who uses the gray zone of tax haven law to hide his income is not simply playing by the rules. Money in tax havens is protected from taxes, but also from regulations and disclosure rules. I am not saying Romney broke laws. But he wants to be President, the personification of the public spiritedness of the nation. To hide money around the world in tax dodges and secret accounts sends a clear message: protecting my money is more important than paying my fair share to the country. While this may be legal, it is hardly a recommendation for public service.
Unfortunately, Romney's approach to financial secrecy is all too common amongst the people in his elite circle. It is one thing to have a low capital gains rate tax for investment in equipment and factories. That does spur investment. I would favor a low 5% or so capital gains tax—but only if it were limited to actual capital investment. However, to tax investment in stocks at that low rate makes no economic sense. And the idea that carried interest (the profit a hedge fund manager or private equity manager makes on their investments) should be taxed at 15% is ludicrous, as every hedge fund manager I know admits in private.
Tax havens and tax policies are not simply economic questions. A just system of taxation is essential to preserve our democracy. You simply cannot have a country that puts the common interest above the private interests of its members when the wealthiest of its citizens are employing armies of lawyers and consultants to hide their money and assets.
The best account of these tax havens is found in Nicholas Shaxson's book Treasure Island: Uncovering the Damage of Offshore Banking and Tax Havens. Here are a few key quotes:
It is essential to understand from the outset that the offshore system is ultimately not about celebrity tax exiles and mobsters.... The offshore system is also about a more generalized subversion of democracy by our increasingly unaccountable elites. "Taxes are for the little people," The New York millionaire Leona Helmsley once famously said.
Much of what happens offshore is technically legal. A lot of it is plainly illegal and often criminal. And there is a vast gray area in between. All of it is profoundly dangerous, corrosive to democracy, and morally indefensible.
The Offshore World is All Around Us. Over half of world trade passes, at least on paper, through tax havens. Over half of all bank assets, and a third of foreign direct investment by multinational corporations, are routed offshore. Some 85 percent of international banking and bond issuance takes place in the so-called Euromarkets, a stateless offshore zone that we shall soon explore. Nearly every multinational corporation uses tax havens, and their largest users—by far—are on Wall Street.
Tax havens don't just offer an escape from tax. They also provide wealthy and powerful elites with secrecy and all manner of ways to shrug off the laws and duties that come along with living in and obtaining benefits from society—taxes, prudent financial regulation, criminal laws, inheritance rules, and many others. offering these escape routes is the tax havens' core line of business. It is what they do.
Just last week, the watchdog Global Financial Integrity revealed that the developing world suffered nearly $1 trillion in illicit financial outflows in 2009, "a number that is almost 10 times larger than the official development assistance they receive each year from Western economies like the United States, United Kingdom and Norway." As Raymond Baker writes:
A shadow financial system consisting of tax havens, secrecy jurisdictions and anonymous corporate vehicles makes it easy for corrupt dictators, terrorists, drug traffickers and tax evaders to quietly shepherd their funds out of the developing world and around the planet without notice.
Again, I don't know if Governor Romney broke laws. I imagine he stayed just this side of illegality.
But we have a moral and ethical problem in this country. A republic, as Montesquieu saw, runs on the fuel of the virtue of its citizens, which Montesquieu defined as their willingness to put the public interest above their private interests. We are a nation in need of renewal, and that demands leadership that inspires us to re-commit ourselves to the American dream and the American story. It is a great story, one worthy of being re-imagined. But how can someone lead us to that promised land when he has, by his actions, shown himself to care more about protecting his money in offshore tax havens than doing his duty as a citizen? He can't.
-RB
------Quick update-------
Andrew Sullivan calls for President Obama to go big and make tax reform a central priority in the State of the Union tonight. I agree. He also says:
It seems to me that this is not about Romney and shouldn't be about Romney. He broke no laws; he seems admirably charitable; his massive wealth is not a marker against him. The issue is the system. My basic view has long been for a flat, simple tax code, in which everyone pays either the same rate, or two or three clear rates, and all deductions are removed. You tax income and dividends at the same rate. You get government out of the way of an economy's market decisions, by not tilting the playing field.
I agree that Romney's tax write is not a marker against him. It is one thing to play by the rules and pay the required capital gains tax rate. And yes, he did give $7.1 Million to charity which comes to something like 17% of his income. But the issue is that he also seems to have taken aggressive measures to hide and protect that money offshore. While this is not technically illegal, it is not simply playing by the rules of the tax system. It is employing accountants and lawyers to seek loopholes and avoid the intent of those rules. And that is wrong, even it is not illegal.
Sullivan gets the main point right on:
To put it more bluntly: The president and the Democrats should not be piling on Romney because he's rich. They should be piling on the tax code because it is so insane. This issue is populist and good economics. With a full-scale Bowles-Simpson attack on deductions, reform could keep taxation simple and low and easier to understand. And that restrains lobbyists, who suddenly have far less to lobby for; and it restrains taxation. If you have three simple rates - say, 10, 20, 30 - then any increase in them is very, very visible. You want a government that can be monitored and controlled by the people? Simplify the tax code!
Read Andrew Sullivan here
Smart Guys on Wall Street
Nicholas Kristof asks the profound question today in his column: Is banking bad? He gives the equally enlightening answer: no. Only if you read down to the end of the column filled with such nuggets do you find the one truly revealing fact:
In 2007, on the eve of the financial crisis, 47 percent of Harvard's graduating class headed for consulting firms and the financial sector — a huge misallocation of human capital.
In a NY Times op-ed essay in the midst of the financial crisis, Calvin Trillin presented the thesis that the origin of the financial crisis is that smart guys began working on Wall Street. There is no doubt truth to this and it goes hand in hand with the extraordinary rise of the entire financial and banking industries in the world. What needs to be seen, however, is that the reason smart guys have come to Wall Street is not simply because they wanted or needed that second ocean-faring yacht. Rather, it is that in an era of unbridled capitalism, self-worth and purpose are determined above all by one’s standing in the game of workplace success.
When all higher culture and spiritual values have been devalued, the one way that a person can secure meaning and sense to life is through the objective measurement of success that capitalism offers. In such a world, the pursuit of wealth, as Max Weber saw, is stripped of all need for spiritual justification, and emerges simply as a sport, a game in which not only the spoils, but also the sense of significance and wholeness, go to the winners.
-RB
Welcome to 2012
Undoubtedly it will be a year of surprises and challenges. The world faces a series of unresolved crises; from the financial turmoil that still threatens to lower European and American standards of living, to military crises in Iraq, Iran, and Afghanistan. The environmental crisis has seemingly fallen off the radar and the crisis in education has left young people in the United States profoundly unprepared for the future. Our political crisis proceeds from an unresponsive and ineffective government, paralyzed by a corrupt campaign finance system, which has led to unprecedented levels of distrust and dismay at government.
Above all, we confront a crisis of values, in which people from all walks of life imagine themselves as entitled to benefits and ways of life that are simply unsustainable. On Wall Street, bankers continue to think themselves entitled to bonuses that are a product of dangerous and unsustainable leverage and largesse. Public employees continue to insist on pensions and benefits that cannot be borne by taxpayers, and students continue to take out debts to finance pricey educations that will not land them jobs that enable them to pay back those debts. And politicians refuse to make the hard decisions about how we are going to move forward and lead amongst these many crises.
We are suffering a crisis of leadership of international proportions. From Europe to Japan, from Russia to Egypt, and from China to the United States, political leaders are proving singularly inept at addressing the turmoil that is now more common and certainly more dangerous than the common cold. Across the board, this lack of political leadership is rooted in a crisis of values in which everyone believes they are somehow entitled to have it all without paying for it. Or, as Thomas Friedman has written, "No leaders want to take hard decisions anymore, except when forced to. Everyone — even China’s leaders — seems more afraid of their own people than ever." There is a real question whether the transformative power of the internet and has made participatory democracy so participatory and so democratic that the checks and balances of our constitutional system are no longer up to the task of developing a political system capable of leading and making difficult decisions.
Amidst this worldwide need for and lack of leadership, the United States is about to elect a President. Over the next 11 months, we will spend close to three billion dollars on the presidential contest. Hundreds of thousands of Americans will donate time and money, and about one hundred million will vote. And what will be the effect? If we limit ourselves to the expected choice of Barack Obama and Mitt Romney, we may well be choosing between two pragmatic technocrats, both intelligent, well-meaning, and competent, but neither having demonstrated strong faiths or convictions about where a country in crisis needs to go. Rather than convictions, our politicians promise technocratic solutions designed to give no offense.
We suffer today from a failure of elite and technocratic rationality. As Ross Douthat writes today in the New York Times,
The United States is living through an era of unprecedented elite failure, in which America's public institutions are understandably distrusted and our leadership class is justifiably despised.
Amidst this crisis of elites, there is desperation for leadership that will be bold, and yet our politicians produce the pallid pablum of party politics.
One wonders where leaders will come from and how we might elect a President who can lead and unite the country. Real leaders, wrote the novelist David Foster Wallace, are people who “help us overcome the limitations of our own individual laziness and selfishness and weakness and fear and get us to do better, harder things than we can get ourselves to do on our own.” Such leaders seem unlikely in a political system in which politicians must tell the people what they want to hear.
In 1946, shortly after arriving in the United States as a Jewish refugee from Germany, Hannah Arendt wrote, "There really is such a thing as freedom here and a strong feeling among many people that one cannot live without freedom." Arendt fell in love with America, and eagerly became a citizen. At the same time, she worried that the greatest threat to a uniquely American freedom was the sheer bigness of America alongside the rise of a technocracy. The size of the country in concert with a rising bureaucracy threatened to swallow the love for individual freedoms and personal initiative that she saw as the potent core of American civic life.
Arendt understood that political action must be measured in terms of greatness if it is to preserve political freedom from the sway of technocratic rationalism. Political action is necessarily courageous action, action in the public sphere with the potential to either succeed or fail. Political leaders are those who act in unexpected ways and whose actions are so surprising and yet meaningful as to inspire the citizens to re-imagine and re-vitalize their sense of belonging to a common people with a common purpose. Especially in times of crisis, we need politicians who can inspire and lead. At a time when politics is ever more driven by the democratic and technocratic need to appeal to the wishes of the people, Arendt prods us to ask how we can maintain the ideal of freedom and the possibility of leadership.
To desire political leadership is not to ask for a Führer or a demagogue. It is to see, with Max Weber, that charismatic leaders are necessary bulwarks against a leaderless Democracy, which Weber describes as, “the rule of professional politicians without a calling, without the inner charismatic qualities that make a leader.” The challenge, as Weber defines it in his classic essay Politics as a Vocation, is: How to allow for a “safety-valve of the demand for leadership” to counteract the dutiful but overly obedient officialdom of a leaderless democracy without running to the opposed danger of a partisan democracy with soulless followers seeking nothing but victory.
Weber's answer is simple: The politician must serve a cause. The cause itself doesn’t necessarily always matter. “The politician may serve national, humanitarian, social, ethical, cultural, worldly, or religious ends. … However some kind of faith must always exist." In today's language, we need a politician with vision and with the charisma and thoughtfulness to unify a fragmented and fearful country around that vision of a common future. That indeed is the classical ideal of a politician, one who stands in the center of a polis and speaks and acts to articulate the common truths that hold the polity together.
Crises can breed opportunity. A crisis, as Arendt writes, "tears away facades and obliterates prejudices," and thus allows us "to explore and inquire into whatever has been laid bare of the essence of the matter." The task today is to respond with new and thoughtful action, which requires that we abandon our preformed judgments and attachments that have brought us to this space. Giving up our prejudices is difficult, as is accepting the challenge of the new. And yet the Tea Party and Occupy Wall Street movements have shown that there is a hunger for a new politics that breaks the bounds of traditional political discourse. Our New Year's wish to all of you is that 2012 might bring a bold politics that can bring forth a new politics from out of the cauldron of crisis.
-RB
“Ojos Sin Luz” (Eyes Without Light)-Dan Gettinger
Dan Gettinger is a student at Bard College.
Lately I've been reflecting on my activity surrounding Occupy Wall St. Remembering the minutes before I was arrested on the Brooklyn Bridge, I wonder what I was thinking in those moments. The truth is that I was there largely by accident. I read about the Occupy movement and a friend of mine who had gone down encouraged me to go that weekend. One thing led to another and I was spending eight hours at One Police Plaza, NYC. What led me there? Why did the NYPD decide to arrest 749 people? Why are people pitted against each other in anger?
These questions flew through my mind in a nervous rush in those interminable minutes. As my friend in front of me got hauled away he told me to call his Mom. A girl next to me scribbled a phone number on my arm but, sadly, it was that of the National Lawyers Guild and not hers. I looked up to another Bard student who was safe on the pedestrian walkway and smiled. Chaos and distress and sadness were etched across the faces of those around me. As I came to the realization that I would be arrested I felt more at ease and relaxed. And alone.
All my life I've been for or against something. Growing up overseas I was for America; representing a homeland that I barely knew but swelled with pride over. In the past decade it has become starker. I despised Bush and loved Obama, protesting one and campaigning for the other. My generation is one of extremes and totalities. We grew up defined by the trespasses of the last President, and now we watch as our confidence in this one seeps away. With a crushingly uncertain future we grasp at hope, looking to fill this void with promises.
Why is this? How is that we are so empty that we must be filled with language that is distilled into slogans and ideologically transparent? Why do we allow ourselves to be categorized and set into camps against each other? I think it is because we are lonely. A generation of drifters set loose by the misdeeds of those who came before. Around us we see everything being commodified and isolated. We value the world in terms of totalities, the cold language of polls. Discussion becomes debate. Politics becomes personal. Language gives leeway to the violence of our time. Philip Cushman writes, “We are told by self psychology and object relations theory that the empty self is the natural configuration of human being... that the essence of psychological growth is consumption”. Ideas become values, a list of priorities rather than inquisitions. Instead of questioning the origin of a problem, we invest in the answer. The world becomes a sheet of cookie-cutter shapes and we, the unseeing eyes of selfish sentimentality.
Occupy Wall St. has exposed us as a generation of reactionaries. This era is one of immediate responses instigated by the ceaseless swirl of the cyber world. The Internet, modern telecommunications and globalization outline our existence. The information age confines our imagination, creating shapes in which we can mindlessly ease into. It conditions our thoughts. “The greatest poverty is not to live/ In a physical world, to feel that one’s desire/ Is too difficult to tell from despair,” says the poet Wallace Stevens. The compression of information and language forces immediate reactions, instinctual expressions of sentiment. Instead of taking the time to think, our feelings gush into the abyss that is the Internet. And lost. ‘Once more into the breach!’ shouts the exhausted soldier and student alike.
The power of online reaction in the cyber world has prompted the opposite in the physical. I see it in the ease in which students are called ‘apathetic’. Apathy is the absence of pathos, the detriment of passion. Students, the supposed vanguard for intellectual pursuit, are considered to be endowed with such an extreme indifference that we are devoid of concern, excitement or motivation. This word shows the extent to which isolation has infested our campuses and social activity. It reveals how difficult it has become to really engage with politics and to create community. When the ancient Greeks entered into the public realm of life they expected to enter into discussion with each other. We’ve seen the opposite occur. As a result of the outpouring of ourselves in the cyber world we withdraw from the physical, preferring to slide into a virtual abstraction of reality and of ourselves. Our passion is put towards filling that inner void and in doing so we exhaust ourselves in chasing our own superficial creations. We live in a TV democracy, secure in our insecurity.
Hannah Arendt writes that loneliness leads to complacency, an unwillingness to judge truthfully and think. We fill ourselves with the tenets of ideology and in doing so we build walls around each other. This isolation prevents communication. It destroys dialogue and leaves us more susceptible to the shallow language of ideologues.
I'm far from regretting my experience on the bridge. It brought so much that I was feeling to the fore and was an illustration of the frustrations of a generation. But I do not revel in that act nor do I celebrate the movement as the answer anymore. The minute that we begin to consider Occupy Wall St the answer to our problems is the time to stop and think. Here is the time to re-evaluate the reasons why it's happening and why we should support it. It's when we've commodified Occupy, making the movement more about ourselves than the problems it confronts. That's when our loneliness is exposed.
The greatness of Occupy Wall St is that it gives people the opportunity to think. The absence of demands or a structured hierarchy allows the true problems that plague this nation to come first. It begins to cleanse the mind of all these barricades we've erected around ourselves by providing a space to talk about issues like class and privilege that we haven't confronted in decades. We've come to the threshold where unless we get a hard punch to the gut we'll continue to resort to phrases and slogans, packaging up our thoughts into sound bites and deluding ourselves with the belief that this is thinking.
David Graeber writes that the word revolution does not, and cannot, mean “a single, cataclysmic break with past structures of oppression,” a storming of the Winter Palace or Bastille. It is rather exposing and de-legitimizing the origins of an oppressive system, striking down the pillar of injustice that fuels our plight. Some of those in Occupy Wall St may say that pillar is the bankers that control our democracy. I say the roots of these dark times are within us. They’re the fictitious frames, the keyholes and the kissing booths that we use to define our world. A society predicated on constant caffeinated consumption, seeking desperate deliverance in passing fashions, is a violent one. One that seduces our imagination, leaving it languishing in infomercials and Italian leather. We may not be the cause of this crisis, but our complacency leaves us complicit.
Do not expect the revolution to be televised nor even talked about immediately. Hannah Arendt says that true thought occurs in solitude, in those quiet moments of intense reflection. This follows from the Socratic notion that thinking in solitude is the “conversation one has with oneself,” a particularly active questioning and critical self-examination.
I would add that the validation of these thoughts occurs in dialogue with others, in the inter-personal connections that we form through experience. Thinking is the relentless investigation of an idea, it’s an exploration, but it’s also engaging with others in this way on a non-emotional level, allowing for a substantive discourse. To separate one self from an idea and be open to the thoughts of others is an extremely difficult process that requires patience and critical listening. But it’s here where we must begin. The lack of curiosity is the greatest symptom of being lonely and the surest way to complacency. Questioning and imagining are activities essential to our freedom.
The raids with batons and bulldozers continue to intrude on unstructured spaces across the nation. The future of Occupy Wall St is impossible to predict and the consequences even more difficult to anticipate. However, we may be certain that Liberty Square has reminded us of a far darker occupation that exists within each of us. An oppressive installment in our hearts that leaves us yearning and fighting for the illusive insoluble ‘I’. But, “sudden as a shaft of sunlight,” we are experiencing ways of thinking and acting that free us from the past and future, placing this movement in our moment.
-Dan Gettinger
The Sport of Politics
This weekend's suggested read is an interview with Lawrence Lessig, author of Republic, Lost: How Money Corrupts Congress—and a Plan to Stop It. For years Lessig has advocated for the freedom of information and helped to found and establish the Creative Commons. Recently, Lessig has set his sites on freeing politics from corruption, and his book has been claimed as one of the intellectual foundations of the Occupy Wall Street movement. In this vibrant conversation, Lessig discusses finance reform, the Occupy Wall Street rallies, and how to rehabilitate the public sphere.
Lessig’s recent work addresses how the corruption pervasive in modern institutions is corrosive to public confidence and hence the arena of politics. What he terms “invidious, systemic wrongs” has led to a total loss of authentic civic trust: “the financial collapse is the most astonishing of these examples, “ he states, “not so much because of what happened before 2008, but because of what happened after.” As bad as the crash was, the bailout of bankers was an unparalleled giveaway, a transfer of money from taxpayers to the wealthiest denizens of the financial world.
Lessig encourages the current Occupy Wall Street movement to tap into this exasperation, focusing not on wealth, but fraudulence: “if [OWS] can say, whether or not you believe in capitalism, nobody believes in crony capitalism, and crony capitalism is what we’ve got, it would stand a greater chance of success.” Lessig’s emphasis on corruption is a reminder that it is the perversion of the facts and the rewarding of failure at the highest levels that that is responsible for the weakened state of our political world.
A provocative thinker, Lessig proposes several solutions to restore the political space he sees as dangerously thinned in the era of C-SPAN. These include the establishment of constitutional conventions—‘citizen juries’ where people could come together to debate the issues of the hour. “It would demonstrate something that I think people forget,” Lessig remarks to David Johnson of the Boston Review, “which is that politics is the rare sport where the amateur is better than the professional.”
Click here to read the interview.
The Disenfranchisement of Democracy
Andrew Sullivan has an excellent essay in The Daily Beast about the undeniable allure of the Occupy Wall Street protests, in spite of what he calls "the hippie problem." As much as there are elements of the protests and the protesters that sound naïve and even coarse, as much as they at times seem out of touch, there is a core truth to the Occupy Wall Street movements that is so profound that it cannot be denied. In short, we must agree with the basic idea: that our democracy and our political system are broken. Here is Sullivan:
The theme that connects them all is disenfranchisement, the sense that the world is shifting deeply and inexorably beyond our ability to control it through our democratic institutions. You can call this many things, but a “democratic deficit” gets to the nub of it. Democracy means rule by the people—however rough-edged, however blunted by representative government, however imperfect. But everywhere, the people feel as if someone else is now ruling them—and see no way to regain control.
If you have any doubt that we have lost all trust in our democratic government (and who has such doubts), read this front-page article in today's NY Times.
A healthy democracy needs at least two things.
First, a strong middle class. As thinkers from Aristotle to Arendt have emphasized, political life requires that the people share a common world. Those who are too rich or too poor are excluded from what the people share; they exist often on the fringes of that consensus of common sense. It is the middle classes that determine a strong and meaningful sense of what the people are and give depth and sense to the public world. The best Constitution, Aristotle writes in his Politics, is one that encourages the largest middle class. The loss of our middle class has weakened that common sense and threatens our political system.
Second, a healthy democracy needs a shared factual world. As Hannah Arendt has argued, without a shared factual world, we cannot talk, argue, or disagree with others; we are left with nothing to do but talk to those with whom we already agree. In a world without facts, we risk undermining the venture of politics as Arendt understood it: to create together a common world, one as unruly, disorderly, and argumentative as such togetherness demands.
The Hannah Arendt Center for Politics and Humanities at Bard College convenes a conference exploring the loss of fact and the attack on common sense that have corroded our political world and fed our unprecedented distrust of politics. The conference—Truthtellng: Democracy in an Age Without Facts—is this weekend, Friday and Saturday, Oct. 28-29. You can watch the conference via live web simulcast by going to the Arendt Center website on Friday, beginning at 10:30 am.
To read more of Andrew Sullivan's article, click here.
-RB
The Robin Hood Tax?
Occupy Wall Street has been looking for issues to coalesce around. Now the Canadian group Adbusters—the group that issued the initial call that began the protests—has proposed that Occupy Wall Street adopt a Robin Hood Tax on financial transactions as its first issue. Here is their call to action.
The Financial Transaction Tax (FTT) is an idea that has lots of support amongst some economists. My friend David Callahan has been arguing for the FTT for a while now. By far the best and most balanced analysis of an FTT is by the IMF, here. On the positive side, the FTT has the advantage of being simple and intuitively attractive. But is a Financial Transaction Tax really a good issue for Occupy Wall Street to coalesce around?
The main problem is that the FTT employs a sawed off shot-gun approach to a real but specific problem and unintended consequences. Thus, the IMF study cited above concluded that a FTT would not clearly target financial excesses:
Where the goal is to curb financial market excesses, [FTT] offer a less specific remedy for the excessive leverage that is believed to cause them than other tax and/or regulatory solutions. Financial complexity does not derive solely or even primarily from trading activity. The buildup of hidden financial risks in the recent crisis resulted predominantly from excess leverage, risk concentration, and product innovation such as asset securitization, which would have been largely unaffected by a transactions tax. An [FTT] also does not directly address systemic risk.
The point is that the real problem in speculation is leverage and volatility. The FTT doesn't address leverage, and it doesn't target the high frequency traders who drive volatility. Instead, the FTT taxes ALL transactions.
What is more, the FTT will penalize smaller and retail investors—precisely those in the 99%. As the chart below shows, most stock in the U.S. is held by middle-class investors—those between the 80th percentile and the 99th percentile. They are responsible for the vast majority of financial transactions (this is especially true since a large percentage of the equity holdings of the 1% in the chart are enormous trusts containing dividend paying stocks that have been held for generations and which never trade). Thus, the FTT falls most heavily on the people who own the most stock in the country and depend on that stock for our retirements and investments.
Another problem is that if the Financial Transaction Tax is not adopted globally, it may well drive trading off shore to even less well-regulated markets than our own. The U.S. tried a similar tax in the 1960s and repealed it when trading moved to London. Sweden tried a FTT tax in the 1980s and 1990s and repealed it later when trading fled to other countries.
Finally, the IMF concludes that the FTT would increase consumption and reduce savings by lowering the returns of investment and savings—a result directly opposite to at least some of the goals of Occupy Wall Street. In addition, the FTT discourages the rebalancing of portfolios, thus depressing total returns on mutual funds investments and 401ks.
So what might be some other ideas for Occupy Wall Street—and also our political leaders (such as they are)—to consider? Here are a few ideas that a number of professionals I spoke with mentioned:
1. Ban all High Frequency Trading. It has no purpose except to make some very big and wealthy firms money while increasing volatility for the rest of us. High frequency traders justify the practice as increasing market efficiency. But there is no economic justification to prefer a system that makes 1000 trades per second to one that makes 10 trades per second. Such trading is disruptive and very profitable. Ban it outright. Doing so would be much easier than getting the global cooperation needed to make a Financial Transaction Tax workable. And doing so would also make the U.S. markets more stable and thus give them a competitive advantage over other markets worldwide.
2. A Cancelled Order Tax. It turns out nearly 99% of the orders placed on Wall Street are never filled, but cancelled. A small percentage of these cancellations are just people changing their minds. But the vast majority of cancelled orders are used to manipulate prices by tricking other traders into thinking that a stock is moving in a particular direction. According to one study on an average trading day in 2010, only 1% of all the 89.7 billion orders were executed, which means that nearly 99% of all orders placed can be attributed to high frequency traders trying to manipulate stock prices. A tax on cancelled-orders has distinct advantages over a tax on all financial transactions. First, it will fall primarily on hedge funds and large high-frequency traders, and will not affect retail investors. Second, it will specifically target the casino-like aspect of Wall Street. A cancelled-order tax is not as simple or sexy as a financial transaction tax. Less has been written on it. But it actually seems like a better idea. Read more about the idea here and here.
3. Reinstate the Uptick Rule. Nearly every market professional I polled supports the re-instatement of the "Uptick Rule," a rule that was imposed in 1938 during the Depression and repealed in 2007—just before the market crash and the financial crisis. The Uptick Rule prevents hedge funds and traders from betting on falling stock prices when the markets are already falling, thus reducing volatility and reducing the ability of traders to make money by encouraging market panics. There is a debate about how effective the Uptick Rule is, but there seems to be little or no downside to reinstating it. The only people who oppose doing so are traders.
4. Taxing Corporate Debt and Leverage and Raising Margins. The IMF proposes taxing not financial transactions but corporate debt, thus discouraging corporations from using debt and leverage to finance their activities. As part of this approach, it would be wise to raise margin requirements, the amount of money that someone has to put up before buying a stock or financial instrument on credit.
While Hannah Arendt may not have been much interested in the minutiae of Wall Street regulation, she did care deeply about the importance of facts in thoughtful and reasoned argument. In just one week, on Friday Oct. 28, the Hannah Arendt Center will open our two-day conference on Truthtelling: Democracy in an Age Without Facts. When facts and opinions blur, reasoned argument falls prey to spin and deception. Politics is a realm of conflicting opinions, Arendt argued, but the opinions must necessarily be grounded on facts.
Whether or not the Financial Transaction Tax is a good idea, the debate around it should be based on solid knowledge of the financial system, the affects of such a tax, and also the alternatives. These are very complex issues and, in all honesty, much of the debate so far has traded in simplifications, soundbites, and falsehoods.
If Occupy Wall Street really wants to distinguish itself from the Tea Party and change our political culture, let's use this first foray into politics as an opportunity to model adult argument, something that has been absent from our public life for far too long. If they do want to model a future of fact-based decision making, they will do well to look deeply into the cons as well as the pros of a financial transaction tax. They would also do well to consult those people who work in financial markets daily. Many of these people—both those in the 99% and the 1%—want to eliminate market excesses and reign in the speculation and insanity that helped lead to the recent financial crisis. In the name of common sense and a way forward, let's have a real debate based in both fact and expertise.
-RB
Sign of the Times – Part II
The second installment of a two part blog post about Occupy Wall Street by Hannah Arendt Center Associate Fellow, Kieran Bonner.
On the website of Occupytogether is the following statement:
“The beauty of this new formula, and what makes this novel tactic exciting, is its pragmatic simplicity: we talk to each other in various physical gatherings and virtual people’s assemblies … we zero in on what our one demand will be, a demand that awakens the imagination and, if achieved, would propel us toward the radical democracy of the future … and then we go out and seize a square of singular symbolic significance and put our asses on the line to make it happen.”
There is much in this statement that coheres with the spirit of Arendt’s work and mission, the focus on talking to each other, a demand that awakens imagination.
While she would welcome the interest in radical democracy, she would be very suspicious of the language of ‘propelling,’ as though moving forward was subject to an inhuman force rather than the result of persuasion through human speech. My Arendtian ambivalence is located in the need to separate social concerns from political concerns and economic matters from matters of democracy.
If the focus of the protest is primarily on economic inequality and not on reviving democracy, on political economy and not politics itself, then it is in danger of being absorbed by the social. Arendt distinguished between life concerns and political concerns and said that politics, and therefore democracy, become at best corrupt and at worst disappears when dominated by urgent life concerns.
It is precisely for this reason that Arendt saw the American Revolution as politically far more successful than either the Russian or French. She admired the American Revolution because it put political matters, especially democracy, first. An act of citizenship, in Arendt’s sense, is more than voting for someone else to act and speak on one’s behalf. It requires the full experience of acting and speaking; it is this criterion that Arendt would use to assess whether acts were either social or political and so acts of citizenship.
The Boston Tea Party was not a rebellion against taxation per se, as the contemporary Tea Party tends to emphasize. It was not a movement to ‘get government of the backs of the people.
It was against taxation without representation. It was against government without participation and not government per se. That the American Revolution led not to a completely fair taxation system but rather to the first modern democracy is its great achievement. The promise in OWS, therefore, is not just whether correct economic legislation is enacted, but whether a re-invigorated democracy can be re-imagined. This is the hard work of envisioning alternatives, a work that has become unimaginable despite a consumer culture that always invites us to imagine the impossible. Is it not paradoxical that today we can easily imagine the end of the world but not the end of capitalism, as Slavoj Zizek stated to the occupiers last Sunday. That is the promise of the OWS initiative, the beginning of the hard struggle to restore a lived experience of political freedom to America and to the world.
-Kieran Bonner
Common Sense
A friend of mine posted this sign and asked for responses:
Images like these provoke strong emotional responses. As much as I share this student's point of view, it is crucial to remember the larger context of consumerism, excess, and irresponsibility that forms the background for these protests. Instead of understanding Occupy Wall Street divisively as the 99% against the 1%, we should see it as a common sense movement opposed to the rampant greed and selfishness of the last 10 years.
I remember where I was on Dec. 29th, 2009. I was on vacation with my extended family. We were having a great time. And I was fuming.
The cause of the steam emanating from my ears was Steven Brill's superb cover story of that weekend's NY Times Magazine, What's a Bailed-Out Banker Really Worth? This article made me livid—I can remember grabbing a red pen and underlining it, commenting on it, and then forcing everyone in my family to read it. When I look at the Occupy Wall Street protests now, what I think about is Steven Brill's article.
Brill exposes the corruption and hubris of what might be called a pervasive if not ubiquitous Wall Street mentality. His window into that moral morass into which parts of Wall Street sank was Ken Feinberg, the man in charge of reigning in excessive compensation at the companies that we—the United States tax payers—bailed out. He cites evidence from Feinberg to show that when calculating their bonuses in 2009, the year after they were saved from bankruptcy by American taxpayers, the big banks decided that every single one of their executives had performed above average and deserved extravagant bonuses:
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.
Where was the young student above in 2009? Where were the bankers who didn't use leverage, who didn't reward themselves with million dollar commodes? Where were the responsible people on Wall Street and off? It would have been nice if someone might have said:
I currently have cash in the bank and live comfortably in my nice house or apartment, send my kids to public school, take vacations, enjoy my family, and have everything I want. I don't pay $49,000 for each of my three kids to attend tony private schools, I don't have a private jet or four houses or 5 babysitters and two chefs. My bank is solvent and so am I. I would not blame "the financial system" for my own bad decisions. I live within my means and my company makes money without greedily seeking to maximize profits by taking outsized risks. I expect nothing to be handed to me and I expect to work my @$$ off for every dollar. That is how it is supposed to work. I am not the 1% who expects to reap astronomical profits in good times and get bailed out and reap astronomical profits in the bad times too.
Where was such anger at the time of the bailouts? Possibly it was submersed in fear. But the bald truth is too many good people were silent.
Now, it seems, everybody is angry. Many people who are in the 1% are angry as well—and they are not only angry at having to pay more in taxes. Many, many people who are in the 1% are angry at the corporate bailouts, and not only Warren Buffet. This fight is not between the 99% and the 1%. I think that is a mistake. It is between those who understand that capitalism for profits and socialism for losses is wrongheaded, for the wealthy as well as for the middle class. In other words, the fight really is between all of those with common sense and those without it—at least if we understand common sense as Hannah Arendt does, as that shared concern with what is common.
While I have sympathy for the young person who expressed the sentiment above and while I agree we all need to take responsibility for our actions, we cannot simply ignore the fact that we have in the last four years bailed out some of the richest Americans and let the poorest Americans suffer. Why do the wealthy get bailed out while the middle class gets locked out? Why is it that in a country famous for its patriotism, public feeling, and pursuit of the common good, we have somehow lost touch with our sense of what we share in common?
The worst of the worst offenders during the last decade was the giant insurance company A.I.G.
Brill tells the story of one trader at A.I.G., "a mild-mannered math whiz who worked at a unit of A.I.G. Financial Products that, he says, had nothing to do with the small London-based credit-default-swaps group that sank the company." In the 1990's and 2000's, this trader made millions, even tens of millions of dollars, every year—bonuses based on a bonus pool that was artificially inflated because of the outsized risks and profits from the Financial Products group that eventually lost hundreds of billions of dollars. When the crisis hit, he and his colleagues negotiated "retention contracts" that would guarantee them large bonuses even though the firm was losing hundreds of billions of dollars and was only being kept alive by, in the end, $180 billion of tax payer bailouts. When word leaked that taxpayers were paying for multi-million dollar bonuses, these executives defended themselves.
"Why should I simply walk away from a contract?” he now argues. “I earned that money, and I had nothing to do with all of the bad things that happened at A.I.G.
The arrogance and deafness of such arguments is hard to believe. These contracts would be worthless if we taxpayers didn't save this man's company. We came to the rescue. The least these bankers could have done was to thank us and renegotiate their contracts. If they had any decency or common sense, they would gladly offer to cut their pay today in solidarity with people who have lost their jobs or are being foreclosed upon and losing their homes. But no, they insist that when these people make bad decisions, they should suffer the consequences.
Compare the defense of contractual integrity by bankers to the current debates over public employee pensions. As with the bankers' bonuses, the pension deals signed between policemen, fireman, and teachers with municipalities through the 1990's and 2000's were based on inflated expectations and irresponsible risk assessments. Many of these municipalities are now currently being bailed out by the Federal Government, which is subsidizing their poor choices. No serious economist thinks that these pensions will ever be fully paid. And on Wall Street, the assumption is that these contractually guaranteed pensions will be reduced. They may be right, but what hubris! When bankers have contracts guaranteeing them a 7 or 8 figure bonus, the taxpayers should pay it, but when public employees who teach our children and protect us have contracts guaranteeing a comfortable retirement, we should tell them we are broke and can't honor those contracts? This is risible arrogance and self-centeredness. It is a total abandonment of common sense.
The point is, people are angry. They are angry partly because they are realizing their dreams for a comfortable life are collapsing around them. But also because they see that the dreams of many of the super wealthy (mostly in the financial industry) are being held together by taxpayer-funded bailouts. And they are angry because the super wealthy—not the 1% but the .1% who make on average $5.5 million every year or the .01% who make on average $24 million every year—are so wealthy that they seem to be divorced from the reality most Americans face.
It is true that not all wealthy Americans were bailed out. It is not an accident that the protesters aren't picketing at Apple or Microsoft and they are not picketing Alcoa or Johnson & Johnson. I am sure we can complain about the tax strategies, outsourcing, and off-shore accounts such companies use, but they are running businesses that have not failed. These companies produce products. Their executives live well, often very well, but they don't ask for bailouts when they lose. Similarly, hedge fund investors did not take bailouts in 2008. These managers should pay income taxes on their income rather than the much lower capital gains rates, and Occupy Wall Street should make this a core of its message. But most hedge fund managers have large parts of their personal fortune in their funds, giving them a huge incentive to manage risk well, and thus distinguishing them from bankers who typically risk only other people's money. It is a mistake to lump the wealthy into one boat, just as it is a mistake to personally target individuals simply because they are wealthy.
It is also true that many of the so-called 99% are guilty of irresponsibility. Many middle class people bought houses they couldn't afford, put two gas-guzzling SUVs in the driveways of their McMansions, and sent their kids to private colleges by borrowing upwards of $50,000/year. It is hard to have sympathy for these folks. That is why the student above has a point. To bail out all those who are suffering is clearly unfair to those who did not partake in the narcotic of easy credit. The student is right.
Finally, it is true that the problems we now face do not all stem from the failings of the 1% or the 99%. Middle-class jobs are threatened by globalization, which provides millions of educated workers willing to do the same jobs for significantly less money. Middle-class jobs are also threatened by automation and intelligent robots that can work faster, longer, and often better than humans can. The problems facing our nation's future are profound and persistent, and no amount of protest will make them go away.
But to ignore the justifiable anger at the hypocrisy and entitlement of many in the wealthiest classes is simply to ignore fundamental facts about what has happened in the last 4 years. We are in danger of losing our common sense, and if that goes, the country will be in trouble. For how can people live, sacrifice, and celebrate together if they do not share a common world?
As long as bankers and other representatives of the wealthiest classes continue to say that asking them to pay more in taxes is class warfare, the anger against them will only grow. This is the anger that fuels the Occupy Wall Street protesters. I have problems with their tactics and with the fuzziness of their message. I have questioned their thoughtfulness and worried about their scapegoating. But boy do I understand their anger.
-RB
Sign of the Times
The first installment of a two part blog post about Occupy Wall Street by Hannah Arendt Center Associate Fellow, Kieran Bonner.
“Action and speech are so closely related because the primordial and specifically human act must at the same time contain an answer to the question asked of every newcomer: ‘Who are you?’ This disclosure of who somebody is, is implicit in both his words and his deeds; yet obviously the affinity between speech and revelation is much closer that that between action and revelation, just as the affinity between action and beginning is closer than that between speech and beginning, although many, and even most acts, are performed in the manner of speech.” (Hannah Arendt, The Human Condition)
I went down to check out the Occupy Wall Street Protest on the Saturday of Columbus Day weekend. I was surprised by how small the group was, the casual and diverse activities being engaged in, and the relatively open way one could move through the square. As a child of the sixties, the similarities between the relaxed and ‘do your own thing’ atmosphere of many demonstrations back then and the diverse activities going on in Zuccotti park were apparent to me. I was also struck by the interest in cardboard sign politics, or as is posted on the occupywallst.com, ‘sign language.’ The criteria for participation seemed to be the possession of a grievance that points in some way to the top 1% of the socio-economic elite, a marker and a piece of cardboard. Aesthetics seemed secondary to having a sign that visitors could read and the media could pick up on. There was a note of reflexivity in the relaxed melee with one cardboard sign reading: “This is a sign.”
The protesters are being compared to the Tea Party in their challenge to the elites, as well as to the ‘Arab Spring’ movement in terms of its use and reliance on social media. There is truth here, for all of these different movements espouse is the need for a better democracy.
Hannah Arendt advocated a conception of democracy invented by the ancient Greeks, in which humans could come together for the sole purpose of speaking and acting with each other - without being driven by needs, and without being mediated by things. Provocatively, the true essence and purpose of politics was neither security nor justice, but rather the opportunity for unique human identity to appear in a shared and common world:
“Action would be an unnecessary luxury, a capricious interference with general laws of behaviour, if [humans] were endlessly reproducible repetitions of the same model,.. Plurality is the condition of human action because we are all the same, that is, human, in such a way that nobody is ever the same as anyone else who ever lived, lives, or will live.”
So we should ask: who are the OWS protesters? How do they appear in the world? There can be no simple answer. Above all, however, the protesters have acted and begun something new. Their deed is not a brute violent deed that seeks to terrorize. It is a peaceful protest and the activists in all their diversity are explicitly encouraged to speak their concerns. Yet, the fact that they seem more interested in the deed itself (the occupation) than in words speaks to Arendt’s nuanced distinction that the emphasis is more on beginning than in revelation.
There are complaints about their lack of specific demands. Many on the right and left say, “What do you want to change”? And the replies are varied, vague or suspiciously utopian. In a sense, this initiative highlights what Arendt says about the affinity of action with new beginnings.
Their most persistent refrain in response to ‘who are you’ is, “We are the 99%.” What does this answer reveal? Clearly this slogan has identified a grievance that the struggling poor and middle class can identify with.
Others have defended the protesters. An otherwise critical New York Times editorial last weekend argues that specific demands are “the job of the nation’s leaders, and if they had been doing it all along there might not be a need for these marches and rallies.” The editorial quickly summarizes what action is needed to respond to the situation OWS is protesting. “There are plenty of policy goals to address the grievances of the protesters – including lasting foreclosure relief, a financial transactions tax, greater legal protections for workers rights, and more progressive taxation.” (Link to NYT piece)
Many in the political center and left of center can easily agree with this response to the OWS act. On Tuesday night at a ProPublica talk at the Tenement Museum, Eliot Spitzer more or less said the same – the protesters are doing what protesters do and it is up to the politicians to develop policy. While this is a response to which I am very sympathetic, I am also aware that it buries or renders superfluous the fundamental question “who are you?’ That is, it treats the act of occupation as solely about the economic crisis. Does such a response, sensible as it is, not risk undermining the action OWS began?
It is crucial to bear in mind two essential elements of action that Arendt draws our attention to and that humans need to come to terms with: irreversibility and unpredictability. It is of the essence of an act, she tells us, that once it is begun it cannot be reversed. It also cannot be fully controlled. Just as the OWS initiative was not predicted, neither can the response to the initiative be predicted. The experience of irreversibility and unpredictability (a lived reality for most contemporary parents) is the experience of human limitation: of what we cannot undo and what we cannot control. The OWS action is a beginning and many note that it is not clear where this beginning will go. It is precisely the response to the action that will determine whether it is a beginning that is a true establishment, like the Founding Fathers actions in the 1770s, or one that will suffer the fate of most human initiatives and fade into oblivion in the midst of time.
-Kieran Bonner
Weekend Reading
In the wake of Roger Berkowitz's piece on Occupy Wall Street a few days ago, Jeff Nall's article "Hannah Arendt: The Trouble With Representative Government in the US" offers a valuable perspective on the nature of representation and the political sphere.
Nall gets to the heart of Arendt's interest in revolution:
"Before we set out to remake or even just reform our nation, let's have a clear vision of what we want it to look like when we're done. Let's not aim to bring an end to government; let's not aim to use government to care for others; let's aim to reclaim the very idea of citizenship and make each person part of the decision making process, part of a government. It's time for the American public to revolt and take back the power to decide for itself."
Prosthetic Gods: Finance and the Future
The new issue of Lapham's Quarterly is out and one of the highlights is "Buying Tomorrow", by Jennifer Szalai. Amidst a tour de force rehearsal of the history of risk and speculation, Szalai writes of the parade of speculative-driven crises over the past three decades. The 2007 crisis was neither unexpected nor unpredictable—in spite of the protestations of shock and surprise by those speculators who cried wolf and begged for a bailout. Also in 1997, the bailout of Long Term Capital Management caught the market unawares.
As one risk manager at Merill Lynch put it then,
"We had no idea they would be in trouble—these people were known for risk management. They had taught it; they designed it. God knows, we were dealing with Nobel Prize winners!"
Szalai's insight goes deeper than simply a lambasting of Wall Street and speculators. What she sees is that the modern art of speculation is itself a progressive faith, one that believes in a quasi religious and mystical way in our ability to peer into the Future, to predict and to control the unknown. We have, she shows, an ever-greater belief in our technological and technical abilities to prepare for and thus improve our fate. As a result,
"Finance has given the future over to mathematics and supercomputers, which, like any other prosthetic god, bring with them the temptations of both recklessness and complacency. Our technologies belong to us; we create them, and they amplify our abilities and our reach, yet we exhibit a strange eagerness to relinquish our dominion over them, endowing them with a monstrous authority that demands our accommodation and surrender."
In the ambivalence toward technology that we both create and submit to, one hears Arendt's own insight that we humans possess a deep desire to overcome our human limitations. What Arendt worried about—already in in The Human Condition in 1958—was that we were finally nearing the stage of technological development when we seek to replace our human fallibility with an inhuman rationality. Clearly we have not yet reached that stage—if we ever will. Arendt did not think we would ever live in a fully inhuman world.
And yet, the desire to perfect ourselves persists, along with our human shame at our imperfections. We yearn to control and master the future, and one corollary of that is our deep wish to cede control over our lives to the hyper-rationality, objectivity, and reliability of machines. Machines do not get tired and do not make sloppy mistakes. Machines are not biased, and they don't cloud their judgments with emotions. It is for this reason that we are increasingly turning to machines to make our most important judgments—drive our cars, diagnose our illnesses, and write our news articles. Not only finance has "given the future over to mathematics and supercomputers," but also love and death are now to be subject to risk analysis, algorithmic prediction, and computer predictability.
As we give over our future to machines, do we, as Marshall McLuhan wrote, give ourselves over to our inventions, and thus become slaves to ourselves? This is Szalai's conclusion. And yes, we are succumbing to our machines, the very machines we design and build. In doing so, we abandon our human freedom to our equally human desire for security and certainty. In Szalai's words, we give ourselves up to our "perverse urge to lose our uncomfortable selves." In doing so, in abandoning our human faculty of judgment to machines, we gain a measure of control, but we risk losing the activity of judgment that is the core of humanity.
-RB
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