It’s the 21st Century, Stupid!

David Brooks writes of the recent problems in the financial sector of which the subprime mortgage mess is only one part. His column says that there are two narratives and only two narratives used to explain it. The Greed Narrative or the Ecology Narrative. He closes with this (emphasis mine).

The lesson of the Ecology Narrative is that, in most cases, the market corrects itself. Maybe this year banks will change their pay structure so there’s not so much emphasis on short-term results. Maybe companies will change their boards to improve scrutiny over complex new instruments. In short, markets adapt.

People who embrace the Ecology Narrative don’t like the offensive bonuses that get handed out on Wall Street. They just don’t see any way the government can curtail them without rending the fabric of the ecosystem. They don’t like the periodic crises, but don’t see how government can prevent them without clamping down on innovation. The challenge is to give people the means to withstand the perturbations.

The Ecology Narrative is not morally satisfying. I wouldn’t bet on its popularity as a backlash against Wall Street and finance sweeps across a recession-haunted country. But the Ecology Narrative has one thing going for it. It happens to be true.

I just haven’t seen any signs that there is anything in the financial services sector that would correct the problems with the compensation structure. I haven’t read anything anywhere that indicates I’ve missed something that would indicate there’s any demand building for a system less destructive of the long term good. After all, the people who make a mint with the current structure are the ones in charge and there is no motivation for them to change things and the incestuous relationship between company management and boards pretty much guarantees there is no force influencing them from the “outside” to encourage repairs. There is no magic wand, spell or potion that guarantees that “markets adapt”. Not so long as over-compensated executives and traders have people like Brooks shrugging and saying that they and the damage they do to our economy must be tolerated because of unproven claims about the good they do.

But his claim is too simple. His last sentence precludes the possibility that while the Ecology Narrative has a lot going for it, it just doesn’t explain a lot of what is seen in the real world. Frankly, Mr. Brooks, someone got a lot of their Greed Narrative in your Ecology Narrative. And the narrative that includes them both is the one that is true.

Do you think that any of the hotshots on Wall Street are familiar with Pogo? Maybe you remember the famous saying and maybe you don’t but Wall Street seems to be the latest capitalists to have become capitalism’s greatest enemies. I rarely agree with anything Robert J. Samuelson has to say but this column of his actually makes some sense. But of course, since it is critical of the current economic environment he just dips his toe into the water. He rightly points out that the compensation structure not only produces incredulity on the part of many that these people really deserve the huge pay packages they routinely get but also encourage behavior that has larger consequences for the country. The way their bonuses are structured encourage activities that have little to do with what’s good for their customers, the companies whos stocks and bonds they sell and certainly not what’s good for the average person who doesn’t work for them.

Consider this admission from someone who should know:

“People self-select for careers. On Wall Street, they self-select for the money,” says pay consultant Alan Johnson. “Wall Street is a sales business — they sell bonds, securities, transactions, ideas. . . . They’re not paid to be long-term, philosophical, reflective.” The pressure is to do the next merger, sell more stocks and bonds, do more trading — whatever boosts current profits and bonuses, the long-term consequences be damned.

The focus is an unrelenting one purely on personal gain and status in the company that accompanies doing well in the short term measurements that are pretty much all they deal in. The standard excuses are that they are responsible for the strength of our economy by their ability to provide capital to those companies that deserve it. But Samuelson points out the places where they have failed miserably at this task. I think that he could have listed more but after all, there’s only so much room for his column and so much time to research it, isn’t there?

Samuelson closes with this:

But if the subprime failure turns out to be a preamble to a larger financial breakdown, flowing from the creation of new securities that offered short-term trading possibilities but whose long-run risks were underestimated, then the mood could turn uglier. Indeed, many Americans may conclude that capitalism has run amok.

But let’s be honest, this current disaster in the making is related in a very basic way to Enron, Enron and other energy trading companies’ gaming of the California energy market a few years back, Tyco, Global Crossing, Adelphia, Arthur Andersen, Worldcom and the rest. It relates to the demands placed on publicly held companies by Wall Street. There is no restraint, no moderation. There doesn’t seem to be any such thing as enough. There isn’t enough profit to make them happy, there isn’t enough income to give traders and consultants the ego boost, status and material goodies they apparently crave. So eventually it becomes just too easy to step over the lines, whether they are the ones separating honesty from dishonesty or ambition from greed. Just remember that the very definition of greed includes the word excessive. MBA programs now include more discussion of ethics than before the wave of scandals that swept American business a few years ago. But how many of them ever address the simple idea that at some point people in business should say “Enough. That’s going too far.”. Because even if it’s legal that doesn’t mean it’s a good idea.

MSNBC reports on the last Republican candidate debate before Iowa’s caucuses. It is noted that they all basically agreed on at least one big lie.

Republican presidential rivals called for deep cuts in federal spending Wednesday in a debate remarkably free of acrimony and agreed the reductions they seek need not require painful sacrifice by millions of Americans who rely on government services.

“The sacrifice we need from the American people is saying, ‘Let the programs go that don’t work. Don’t lobby for them forever,’ ” said former Massachusetts Gov. Mitt Romney, one of nine GOP presidential hopefuls sharing an Iowa stage little more than three weeks before the state’s caucuses provide the first test of the campaign.

Anyone who looks at where the government spends its money and what other promises the Republicans are making knows that this is a lie so big that it might well collapse into a black hole at any moment. Not one of the leading contenders is about to cut military spending and even the anti-war Ron Paul is unlikely to do that, he just doesn’t want our soldiers in Iraq. After all, while they all speak of cutting programs that don’t work have the words V-22 Osprey passed their lips as an example? Of course not.

At least Ron Paul admits that he believes in eliminating every social program and every regulatory agency. The others won’t admit it, but the numbers would only work out if that’s what they did. The tax cuts they want and the military spending they want pretty much leave no alternative but to make up the difference by taking it out of Medicare, Medicaid, Social Security and every other department that isn’t run by the Pentagon. Does anyone think that this truth will pass the lips of Romney, Huckabee, Giuliani, Thompson or Paul? I don’t.

“I looked the man in the eye. I found him to be very straight forward and trustworthy and we had a very good dialogue.

“I was able to get a sense of his soul.

“He’s a man deeply committed to his country and the best interests of his country and I appreciate very much the frank dialogue and that’s the beginning of a very constructive relationship,” Mr Bush said.

This was George W. Bush’s comment concerning Vladimir Putin in 2001. Does trustworthy include tossing your political opponents in jail and having them beaten to make certain that your hand picked successor wins? After all, Vladimir, that good old boy KGB apparatchik, can’t take any chances that he will lose power, can he? And make no mistake, though he might not be President of Russia after the coming elections he won’t be losing his grip on power in any way. Just because they aren’t the Evil (Communist) Empire any more doesn’t mean that they are our friends or allies in any way.

OK, I just don’t know how to express what I feel about this little cesspool written about by the Washingon Post. I strongly suggest you read the whole article. So let’s just list the highlights, shall we?

• Charles Reichers is appointed to a Bush Administration job with the Air Force and gets a “fake” job with an Air Force contractor while awaiting confirmation. Reichers himself admits that this job required no work on his part.
• This contractor, Commonwealth Research Institute, and its parent company, Concurrent Technologies, are both listed with the IRS as tax exempt charities.
• Neither company is apparently doing anything different from what other companies that pay their taxes do for the government or anyone else for that matter.
• It has received over $100,000,000 in earmarks.
• Jack Murtha, the representative for the area where the company is based just arranged a $10 million earmark for the company for fiscal 2008.

Charity?? I don’t think so. I think this whole thing and this company just don’t pass the “smell test”.