Capitalism is in need of a good Reformation…

Mon, 10/19/2009 - 5:11pm

"Wait a minute..."

Those were allegedly the final words of Pope Alexander VI back in August of 1503. I was thinking of fat, old, syphilitic, corrupt, murdering, adulterous Alexander just this morning. This particular Pope, known before his papacy as Rodrigo Borgia, who had so many mistresses he makes modern America's politicians and talk show hosts look chaste by comparison, is also distinguished by the fact that he was the father of, among many others, Cesare and the notorious Lucrezia Borgia. (To give you a taste for the man, upon becoming Pope he annulled his daughter's previous marriage so he could marry her off in a lavish Vatican ceremony to a relative of one of the cardinals who supported his papacy even as rumors circled of her incestuous relationship with one of her brothers. And the Heene family thought they had what it takes to make a good reality show...)

I thought of old Rodrigo as I flipped through a pile of clippings that I had set aside during the past couple of days. I started collecting the stories last week. The first were clippings about the record round of financial community bonuses in the U.S. and in the U.K. Then, as all this was happening, was Goldman Sachs' CEO Lloyd Blankfein's FT op-ed calling for financial reform. As I mentioned before I found the juxtaposition uncomfortably calculated.

A couple days later, there was the story announcing that former Goldman Sachs' VP Adam Storch was being named Chief Operating Officer of the "new and improved" SEC enforcement division. I have no doubt that Mr. Storch is an excellent fellow and a perfect choice ... other than the fact that he worked at Goldman. Does anyone think about the optics of these things? Or more than the optics, do they ever consider just how genuinely inappropriate such a hiring might be?

Of course, that's a rhetorical question. Some people do think about it. Just not people doing the hiring in the administration. Hence the articles in my pile of clips about the big bonuses that senior advisors to Tim Geithner got from big Wall Street houses prior to signing up to help devise the plans to "fix" Wall Street. I know some of these guys very well, consider them friends, consider them eminently qualified to be doing their jobs ... and yet, something gnaws at me about all this, an insensitivity on the part of the people who were putting together the administration team about what was really at stake in the financial crisis. It seems they felt the issue was more fixing the immediate problem than it was fixing the enduring problems in a system that once again has Wall Street executives lighting cigars with hundred dollar bills while unemployment hits record levels (see Mort Zuckerman's strong piece on this in today's FT) and home foreclosure are forcing former homeowners to live on the streets as never before. In any event it seems like they were really stopping to ask whether something big had changed ... or needed to.

Paul Krugman gets it, has all along and has written about it again in today's Times. Frank Rich, in yesterday's Times wrote a column capturing some of the anger that people feel about the power of Goldman and the other big banks and the utter unwillingness of Washington to do anything other than offer the occasional talk show tsk-tsk in response to the current return to profligacy (or the return of big lenders like Citi and Bank of America to losses after a momentary, bailout induced spate of profits). 

Meanwhile, John Harwood in the Times writes about Larry Summers' wise silence on sensitive economic questions while failing to go further and ask why it was that this week's tsk-tsking assignments went to Rahm Emanuel, David Axelrod, and Valerie Jarrett -- successors in function to the troika that once ran Ronald Reagan's White House (James Baker, Michael Deaver and Ed Meese). On the one hand the question is interesting because it leads one to other questions, like why the folks from the president's morning economic briefing who are being most prominently rolled out are not actually the ones who are the economic professionals? Could it be that the administration political brain trust feels the economic team has lost too much credibility by their minimalist, go-slow approach to reform? I think that would be a miscalculation because the future effectiveness of Geithner and Summers will depend on their being seen as the architects of substantially (and accelerating) reforms.

(Of course another question raised by the appearance of the Big Three on the Sunday shows is whether or not the administration really is being some so Office-of-the-President centric that it is all head and no arms and legs, kind of like one of those big-brained creatures from outer space or our future that we were led to believe would evolve from societies that didn't require physical exercise. The critique, provided to me this weekend by a prominent diplomat who has lived in Washington a long time, is that the administration has no trouble coming up with ideas or giving speeches but it has yet to put an effective implementation apparatus in place. It is kind of the Marvin the Martian model of governance.)

That particular aside aside, the pile of clippings grew this morning with the Wall Street Journal noting in its particularly "fair and balanced" way that the criticism of Wall Street from Emanuel and Axelrod was more tempered than in the recent past, suggesting that at least as far as the newspaper of record of the financial community was concerned, the White House wasn't too het up about all these fat pay checks. Apparently swine flu worries us but an epidemic of swinishness does not. At least the Journal seems to hope so.

And so, reflecting on all these clips, I started thinking to myself, is it capitalism? Could Michael Moore be right? (That seems so unlikely...) It's troubling to me, a dyed-in-the-wool practicing capitalist. And I'll have to admit I am still a long way from coming to a good answer about just how we have gone wrong and what needs to be done to fix a system that is producing greater inequality than ever and that is so apparently corrupt that even those from whom you expect big reform have either been co-opted or, alternatively, are simply reluctant to toss these particular money changers out of our particular temple (the small "d" democratic one). 

But my first instincts are what brought me back to good old Pope Rodrigo the Base and Repulsive. Because it strikes me that the issue isn't capitalism per se. Because 21st Century Wall Street is to capitalism as Pope Alexander VI was to the teachings of Jesus Christ. There was a connection but it was remote and observed more in the breach than in the honoring of the essentially good underlying ideas.

And that's where I take some comfort. It's not that we need a new economic ideology. We're just in dire need of a Reformation. (Although I for one could do without some of the wars, inquisitions, and public executions of the last one.)

EMMANUEL DUNAND/AFP/Getty Images

David Rothkopf | Permalink | | Comments? Login or register
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Summers might be temporarily

by blue13326 on Mon, 10/19/2009 - 5:54pm

Summers might be temporarily keeping a low profile because it was recently revealed that Harvard had to pay $500m to get out of a bad bet on interest rate swaps, a somewhat questionable derivatives strategy that was instituted when Summers was in charge there.

I agree that capitalism has its problems, but if you look over the past year, nationalizing car companies, borrowing trillions to fund pet projects, incredible uncertainty about taxes and regulations, and it's hard to call it capitalism.

Instead, what we;re seeing is a textbook failure of Keynesianism, which started under Bush and the first stimulus. And, at this point, as you have alluded to in other columns here, the administration is so intent on finding any way to create jobs, after losing 4 million under its watch, that it is probably somewhat hesitant to come down hard on the masters of our financial universe. But, this is producing a potentially toxic brew out in the real world, where business owners know regulations are coming, but do not know the costs.

So, at a certain point, it makes sense just to 'damn the torpedoes' and pass the regulations, regardless of how much you fear the consequences, because it eliminates the uncertainty. This is somewhat analogous to the Coase theorem, where it's the poorly defined property rights that prevent an efficient outcome in bargaining. Reducing the uncertainty leads to a more efficient outcome.

I think it's more that the

by Brett on Tue, 10/20/2009 - 12:40am

I think it's more that the size of the various economic actors are getting too large and significant for the current policymaking model (the state). When you've got multiple companies, each of which could send the economy into a tail-spin with their collapse, then you're in a situation where you either need to move up to the next level (like global governance, much in the way that the federal government was strengthened when the various regional markets in the US began to integrate into a national market), or constrict their size.

A new ideology?

by drlake777 on Tue, 10/20/2009 - 10:34am

I disagree to some extent with the notion that we don't need a new economic ideology, but that is probably more a matter of semantics than anything else. You seem to be of the opinion that post-Reformation/Counter-Reformation/etc. Christianity is the same religious ideology as before those events occurred. If all you look at is the religious canon, that would be true. However, ideology is about more than just the underlying texts. It also includes the world-view and values by which the practitioners understand the world and interpret those texts.

Under that understanding of ideology, we might well need a new economic ideology. The market may be central, but the values and world views of the practitioners clearly needs to change. The fundamental virtue and flaw of capitalism is that it privileges self-interest (aka greed) over all other values. That defines the current economic ideology as one that I for one am increasingly skeptical about.

The "why" never gets asked.

by aperniciaro on Tue, 10/20/2009 - 1:46pm

I've read a lot of columns in FP and other news outlets recently about economic regulation, often with Michael Moore references. It boils down to: Moore is right, Capitol Hill and Wall Street are evil, the system has to go. Or: Moore is wrong, The system works, if only Capitol Hill and Wall Street weren't so evil that they messed it up.
In either case for the commentators, and in Moore's/every other pundit yelling at me from the TV's case, no one seems to ask why Capitol Hill and Wall Street are like that, especially if the system they exist in is not evil and corruptive. There are a lot of smart people commenting, why has no one hit this point? (Yes, I know the answer, but even though media depends on customers to continue running, at least someone should have stuck their neck out by now.)
Politicians are elected. Banks and financial services need customers. Right there, we see that the average Joe has the power over both Capitol Hill and Wall Street.
The average American watches 4 hours of TV a day, but doesn't read the news, vote, and has never set foot in an economics class.
So, one lousy bank offers better rates, customers can't be bothered to read the fine print and find out why, they just take the mortgage they can't afford. Other banks, can a) go out of business, or b) make similarly shady promises.
Politicians needs a national, informed electorate. But people won't read the papers to learn about issues and candidates, so prospective leaders need to make short pandering TV ads that cost a bundle. And we, The People, spend $5 on Starbucks coffee, but wont check the box on our taxes to give $3 to the election fund. So where will our senators and congresspeople get the big money they need for the TV ads to reach their ignorant and apathetic public? Businesses, the ones we blindly fork our money over to.
For every person who complains about a lack of accountability in Washington and the financial world, the response is simple. We have both a democracy and a free market. In both cases YOU are the one who is supposed to be keeping them accountable! A simple, unpleasant truth. We have only ourselves to blame

Stop blaming bankers,

by AllanGreen on Wed, 10/21/2009 - 6:43am

Stop blaming bankers, Greenspan, capitalism. Please, it's so 19th century.

First lets blame dishonesty. People lie more than ever. Two, as they lie, they claim to work a lot, when in fact they work very little (they surf the internet at work - like me). Three, they are lazy about everything, political engagement, community engagement, etc. Four, their only activity in which they seem to excel and devote a lot of time to - is fault finding, blame finding, and complaining.

That's why we are in this mess. Not because of any bankers, Greenspans, governments, or whatever person, profession, and scapegoat you choose.

Finger pointing is really fun, until the finger points your way.

Hey, I know I am lazy, but I know my grandfather wasn't. Whatever happened between his generation and mine, is the raeson for this mess. I'm not saying 1929 was the same thing. Heaven forbid. Only the intellecctual pigmies that pontificate at the CFR or get Tenures, have some psychopathic tendency to retroactively homogenize all of history through some new concept or paradigm (J-Curve, Traged of the Commons, Happiness of the Commons, you name it, they rewrite history with it.) Whatever 1929 was, it aint 2009. Both were melt-downs, but they didn't have they don't necessarily have the same reasons.

Think about it - if you need to resists it. Yesterday you fell because a horse ran you down, today a car ran you down, tomorrow, you'll trip over a dead camel. Oh, and the fourth fall?

Off a tree.

Make some sense?