Perhaps it is time to explain the tone of my holiday greeting, in which I expressed optimism.
Happy Holidays to all. It has been an eventful year. This is the season of hope and, despite all the matters that we have criticized over this past year, I am full of hope. There are well-meaning people all around us. Those that are not well-meaning, are generally uninformed, misinformed, or unskillful in their thinking. All of these things can change. We are in an evolutionary process. At times it will seem like we are stepping back. Yet we are moving forward.
While I have been enjoying the presence of friends and family and relaxing in the spirit and ambiance of the season, the media and blogosphere have continued to do heavy lifting. We will get to that in a minute. But first, my reason for optimism. Given the religious nature of Christmas itself, it is entirely appropriate to look to our spiritual traditions to consider the circumstances of our present day. The trend that encourages me has been a theme of all major spiritual traditions, which emphasize the ideas of "light" and "truth" as essentially redemptive. They are redemptive in our present day lives in two ways. The first is that the realization of truth is essentially healing inwardly (spiritual world). The second is that the truth moves us to action and provides impetus to heal ourselves and others outwardly (material world). And these two are synergistic. Inward strength enables outward action.
(As an aside, I would invite readers to share along these lines from their spiritual traditions or personal reflections)
So while I have rested, others have reported. The steady exposure of corruption in our system, the light that shines unwavering on the regimes of corruption, will have its effect. There is developing a common understanding that the system we have today is broken and that we must find the means to make it constructive. Here are some of the worthy stories of the last 10 days.
First off, on the theme of corruption, it would be silly to assume that the corruption we see in the financial system is anything other than a reflection of the corruption of power more generally. Here are two examples. In this first, it is reported that the revolving door between government and industry is as active in the realm of the military as in the financial realm. The Boston Globe highlights that the normal path for retiring senior military officers, whose pensions are already generous, is to go to work in influential and non-transparent ways for defense contractors.
The Globe analyzed the career paths of 750 of the highest ranking generals and admirals who retired during the last two decades and found that, for most, moving into what many in Washington call the "rent-a-general'' business is all but irresistible.
From 2004 through 2008, 80 percent of retiring three- and four-star officers went to work as consultants or defense executives, according to the Globe analysis.
The article goes on to illustrate how these retiring officers have inside tracks into the Pentagon and wield influence without disclosure of their financial conflicts of interests. This does remind me of one aspect of the banking business, which is that "Don't Ask, Don't Tell" is much more than a policy regarding gays in the military. It is the practice of people who know that there are ethical issues or conflicts of interest and consciously choose to do nothing about them because of mutual benefit.
A second example of corruption generally is in relation to academia and industry. This is a video interview so I can't quote it here, but the gist is that economists that opine on regulatory matters, have undisclosed financial conflicts of interest with the companies that would be affected by regulation.
Another outstanding piece from recent days is this written interview with Bill Black, from Parker and Spitzer. It is succinct and readable. The emergence of Black as a very articulate and visible critic of the culture of fraud is significant. One feature of our system of media is that for messages to get out, they have to be repeated over and over. Many academics do their research, publish a paper, perhaps write a book, and then their voice fades. Black is showing an endurance that provides hope that he can move the needle of perception. What is different about Black's approach is that he is very clear and specific in his charges. He does not generalize. He is very specific about how certain frauds work. This will make general denials less effective.
There was also a meaningful judicial ruling against Wells Fargo. Hat tip Naked Capitalism.
What makes this ruling interesting is that although it set aside a minor part of the jury award, a $1.6 million issue, to be subject to a new trial, is that it was punitive as a result of the judge's determination that the fraud was systematic. It is unusual to award the payment of the plaintiff's attorney's fees, or to order disgorgement of fees paid for services (the other component of the additional $15 million plus is interest on the $29.9 million). The basis for awarding attorneys' fees? The bank is such a menace to society that having counsel root it out is a public service. From the Minneapolis Star Tribune (hat tip reader Ted L):
The judge said that the nonprofits' lawyers, led by Minneapolis litigator Mike Ciresi, provided a "public benefit" by bringing the bank's wrongdoing to light. Thus, Monahan said, the bank must pay the plaintiffs' attorneys fees and costs, which Ciresi's firm estimated at more than $15 million...
Terry Fruth, a Minneapolis attorney who has been watching the case closely on behalf of his clients, said Monahan's post-trial order could help other investors prove similar claims against the bank.
"The judge didn't just find that Wells Fargo acted with disregard to the rights and interests of the particular plaintiffs," Fruth said of Monahan. "He said the way it ran the program was with disregard to the rights of the customers. ... He has made a finding that is going to bind Wells Fargo in other cases."
The judge made very astute observations about how business works these days. Executives create the environment in which unethical business practices can flourish, but want to keep a level of plausible deniability. That is a pretense.
Finally for today, this article about how the FinReg was effectively diluted. The source is a Barron's article but Yves Smith provides the commentary. Here's a quote to whet your appetite.
But since there has been a singular lack of appetite to do adequate forensics into what caused the crisis, since it might prove to be embarrassing to people still in powerful positions, regulators can follow the inertial course of listening to the palaver that the financial services industry puts forward to allow it to continue looting.
So back to my original premise, all this bad news is reason for hope, in that it shines light in dark, hidden places. This light will shape the common understanding, and the common understanding will shape future choices. However, it will be up to us to make those choices. If there is any unifying theme to these articles, it is that those in positions of power are not the ones that will support change in the system. Rather change in the system can only come through action on the part of the vast majority of citizens who do not have a stake in the status quo.
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