In "Fight On Goldman Sachs!," Frank Rich describes the prospect that President Obama and Congress will re-regulate Wall Street by saying...
Even if the reform bill does bring stringent regulation to derivatives -- a big if -- that won't rectify capitalism's worst "innovation" in our own Gilded Age: the advent of exotic, speculative "investments" that have no redeeming social value and are instead concocted to facilitate gambling for its own sake.
No redeeming social value. What form of capitalism - especially in a country founded on the "social" principles of life, liberty, and the pursuit of happiness - allows such a huge segment of its economy to create no redeeming social value? What form of capitalism is this, given that the founding document that speaks of those three principles - The Declaration of Independence - ends with the sentence...
And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.
Frank Rich goes on to say...
As many have said -- though not many politicians in either party -- something is fundamentally amiss in a financial culture that thrives on "products" that create nothing and produce nothing except new ways to make bigger bets and stack the deck in favor of the house. "At least in an actual casino, the damage is contained to gamblers," wrote the financial journalist Roger Lowenstein in The Times Magazine last month. This catastrophe cost the economy eight million jobs.
Something is fundamentally amiss indeed!
Thinking Internationally, Not Nationally
But here's where it would appear that Frank Rich misses the big - as in internationally big - picture.
He writes about how Ted Kaufman, Democrat of Delaware, is demanding that we root out the "fraud and potential criminal conduct" that "were at the heart of the financial crisis.".... and how such an "overdue reckoning" (in Frank's words) is needed.
After mentioning "financial culture," Frank Rich defaults to writing about the classic "find the criminals and lock them up" solution. Doesn't he realize that - even if those who many of us believe should serve jail time do so - that the financial culture that produced this crisis will remain?
It is the cultural issue that I urge you all to think very deeply about. Forget for now the very appealing vision of seeing certain Wall Street titans in jail. And ask yourself what are the attitudes shared by all the people on Wall Street - as well as many other financial industry professionals around the world - that are at the root of this crisis?
The book The Road From Ruin (which I previously reviewed here) takes up this question -admittedly with a U.S.-centric perspective - when it discusses issues such as the pervasiveness of short term thinking and the inability of business leaders to be barred from practicing their chosen profession if they intentionally harm society the way doctors or lawyers can.Global Financial Forum - titled "Building a New Financial Order" - an international group of policymakers, regulators and financiers will discuss the future of the financial services industry, and the measures needed to avoid future crises. Here are their names and the program's agenda:
9:00 AM Session One: Rebalancing the Global Economy: Overview
Chair Dr. Robin Niblett Director, Chatham House
Gary Von Lehmden Deputy Chairman, BritishAmerican Business, Managing Director, Citigroup
Christine Lagarde Minister of Economy, Industry & Employment, France
Nouriel Roubini Professor of Economics, New York University; Chairman, Roubini Global Economics
10:50 AM Session Two: Restructuring the Financial Sector
Chair Dr. DeAnne Julius Chairman, Chatham House
Robert P. Kelly Chairman and Chief Executive Officer, BNY Mellon
Duncan L. Niederauer Chief Executive Officer, NYSE Euronext
Ethiopis Tafara Director, Office of International Affairs, US Securities and Exchange Commission
Jaime Caruana General Manager, Bank for International Settlements
Barnabas Reynolds Partner & Head of Financial Institutions Advisory and Financial Regulatory Group, Shearman & Sterling LLP
1:30 PM Lunchtime Address
Chair John Keller Partner, Financial Services, Ernst & Young LLP
Vikram S. Pandit Chief Executive Officer, Citigroup, Inc.
2:30 PM Session Three: Restoring Financial Stability
Chair Robert Thomson Managing Editor,Wall Street Journal
Charles Collyns Asst. Secretary for International Finance, Office of International Affairs, US Department of the Treasury
Sean Hagan General Counsel and Director of the Legal Department, International Monetary Fund
Fabrizio Saccomann Director General, Banca d'Italia
Paola Subacchi Research Director, International Economics, Chatham House
Noel V. Lateef President and Chief Executive Officer, Foreign Policy Association
Here is how the program is described...
Governments worldwide have taken steps to relaunch economic growth and boost investment prospects. They must balance these goals against the need to regain control over public finances and promises to ensure financial stability in the future.
What is necessary to create a new, more stable global financial order and how far will global cooperation extend? Will new financial regulatory rules ensure high rates of economic growth or will they hamper investment and beneficial financial innovation? To what extent is it possible to prevent future financial crises, or are crises too deeply rooted in fallible human behavior?
The conference will examine the impact of the stimulus and regulatory measures enacted by governments worldwide and consider the outlook for the global economy. It will outline the likely future shape and robustness of the global financial services industry, discuss the measures necessary to restore global financial stability and debate the implications of government intervention and guarantees in ensuring future economic growth.
I really like the question "To what extent is it possible to prevent future financial crises, or are crises too deeply rooted in fallible human behavior?"
Prevention - not locking up bad people after they have hurt our nation or, even, all the nations of the world - is where real progress can be made. But one has to think of the whole system in order to make such progress, not of the behavior of individuals.
It's The Culture, Stupid!
Frank Rich says...
...the financial sector's runaway casino culture -- much of it legal -- ...turned a subprime-mortgage bubble in a handful of overheated American states into an international economic meltdown.
Yes, it's a casino culture we are dealing with... one that affects the international economic system, not just the one here in America. Frank Rich realizes we're facing a cultural challenge but - like so many - appears unable to see past the classic regulatory, "threaten to punish bad behavior" prevention model.
We all know you cannot legislate morality. We know that threats of prison time or even the death sentence don't stop crime.
But a culture can change from within, when new information is added into the mix. This leads to new knowledge, which leads to new wisdom, and we get what British historian James Burke famously labeled "The Day The Universe Changed" in his landmark TV series of the same name.
It is the culture underlying our international economic system we must examine, if we are to eliminate the root cause of this crisis. Ultimately, this was a crisis of behavior of the entire financial community. It was a crisis of values. It was a crisis born out of a culture that delighted in creating "exotic, speculative investments" that had no redeeming social value and were instead concocted to facilitate gambling for its own sake.
The business of business is making money, no questions asked? No!
It may have been until now, but it can be that way no more. Not when the social consequences of a particular money-making idea can potentially hurt all of society.
At last week's re-Set Business forum, former Disney CEO Michael Eisner came out strongly against Wall Street's new plan to permit investors to speculate on future motion picture box office gross receipts. "Don't investors know how easily those figures can be manipulated by motion picture studios?" he said.
Another "exotic, speculative" idea concocted to facilitate gambling for its own sake.
My Challenge To Wall Street
To all of the super-brilliant people who have been hired by Wall Street in recent years - and who might, otherwise, have gone to work in industries that are capable of producing real progress for society as a whole - I offer up this challenge:
Use your creative brilliance to design a form of investing that re-balances the global economy in accordance with the true reality of our post-Cold War world.
Design a form of investing that transforms the global military industrial complex into one designed to keep the nations of the world safe from asymmetrical violence perpetrated by small groups of extremists - not from the no-longer-going-to-happen Cold War-type battles the military industrial complex is still designed to fight.
The world needs a military industrial complex. But the one we have now is obsolete. Its design is based on a world that no longer exists.
You like to say that the business world - not the government - is the home of innovation. Well, here's a great opportunity for you to prove your point!
Think this is a crazy idea? It fits with the global commitment - supported by business groups such as the US Chamber of Commerce's Business Civic Leadership Center - to achieving the UN Millennium Development Goals. Those goals are meant to be reached by 2015.
And a lot of the money needed to reach those goals can be found in those global military expenditures devoted to planning to fight a type of war that will never happen again.
This financial reality - and tremendous opportunity for innovation - was artfully demonstrated at The Economist's recent Corporate Citizenship conference. As you think about what Wall Street reform should look like (and, truly, what international economic reform should look like), I invite you to watch the presentation on this subject from The Economist's conference. It was given by Ben Cohen, founding partner of Ben & Jerry's Ice Cream but - more importantly in this instance - the founder of Business Leaders for Sensible Priorities, which last year became a project of the Center for American Progress in Washington DC.
Financial innovation (Disinvestment) contributed significantly to ending Apartheid in South Africa. I believe it's time for financial innovation to contribute to positive global development again.
The global financial crisis is the best opportunity we may ever have to set a new global economic course towards prosperity for all. The Millennium Development Goals were a significant sign post along that journey.
Will something come out of tomorrow's "Building a New Financial Order" meeting that further fits with this opportunity? I am going to the event and will report back on what happens.
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