Watching the two scandals that have emerged regarding BBC journalism across the last two months has been troubling in terms of our capitalist system.

On the one hand, we do need to hold leaders of businesses such as this more accountable for performance of their businesses, but there is a significant counter tendency to throw out the leaders regardless of who’s responsible for what went wrong.

There can be two mistakes that are made in the way this kind of thing comes down: The first is when the wrong evaluation of responsibility takes place. Examples abound. Often, this is when the economy takes a left turn and the business suffers. Sometimes, often, there is no executive who could rightly be judged to have anticipated this and to have had a plan in mind to avoid it. Nevertheless, we throw out the CEO and others sometimes, and we go out to find another executive. All of this adds up to “whitewashing” the situation and forcing a “scapegoat” to be held responsible for the problems, plus a huge loss of effectiveness while a new team is installed and comes up to speed. This is done by Boards, often, to preserve their own positions–it’s more risky for them to stick with the present executives through a crisis, although that might well result in better long term value for the enterprise. It looks better for them to be “decisive” and throw the team out.  Presumably, everyone can go away feeling satisfied that this kind of thing could never happen again–but it inevitably does.

The second way is when someone like George Entwistle is forced to resign, when his time in office is so short–54 days in his case–that it is normally extremely unrealistic to expect he would have been able to uncover journalistic flaws and holes such as to prevent these two scandals developing. And, best as this American in London can see, he has not tried to cover anything up, was busy setting about to get to the bottom of it and fix the system.

British broadcasters even criticized him for his not reading the Herald Tribune on the morning of the revelation that the 2nd scandal was clarified–the accused of sexual abuse did not do it, he later learned. Entwistle had been off early to make a speech that morning and hadn’t time to read the paper. Broadcasters interviewing him criticized him for bad priorities–which seems ridiculous on the surface–if he had known such information was to be revealed, he surely would have read the paper, but no one knew that!

We don’t know this executive. Perhaps he’s not the best who could be found. Nevertheless, England, you’re moving too quickly to judge someone who hasn’t had the opportunity to try to make a better BBC for you. And, how is that most of the press has been so complimentary to the oversight trust and its executive?  Didn’t they choose Entwistle, and what support did they give him to get started? All of the people and processes that resulted in these problems are the creation of his predecessors, and some of the subordinates, some of whom he would surely have properly disciplined, given time to make sure his findings were fair.

In a case like this, why is there no-one who is willing to stand up and defend the long and proven journalistic record of the BBC and also to defend the right for this man to have a chance to make it better? Why does everyone seem to want to take the position of being the most “moral?” What if he had been there 43 days? 33? There are often two sides to morality around an issue, and we believe you erred in this one by leaping to what is seen to be the side that will gain most popularity with the vast public. Where is the leader who is willing to stand up for what she thinks is truly fair and best?

This kind of thing happens in the US too, but in this case, England, shame on you!

We are hoping that the 48th President of the US will make immigration reform a major agenda item.

As Michael Teitelbaum of the Sloan Foundation so clearly outlined–here are some of the diametrically opposed underlying assumptions: Immigrants are seen…

There are several basic issues, all arguing in favor of restructuring and liberalizing our immigration policy: The first issue is our heritage. We are a nation of immigrants, which is now threatening to close the door on immigration. Don’t we give any credit to the benefits of immigration that across less than 250 years, raised the US from a few disgruntled European immigrants, to the status of the strongest nation in the world? There has to be some credit given the drive, energy, hope, determination, and persistence that immigrants of all kinds brought to our shores. This is one of our unique distinctions in the world–that we are a nation that can tolerate and accept people of other cultures, religions, languages, and we can find the way to integrate and yet respect the differences of peoples from everywhere. Let’s not forget our heritage!

Now, 250 years later, we have a very tangible, indisputable reason–we are a nation which is aging, with a birth rate inadequate to generate youth to work and pay into the social security system to provide care for a population which will live much longer than we expected, thanks to many things, including the advancements of the science of medicine during our lifetimes. If we cannot produce the youth, we need to invite them to our shores–they are waiting! We take in about 6.5 million annually now, but that’s inadequate to meet the needs of our aging population.

Then, there is the contradiction of our driving the world to embrace globalism, free trade, and all of that, launched by the Reagan administration and supported by every administration since then. We have dominated the international governmental organizations’ leadership staffing and their agenda and policies, all of which leads to the developing world being pressured to open their borders to foreign trade. There has been much good to attribute to this drive. We can take partial credit for helping to enable China and India to free 500 million people of poverty since 1980, as an example. However, this drive led by the US has also meant that there are many countries where the opportunity of globalization could not be captured, at least not in the methods demanded of them by the World Bank and the IMF, populated by Washington ideas and policies.

Many of these countries had no benefit and some had increased unemployment, deeper poverty,as they found their limited (usually agricultural) based industries suddenly forced to cope with cheap imports, in some cases resulting from subsidies from wealthy governments seeking to protect their own wealth interests. Examples are the US subsidizing of cotton farmers in the US, such that cotton farmers in sub-Saharan Africa cannot compete, or the EU imposing tariffs on banana imports from countries other than their former colonies.

And, while we promote this openness of trade (to our benefit, far and away more than that of any other country), we deny the disadvantaged of those countries to come to the US and find a job, pay taxes, and have a chance at a life that is better than where they are. How can these two policies co-exist?

Then there is the moral issue: We were born in the US. We need to imagine, just for a moment, how we would feel if we were born in sub-Saharan Africa or in a poor town just south of our Mexican border. Do we really imagine that, seeking the best opportunity for ourselves and our families, we would not try almost any way possible to have a chance at the opportunity in the US? I know I would swim the river for the opportunity!

That leads to what Conservatives may find to be the lynchpin of their anit-immigration argument. I find it so ineffective to hear that a conservative ran into a legal immigrant taxi drive who is frustrated with illegal immigration. That is probably true of most who suffered through our extraordinarily difficult process, but it doesn’t man anything in terms of the answers to the big questions.

It seems that for conservatives, everything hinges on the reportedly 12 million illegal immigrants, mostly from Mexico, that live in our country. It almost seems that if they can win the argument to deport all the illegals, then that’s the whole issue resolved–just keep the system we have, build higher fences, etc.

Parenthetically, we don’t know, but can imagine that a good many of those illegals in the US may well have tried to immigrate legally–and if you haven’t immigrated legally, or tried to, you may not know how extraordinarily complex and difficult it is to do so, depending on your country or origin, to some extent. So, many of the illegals may have tried to be legal, but were denied, and perhaps many were denied for what the State Department calls “discretionary” reasons, which means that while I found nothing wrong with your record, I just have a bad feeling about you–and there is no recourse available if I am the agent handling your case.  We have skilled lawyers available in the US for those who can afford it, and they tell me they know which one of our immigration offices and which officer is most amenable to people of certain types of backgrounds, and which are not. What kind of system is this?

As to those who are here illegally, no one can dispute that they should have come legally, but the burden of that is on both them and on us, for the difficulties we imposed on their coming. But, they’re here. And, for those who are paying taxes or are willing to do so, and do not have a criminal record, let’s give them a chance and let go of the irritation and all the associated unresolved issues as to who is responsible–us or them, and let them stay. For the others, we need a broader set of criteria to break them down into groups and evaluate, assist, etc. For those involved in crime, etc., deportation may be appropriate, but even here, we need to examine the issues involved.

We need to liberalize and streamline our rules and procedures. And, it’s not right to just admit the wealthy who can buy homes or start businesses and hire people–yes to them, right away, but we also need to be open to people like those who came across on the Mayflower–most of them were not engineers or business investors.

Lastly, there can be little doubt that the world is careening toward one world–just take a look down your main street and notice the dramatic change in enthnicity of people who share space with you. We can go about this worldwide integration reluctantly, with resistance, even force and violence, or we can go about it willingly, thoughtfully, and with belief we can find the good in it–as we have so many ways across our 250 years. But, either way, it is inevitable–the world is becoming one world. Let’s be leaders in the integration.

Having devoted two posts to defending the personal integrity of most bankers, who have been excoriated not only by Joseph Stiglitz, but by America’s common man as well (with rhetoric from left wingers and anyone who can hope to gain from such blame assignment, and this is a rather all-inclusive group), we now turn to what’s wrong and what to do about it.

Stiglitz is right that the bonus and stock option system of bank management is wrong. It tends to reward for short periods of performance, like one year. What’s needed is a longer period of evaluation, minimum of 5 years, long enough to let the performance of their decisions play out.  And, any amounts paid out in the early years should be minimal percentages, with clawback provisions in case loans, derivatives, or other assets created or decisions taken, turn out to have negative consequences.

Now, let’s point out that the same is good across all of industry. It’s not only bankers who use the short term incentive plans and have no significant penalties for failure across a longer term. If we want this to be the model in our particular form of capitalism, we could actually require that by a simple set of laws.

Another benefit would be to take Dodd Frank to a stronger level and take out all trading in derivatives, except to the extent it is at customer request to hedge interest rate exposure. We got partially there with Dodd Frank, but not all the way. Such types of activities and investments which are not clearly for customer business transaction support should be put into a separate entity by those who want to engage in it, with separate shareholders and separate management–e.g., the Wells Fargo Bank for Derivatives and Other High Risk Activities. Such entities would instantly be held to a much higher standard by their clients, considering that they are no longer protected by the strength of the bank and it’s huge base of customers. Capital demands on these institutions would be much higher, and those who want to play in this casino can do so without affecting the public.

This would, of course, leave bankers who want to write mortgage loans to their personal clients, to have the right to sell those loans. So, they could structure packages of such loans, dividing them into segments for investors of varying risk/reward appetites, and sell those structured products. Products of that sort are sometimes called credit derivatives or mortgage derivatives.  They wouldn’t be allowed to trade in those loans for their own account, but they would be allowed to buy them for their wealth management clients.

We should have minimum net worth and risk acceptance policies for wealth management investors who  accept products such as derivatives and hedge funds in their portfolio’s.

Next would be a limit on size. There is simply no way around banks being too big to fail except that. We try and try to come up with regulations that will prevent excessive risk taking, but for institutions (of any kind) which are leveraged 10:1 or thereabouts, there simply will always be a risk of failure. More on regulation momentarily.  So, we should define what is the maximum size to allow a bank to grow to, best defined in share of market. 5% would be a decent limit for consideration. Right now, we’re around 50% of the market when combining the four largest banks in the US. That’s too large.

The problem with regulation: We need regulations, but if they are too complex and if they require too much transaction analysis, the regulation is not effective. The reasons are that banks pay a great deal more for their decision making employees, such as lenders, and if the Federal Reserve’s hires, who generally know far less about loan analysis, try to 2nd guess the bankers, it just doesn’t work. They are directed to find problems, so they find some–but what they find are usually not the pockets of greatest risk, and an enormous amount of time and money is wasted on the part of the Fed and also the bankers. Better would be simple rules which end up forcing the unconventional loans to a different group of uninsured institutions.  Of course, this means some market controlled inefficiency ala Adam Smith, but the tradeoff is worth it.  Here’s an example of a simple regulation: Minimum 15% down payment on any real estate loan, no matter the credit strength of the borrower–and the 15% cannot be borrowed from any other party–must come from liquid resources of the borrower. This is easy to monitor, and those who need to borrow (and can justify) with less down, can do so at non-bank, non-insured institutions. Of course loans with 15% down can still default, but at least there would be a lot less–and the regulators can’t figure out which of the below 15% loans are risky, anyway. Many of those borrowers pay on time, but the down payment minimum would eliminate a significant segment of risk.

Here is another sure fire way to reduce risk for loans made by banks: limited liability. Banks should be prohibited from making loans with the borrowers exculpated from liability. There should be a minimum of liability that is required when borrowing from a bank, whether the borrower is consumer or commercial. 10% would be a good start. Competitive pressures have pushed banks to yield this valuable provision, and if it were universally required, bankers would welcome it.

And when commercial banks syndicate (sell to others) portions of the loans they create, they should be required to hold until full repayment, a portion of the loans made–again, 10% would be a good start. That way, they can’t persuade themselves that it’s a good loan for others.

Political campaign limitations should be voted in by the America people, since the Supreme Court is unwilling to do see it this way. We should not have massive amounts of money funding millions of advertising campaigns to enable election of people friendly to the wealth of the nation. This includes friends of bankers, but by no means limited to that industry.

And, those who work in government should sign a pledge not to work in any industry with which they had any association while in government, and we should not permit those in private industry to take on government oversight jobs involving the industry from which they came. A waiting period of 5 years should be sufficient. Similarly for lobbyists–5 year waiting period going in either direction.

This is just a start–but it would get us off to a good beginning to lesser risk, fewer failures, and less downside to the American public.

In our previous post, we defended the integrity of the employees of banks, who in our opinion, are little different from those in the technology industry or elsewhere, in terms of their adherence to law and regulation, desire to do the right thing, or, on the other hand, in terms of the (small) percentage who are intentionally attempting to cheat in order to gain advantage.

We asked the question: “Is there a moral obligation that goes beyond the law and regulation?” E.g., if one is abiding by the law and regulation, in any industry, then is it fair, or is it reasonable, for us to expect behavior to adjust to an even higher “moral standard?”

Neoclassical economists (and most Republicans) would seem to answer that we have too much government (law) and regulation, in the first place, and self interest will provide the best results in the marketplace, assuming minimal government intervention. We don’t know of any prominent right wing writings that call for a higher moral standard than already exists as defined in the current law and regulation, which they regard as excessive.

We argued that Stiglitz unfairly vilifies bankers for behavior that was in the vast preponderance of cases, well within the law and regulation–otherwise, our system is well designed to punish, and, as he complains, there was relatively little malfeasance and punishment found and delivered. And, while none of the administrations across the last 30 years in the US or the UK has significantly increased regulation, it still is true that our two countries are two of the most regulated in the world, with the most stringent laws.

Should we say, then, that the biggest banks (investment banks included), with the greatest talent, should not create new innovative instruments, such as credit derivative products? These are products which are admittedly extremely complex, extremely hard to explain to unsophisticated investors. But these products, when successful, efficiently deliver great benefits to the market. Those who want to invest in high risk can buy a tranche of the high yield and high risk portions. Those who want little risk can buy the lower yield portions.  The combination of all this creates highly marketable instruments which deliver a lower overall yield in the market, and lower mortgage costs to the homebuyer. What’s wrong with that?

And, sometimes, in the ups and downs which are now characteristic of our financial markets since Reagan/Thatcher unleashed neoliberal economics, there will be market crashes, in which the best educated of the analysts were simply wrong–they underestimated the downside risk of the market collapse in their models. They didn’t do this intentionally–they simply tried to use a “reasonable range” from best to worst outcomes. If one uses the worst worst imaginable outcome in modeling any future scenario, one would never make any investment–isn’t that right? We assume examples are not needed–it’s so self evident to all when we think about it.

Is this any different, really, from what we might see, and defend as the nature of our wonderful “capitalism” in any other industry? Don’t we find that there is a continuous stream of failures in all industries as competitors fight for opportunities? Most of the startups fail, and we hope that the few which succeed will provided returns to more than make up for the losers. Blackberry devices may be failing, while iPhones may be succeeding. Investors in Research in Motion are losing money. Investors in Apple are making money. If Apple had used the worst possible scenario for various technology failures, their device would cost so much that no one would buy it. As it is, it’s the most expensive.

So, if the creators of credit derivatives, or many of them, with this new product, failed, why do we impose a different standard on them than we impose on Research in Motion? We certainly could argue that the management of that mobile device company misled us with promises of its overwhelming virtues. But, we don’t. Why?

Did the bankers make mistakes? Yes! Did the bankers benefit from largess of government? Yes, in at least three ways–regulation (and the process of poorly administering regulations) and law that was less than effective; and, by reason of the Federal Reserve’s providing such low cost money as to subsidize the banks through “rents,” as it is known in economics; and, by “bailing out” the big banks when their excesses brought them to near disaster. It’s also true that top management of the banks did not suffer enough in terms of their salaries/bonuses/jobs, but in our opinion, that’s more a characterization of our entire economy–all our public companies–not just banks. Auto companies were bailed out, too.

And, again, none of this was “illegal” or in violation of regulation. It was government (if we include the Fed, not free of government influence) that decided to do these things. So, why doesn’t Stiglitz focus more on the mistakes of improper governance, rather than piling criticism on the banks? Is it perhaps because he too falls into the camp of believing in small government and thus cannot stomach the thought of better regulation and stronger laws?  Admittedly, he does address the rent seeking of the banks through the Federal Reserve, so we gather he would like to change that. The bailouts were not the decision of the banks, well received by some troubled banks and resisted by stronger ones (JP Morgan and Wells Fargo, for example). That was the government. Should we criticize the bankers for that?

So, we can criticize the banks for making mistakes. We can criticize them for sending their lobbyists and their campaign contributions. We can criticize them for failing to predict the disastrous drop in the economy in 2007/8, and for aggressive risk taking which they undertook in the heyday of 2004-7, before the drop, underwritten, so to speak, the cheap money policy of the Fed (government). We can criticize them for straying away from their primary purpose of taking deposits and lending to the public. We can say their management profited too much. But, we can’t say they were generally operating outside law and regulation–that’s not proven and that’s not true. Arranging “robo-signing” of mortgage documents was not an attempt to deceive anyone–it was just a poorly executed attempt to deal with the overwhelming volume of requests for mortgages (resulting from the Fed driving down interest rates in its attempt to prioritize its focus on inflation over its responsibility for full employment). It was just another mistake, like any other in the capitalist economy.

Before concluding, let’s return to the question of morality–is Stiglitz making a plea for bankers to rise to a higher level of conduct than is required by law or regulation? Is he saying the credit derivative products are immoral–perhaps because they are too complex for many to understand, or because the risks of such instruments at times of cyclical crisis are high? We are arguing that the basic criticism should be in the absence of appropriate government (and Federal Reserve) action, which was driven by the growing influence of vested wealth interests in every segment of our society.  But, let’s agree on one final observation on human nature–given the nature of our capitalism, it is not likely that any call for a higher moral standard is really going to result in significant change, unless such calls are directed more critically toward changes in government and regulation.  Any other view of such a plea could only be interpreted as a call for something other than capitalism. This will be the subject of later posts.

Milankovic’s excellent book of 2011 (The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality) puts it well: “The root cause of the crisis is not to be found in hedge funds and bankers who simply behaved with the greed to which they are accustomed (and for which economists used to praise them). The real cause of the crisis lies in huge inequalities in income distribution that generated much larger investable funds than could be profitably employed. The political problem of insufficient economic growth of the middle class was then “solved” by opening the floodgates of cheap credit.” P196

Most all of the failures of banking should be seen as failures of our brand of financial capitalism, and if we want to change it, that’s not going to happen by simply criticizing the banks. It has to happen at the level of how the government manages the economy–we are in need of an overhaul there!

Before signing up the SOAS course, I naively thought that globalization was about the movement of people. I thought it was most significant in what we see here in San Francisco, or even in my home town of High Point, North Carolina, a much smaller town. In every place we visit in the US and in the world, we find a wide array of languages, ethnicities, customs, dress, behaviors, that were not prevalent when I was growing up. I though globalization was a social issue–dealing with how do we all best “get along” with each other, accept each other, and cooperate in making our communities meet our needs.

It is about that, of course, but it turns out to be much more, as defined by many scholars and authorities. It’s also about trade (and trade tariffs, embargoes, restrictions, etc.). It’s also about economics. This is a very big part of the study and understanding of globalization, as our jobs, wealth, and many of the benefits of our lives are defined in terms of economics. It’s also about how governments collaborate or fail to do so, and about the rules of the road in terms of how we best maintain the quality of the planet and share the burden or maintenance in a fair and rational way. It’s about culture and faith and whether we are drawn more to homogenity or whether we can protect the valuable elements of our individual beliefs and cultures. It’s about all of this and more. And, it’s not new–we have been trading and moving around this planet for thousands of years. But, it does seem to many that the pace of globalization is accelerating rapidly and bringing with that heightened pace, a whole new set of opportunities and challenges.

One last thought for today: In starting the reading the half dozen books I am into now, I began with the presumption that the invisible hand of the market would be the best way to deal with the issues of globalization. As an example, I started with feeling exasperated that some Americans blame China for “stealing” their jobs,” while failing to acknowledge they they shop at Walmart and save significant amounts of spending money by buying quality products made extraordinarily cheaply in China.

I still feel that way, but I do now see that there is much more to consider. There is another side to all of this. The interests of corporations are rightfully in their own betterment, and so are those of countries, and if we don’t find better ways to resolve some of them, we’ll have huge problems in our world. One example–our agricultural subsidies in the US are enormous, and those (as well as a variety of trade restrictions, tariffs, etc.) make it impossible for some poor nations to supply us with food at prices which would be (a) well below our cost for domestic production; and (b) lifesaving sources of income for certain poor countries which only have agriculture to offer to the world.

We are reading Joe Stiglitz’ book The Price of Inequality. There is much to commend about this book. Indeed, the growing inequality of the US should be a concern, even to those in the 1% who have benefitted most from the growing inequality resulting from the neoliberal growth of globalization across the period since 1980, especially.

In later posts, we will talk about more of Stiglitz’ findings and the value they play in helping us think through how we got into this precarious position and, more importantly, what we can do about it.

Here, we want to take issue with one tendency which recurs throughout the book: The tendency to severely criticize the bankers and the leaders of industry in regard to practices that led to difficulties. Perhaps the first and one of the most stringent vilifications is that of bankers. We think it is fair to say that Stiglitz feels a great many more of them should be in jail now, and the reason is that they sold financial products to people knowing the buyers would not be able to meet their obligations in regard to those products, or that the products were of such a risk that selling them amounted to foisting “junk” off on the unaware, examples being sub-prime mortgages and credit derivative products. It is perhaps even suggested that Goldman Sachs may have structured investments to fail and sold them to unwitting buyers as investments which were represented to be sound. Such allegations are generally not true, in our opinion.

This commentary is not intending to provide any more proof of its opinion than Stiglitz provided of his.

But here is our opinion:  Certainly there may have been some who behaved that way. After all, the financial services industry now employs millions of people, and in a large universe of employees in any industry in any country and in any society–capitalist or socialist–there will be a small percentage of people who misbehave. One cannot deny that.

However, it is our opinion that to waste our time suggesting such broad  malfeasance on the part of any significant segment of the financial services industry is missing where the focus should be and is unfair to people who worked in that sector.

Here is the problem: There is a tendency among many pundits to cast personal blame. After all, there was a crisis involved with finance, seemingly initiated by finance, bankers were in the center of it. Instruments they sold ended up worth less than their face value, some worthless, and some borrowers claimed they did not understand, even that they had been deceived in regard to loans they took out.

Better put, the federal reserve embarked on a program of easy money, stoking a home market with steadily rising values, leading citizens to conclude that there was no end to it all. Many highly respected expert forecasters supported such views. Then, the packages of loans that were made were commoditized into tranches of varying rate and risk, were examined closely and rated by respected rating agencies and then were sold, mostly to highly sophisticated wealthy investors in the market.  When the bubble burst, home prices fell, unemployment rose, and there was much anguish and a search for those responsible. Incidentally, interest rates did not go up on those variable mortgages sold. They went down, but, nevertheless, due to the drop in home prices and the rise in unemployment, many found they could not meet their mortgage obligations. The fact that few have been jailed is not a poor reflection of our justice system, as Stiglitz implies, because there was quite a search, and few existed who actually engaged in criminal activity.

One might pause to ask, why wasn’t more criticism given to or taken by those borrowers and investors? After all, the borrowers borrowed the money–by and large, few were sought out in their homes and persuaded by bankers to borrow, and most of the derivatives were bought by people who had the capacity to understand or to know they couldn’t possibly understand (and thus avoid).

And, if there was little criminal activity, as we suggest, should we then seek to vilify those who acted within the law and regulation and ended up making mistakes? Mistakes are common in capitalism–in fact, in some respects, that’s what capitalism is all about–the law of the jungle, let the strongest win, so long as no laws are broken. People make mistakes all the time in capitalism. And as capitalism moves faster and faster, we experience more and more crises, in which finance is increasingly central. This is the system we all signed up for–increasingly liberal capitalism–that means increasingly frequent boom and bust.  Why are we always looking for someone to punish? Are we asking that some greater rule of morality exist, superceding the actual law and regulation of the state? The laws and regulations are already sufficient to yield punishment to anyone who knowingly deceives another in regard to the description of a product for the seller’s gain.

The problem resulted from our capitalist system (#1) and from the financialization of capital (#2), from the lack of sufficient and effective government management and law and regulation of such (#3), and from incentives that were created within those financial firms which motivated a search for more and more sales of products. But, such search for sales was genuinely accompanied by a widespread belief that what was being sold was valid, good, and beneficial. E.g., it was good to help a low income renter be able to buy a home on a variable interest rate that was so low as to enable him to start to build some equity. There was no clever conspiracy among either management or employees in the financial system that this was a cycle and that it would come to a crashing end, thus sell as much of this “junk” as you can before the crash. That was not the belief.  If that were the belief, it would not be hard to confirm–just look at the assets of the employees of the financial institutions who were selling the products–it’s likely their assets before the crash would look like those of their customers–new homes, new mortgages, and aggressive investment in the stock market with anything left over–the opposite of what any of us would have owned if we thought there would be another crash.  And, after the crash, we imagine their balance sheets would look similar to those of their customers–a big loss! They lost millions too, when what they believed in crashed.

Incidentally, we find it somewhat perplexing, after decades of observing the boom and bust cycles our brand of financial capitalism has brought us, to see that after the bust in each cycle we search so hard for the perpetrators. Shouldn’t we look first to see who gained from the bust? And, if there was immediate gain (as in selling the economy short with one of the many instruments now available in our complex liquid market), the next thing to do would be to see if those were the people who were directing the financial service industry–i.e., key management–and did the financial institution gain as well, because only in those two “successes” would there be instant verification of motive and illegal behavior. Not hard to research, not hard to find.  The truth is that in the troughs of our regular busts, there are VERY FEW who were prescient enough to have called it–to have forecasted it and prepared for it. And, those few don’t end up being the leaders of the financial services industry. They appear to be wealthy cynics who are playing the casino of financial capitalism, either hedging or so pessimistic that they will always (eventually) be right. And, again, there are VERY FEW of them.

Do we wish to make a different argument to support blame? That argument might go something like this–OK, Goldman also lost money when the market crashed in 2008. But, they made money across the recovery period because they were smart enough and liquid enough to be able to buy distressed assets at bargain basement prices. In that way, they gained from the bust. So, in time they gained. And so did other wealthy investors who kept cash on hand, because they understand that we are now in a perpetual boom/bust pattern and great opportunities exist if you can be ready to buy. In our opinion, one cannot blame them for that, and one cannot really believe they forecasted and helped to orchestrate the bust in order to profit from it. But, let’s note that there are certainly extreme behaviors and outcomes in financial capitalism wherein one can legally garner a position such as to powerfully influence a market in his own favor–such as the legal right to buy up positions in certain commodities so as to raise the price. If not prohibited by government (which capitalists disparage), then that can happen.

The financial services market is now arguably the most regulated market we have, far beyond that governing commodities trading. And, unfortunately, additional regulation is not likely to prevent future boom/bust cycles. It’s more likely that a change in the role of government/Federal Reserve will have greater preventive value.

The bankers are not the source of the problem. Point to capitalism if you wish. Point to neoliberalism. Point to the Washington Consensus. Point to Paul Volcker. Point to Ronald Reagan (and here in the UK to Margaret Thatcher).  We want to excuse Joe Stiglitz for this error in his work–he’s a marvelously accomplished economist. He just never worked in private industry and those who have not, too often fail to fully understand how hard those people work to abide by the law and try to do the right thing–while trying to serve the profit motive of capitalism, which is the system into which they were born, not of their choice.

There is a long established history among students and scholars associated with Globalization, wherein the US is indisputably shown to take great advantage of the benefits of globalization, while finding a variety of excuses not to allow that same process to proceed wherever certain US centers of wealth have protested that they will potentially suffer.

The most recent example is the US Government’s “House Intelligence Committee” proclaiming that allowing Huawei and ZTE to do business in the US would “undermine US national security interests.”

It seems counterintuitive to us that the US, the most technologically advanced nation in the world and leading promoter of global neoliberal free trade on a worldwide basis, could take such a position.

There are likely few who would fail to see through this decision. How could we essentially say that we are unable, with all our technological brainpower, to examine the equipment and software from these suppliers, such as to verify they are not carrying or transmitting so as to endanger us? There is a 99% chance, in our opinion, that this is just another example of the US protecting its own huge and profitable suppliers, at the expense of Chinese suppliers.

If our reason is suspicion of internet espionage by China, does anyone really believe we are not conducting our own internet espionage of China on a continuous basis? If there is to be a set of rules about the allowed and dis-allowed types internet espionage, then let’s set about to negotiate that set of rules, and then we will have a basis for protest when China violates those, but to our knowledge there is no such agreement now and internet espionage is indeed indisputably common and conducted by most all advanced governments. We have to because they do, or they do because we do.

Is the iPhone banned in China? No. What would our reaction be if it were, on the basis of endangering national security for China? We all know what that reaction would be.

Here is the kind of free trade leader we really are, behind all our rhetoric to the contrary: We pay out $10 Billion annually to subsidize US farmers, who cannot really be seen as in any great economic danger, especially when compared to the farmers of Brazil, Africa, and Bangladesh. At the same time, we are increasing tariffs on solar equipment which we import from China, to protect an industry here–an industry which may be best located there, considering labor costs, etc.

We are of the opinion that the US would do well to closely examine its real intent as it relates to free trade, from which we happen to be the greatest beneficiary, by far, worldwide, no matter how the $ value is calculated. If we are for it, let’s be for it. If we want to be protectionist, then let’s be honest about that, as well, and tailor our policies accordingly, without all the rhetoric coming from lobbyists, which only weakens the voice of government in the eyes of the American public.

We are in favor of the US altering its rhetoric and its policy in regard to free trade, accept that some elements of it are going to work against US interests, but most are going to work strongly in our favor. If we are to protect certain interests, then we should strive for “fairness” in allowing others to have equal protections to their favored. This is not our behavior. We clearly seek to verbally promote free trade, but look for every possible way to protect ourselves when free trade might hurt our established interests, with no serious regard for those who are desperately poor. Their improvement in income and standard of living will benefit not only them, but also us–in the long run. Let’s take a long run and world-wide point of view.

We shouldn’t be shocked at how we are seen in the world, if we don’t try harder to be better world citizens.  The rhetoric may seem comforting to those who mouth it, but the behavior is what is souring our image in the world.

Someone, somewhere, sometimes described as an Israeli-American real estate developer from California (allegedly a “Sam Bacile”), makes a foolish decision, makes and releases a video that is insulting to members of the Muslim faith. The truth about who was behind the video has yet to be discovered. Motives are unknown, but one can only guess that whoever the producer is, he is a member of one of the many splinter groups around the world who do not wish to embrace the globalization of the world on a positive basis, seeking how we can understand and accept each other. Rather, such groups look for opportunities to exploit in the hope that they can hurt people of different faiths or can achieve some other end, or extract revenge, whether or not their target is indeed deserving of punishment.

Globalization certainly raises the question of whether there is indeed a universal “right and wrong?” When the world was more national, less global, there was less interference by one nation in the internal affairs of another nation. Now, we find that reasons for intruding, for caring to influence change in the internal affairs of another distant country can be for a variety of reasons: concerns that those internal affairs could somehow affect the business interests (e.g., energy supply) of our distant country; concerns that those affairs could result in war which might spillover to affect many other countries; and, concerns that the internal behaviors are simply “immoral” or wrong, in the opinion of us outsiders. This is seen to mean that we have a moral obligation to stop those behaviors, even if we have no authority to do so, and even if they do not appear in any way to threaten our way of life in our distant country.