Now that it all appears to have blown over, I want to say a few more words about the AIG bonuses, and the media role in stirring the pot of fury. We had a long discussion about this in my core business journalism seminar last night.
Such poor editorial judgment is pernicious. The bonus rage not only derailed politicians from doing the important work of sorting out a real bank plan and a budget; it squandered the political will to have a real bank plan. Now that everyone in the country is out with their pitchforks for the bankers, how is the administration going to sell spending more money on this industry?
If the press had been doing its job, the last two weeks might have produced stories explaining that Wall Street funds Main Street, that even venal AIG insurers are worth your tax dollar right now. Or we might have read on page A1 about the strange phenomenon of Americans ranting against the pursuit of profit and how absurd that is. Such circumspect and constructive items appeared, but only on the inside pages of our newspapers, and in elite pockets of the wonkosphere.
I have a hunch as to why it wound up this way: it’s generational. (Note: Dan Drezner is talking the generations meme today too) The bulk of voters are over 50, close enough to retirement that even a superhero’s bank plan won’t bring back their 401K’s. The bulk of editors are the same age. Most of the time, such people are capable of putting enormous national emergencies above their own interests when the national emergency is framed as securing the future for their children.
This weekend, my mother, generally the type to lie down before moving buses for my sister and myself, said leaving her children to careers in a depressed, deflated, Japan’s-Lost-Decade economy might be worth it to get a pound of flesh from those who destroyed her retirement. I post this not as an indictment of her per se but as an example of the level the rage has reached and an explanation for why young people I know, even soak-the-rich liberals, are far less incensed by the whole bonus question than their parents. Unfortunately, elected officials won’t take any real steps on the banks until such policy polls well among our parents’ generation.
I know you’re all fed up with my approving quotes of right-wing critics but this one is too spot-on. David Frum said the above in a conversation with Daniel Drezner on Monday and I was listening to the dialogue while trying to formulate my thoughts on AIG’s bonuses, Cramer vs. Stewart and the administration’s financial plan; his quip tied it all together. Joe Scarborough (another rightwinger whom I generally deplore) pointed out the other day that the anger over each of these issues is grounded in a knee-jerk populism.
I am a populist. Not in the sense the word is often (mis)used, as a synonym for political pandering, but in its actual sense of being concerned with the needs of the masses. And I believe the only way to fulfill those needs is to increase growth for all. I’m not a supply-sider: I think government should use Keynesian spending models to spur that growth, and I think we need to heavily tax-adjust growth on the way up to make sure it’s broadly shared. But there’s just no way to have economic growth without benefitting some people at the top. Get over it.
Nobody will get out of their present economic rutt unless we bail out the banks and as the TARP legislation was written, the Treasury doesn’t have strong powers over how banks spend that money. For the record, I think that’s too bad, and that we probably should have included some clause on compensation when we passed this bill in the fall. But we didn’t. Those who are really riled up about this are whining over bonuses as a focal point for their general angst over bailing out banks.
Here’s the problem: neither Obama nor Geithner, nor Bush nor Paulson before them, has been able to explain how the financial system works or why it matters. Obama’s town hall today is a good example; he was spot on for the first 45 minutes or so, speaking about schools and health care (even I was sold), but when he tried to address the banks, he stopped making sense, even to the biz journos I was watching with, who spend all their time on this stuff. The people on the audience all had glazed expressions–it was clear he wasn’t communicating; it even seemed to me he didn’t understand the math himself–he kept confusing securities with derivatives. Before you crow that such matters are too complicated for the attention spans of ordinary political audiences, listen to the speech FDR gave before bailing out the banks of his day. The only contemporary policymaker who I think has spoken with such clarity is Ben Bernanke, both in his October speech and his 60 Minutes interview this past Sunday. Unfortunately, explaining policy is NOT Bernanke’s job; it’s the job of elected officials and the press. The only person in media I’ll credit with getting this one right is my friend Vikas Bajaj at the NYT.
It’s because elected officials and the mainstream media are doing such a lousy job that Americans are turning to info-tainment outlets like Jim Cramer for investment advice and Jon Stewart for political analysis. Jim Cramer has been wrong-wrong-wrong on many stock calls, but it was never the proposition of his show to be right all the time; it always depicted itself as bullish market propoganda for enthusiasts. By the same token, business journalists defending Cramer should watch their words: the only reason Jon Stewart had to take him on is because professional reporters beyond the elite/expert outlets, like the government, did not do a proper job explaining the financial markets to Cramer’s middle America audience.
The result is that firms like AIG have us in their palms. I’m reminded of the moment in Richard III, when Richard, self-described as “deformed, unfin ish’d” woos Anne, a woman whose first husband he actually killed. First, he tells her he wants her, so bad that’s why he killed her hubby and no one else will love her as he does. She’s flattered, but she hates his guts. So he hands her a spear and dares her to kill him in revenge; the moment she fails to do so, she admits she’s his. We have already failed to kill these banks, but it means all our whining about bonuses is wasted breath and they know it. Like Richard, they take the opportunity to adorn themselves with fineries and enjoy the license we have given.
The reality is that we do need the banks, but that we’ll have to regualte them more aggressively as we give them more aid. I for one would much rather our elected officials devoted their attentions to devising a plan for such aid, and explaining it, in real detail, than to righteous indignation. I am hoping that my peers in the media and I will then focus on dissecting and analyzing such a plan, rather than taking pot shots at one another. Until that happens, I suppose I’ll just curl up with Lawrence Olivier.
Obama’s leadership style was a topic of discussion at a panel I attended last night about the economic challenges we face. Common criticisms were
–Obama does not yet recognize that the rest of his domestic agenda is never going to happen because all political (and real) capital for his first term will get spent on the stim
–Obama trumps the previous crowd in the quality of the experts he’s got BUT he has a problem actually making decisions that use their expertise effectively because the experts are all competing prima donnas. We should thus expect a lot of waffling on his economic policy.
In a recent column, the International Herald Tribune’s Roger Cohen makes the case that with the financial sector in turmoil, jobs at GoldmanSachs and JPMorgan might lose their appeal for bright young things coming off the Ivy League assembly line, fueling a renewed interest in public service. To Cohen, that “rediscovery of the public sphere” is an end in itself, since he associates periods in American history when the public sector had prestige with prosperity, international prowess and high morale. (I’m somewhat inclined to agree, but that’s beside my present point).
I believe a renewal of the public sector as a high prestige career for the nation’s brightest would go a long way to preventing future crises like this one. Unlike the recession after 9/11, or the oil crises of the 1970s, the current collapse is the direct result of human malfeasance, not the consequence of external forces. The nation’s brightest minds went to Wall Street, armed with the Michael Douglas belief that greed is good, and more than enough Ivy League education to find the legal and accounting loopholes that allowed them to make absurdly leveraged deals and endorse Swiss cheese loans. Meanwhile, regulators slept at the switch.
But even if they had tried, what could the regulators have done? John McCain may have spoken out of turn when he trashed Chris Cox, SEC Chairman, this week. But in principle, I sort of agree with him. The people who staff our regulatory agencies mean well, but they are just not as sharp as the people they are meant to regulate. And that’s because smart young people don’t want to take jobs in government.
I sent Cohen’s piece around to friends, and one set of comments from a U.Penn senior really hit home. He’s applying for those finance jobs, despite the current hiring freeze, because 1. it pays more and 2. working for the government is beneath his SAT score. Public service he says “isn’t something the smartest people need to do. It’s something most people can do.” So long as smart kids think that public service is for dummies, we’ll have dumb public policy.
What’s the solution? My mother, a nonprofit activist, had some good ideas. Sweeten the deal for government employees with better pay, subsidized housing or discounted college tuition for their kids. “Even if it meant higher taxes, it would surely be cheaper having smart regulators than a 700 billion dollar bailout later.”
I’m finally old enough to admit it: Mama knows best.