Wednesday, April 08, 2009

The Golden Mean(ie)

The spectacle of the CEO of Goldman Sachs, Lloyd Blankfein, admitting that the poor little banksters had gone astray had many reactions yesterday. Pearlstein at WaPo was amusing us this a.m. with a few choice observations, and a few lessons he thought Blankfein hadn't quite taken in.

"We collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public's long-term interests," said Blankfein, whose unflashy, straightforward style is more Mr. Whipple than Gordon Gekko.

Explaining why the industry failed to understand the risks it was taking, Blankfein identified the kinds of rationalizations that people latched on to: the growing strength of emerging markets, the plentiful supply of liquidity and the availability of new risk-hedging instruments.

"We rationalized because our self-interest in preserving and growing our market share, as competitors, sometimes blinds us -- especially when exuberance is at its peak," Blankfein said.

He also acknowledged that too much faith was put in risk models that turned out to be badly flawed and that the size of the firms and the complexity of the financial instruments had been allowed to grow faster than the "operational capacity to manage them."

To make sure it doesn't happen again, Blankfein called for stepped-up regulation of banks and even hedge funds. He also laid out a spot-on set of guidelines for industry bonuses that would give greater weight to the performance of the entire firm than just individual performance and reflect long-term risks as well as the short-term gains.

Okay, so it's not exactly up there with the confessions of St. Augustine, but it's a start.
It's all well and good for the Goldman Sachs chairman to call for better regulation of the financial industry. But regulators are unlikely to do much better during the next bubble unless we can find better ways to insulate them from Wall Street's outsize political influence.

Pearlstein sees a culture of taking advantage of consumer confidence a.k.a. gullibility, as a major problem and influence by intense lobbying the other.

It's a beginning, to paraphrase Pearlstein. What even the best paid financial wizards seem unable to face, though, is pretty simple to me. Businesses have been undercut by the very means these mogul hordes intended to benefit them, the deprivation of income of our working classes. The reliance on consumers is ludicrous in the fact of policies that disable consumers. Living wages isn't just about the person who earns them, it's also about the economy that RELIES on them.

The great prosperity of the '50's came not from wealthy financiers making money out of sows' ears, but about a working class that could afford that vital Disposable Income. With it, they purchased the refrigerators and television sets that made us a model of prosperity.

From a system that rewarded all work, the moguls devolved into milking profits out of their firms until they strangled, while holding the rewards of their workers down. The result was strangled firms and loss of purchasing power by consumers, while it all was shoveled into the pockets of the stranglers. This class warfare meant that a huge divide between income for those at the top, who were counterproductive, and those in the working, productive, realm grew exponentially wider apart.

Maybe a little Socrates would help them. Recall, the ideal state was one without immoderate amounts of wealth or poverty.

...our aim in founding the State was not the disproportionate happiness of any one class, but the greatest happiness of the whole; we thought that in a State which is ordered with a view to the good of the whole we should be most likely to find justice, and in the ill-ordered State injustice

Nice of the mogul horde to illustrate Plato's point in The Republic. What we have is disaster for the whole State because the very wealthy turned everything to their own accumulation instead of making the simple deduction that they depended on purchasers for their products. That goose that laid the golden eggs, the consumer, was eaten for eight years. Hopefully, it won't take eight years to fatten it back up, but things aren't looking very hopeful at the present.

QL was remarking the other morning that from her point of view as a retiree - with much diminished income because of the reduced value of retirement funds - it looks like we all worked a year or so for those earnings pitched into the pot that this financiers' meltdown has overturned.

What the wingnuts like to call socialist - welfare - European - class warfare - is really basic good sense, and taught by most religions. Robbing the poor to give to the rich just doesn't work, not for anyone. Those fortunes lost by investors are not the result of poor folks taking to the streets proposing injustices; they're the results of equanimity in the face of those injustices.

More Socratic wisdom; is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again.

Immoderation amounted to stupidity on the part of Wall Street and on the part of the past maladministration. Unfortunately, we all will suffer the consequences.

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Anonymous doncjesuis said...

Living wages isn't just about the person who earns them, it's also about the economy that RELIES on them.

Well said. Nice post, Ruth.

9:07 AM  
Blogger Ruth said...

Thanks, doncjesuis, it's sort of a mantra of mine that living wages are life to a consumer economy.

10:17 AM  

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