Sunday, November 06, 2011

The Rule of Accumulated Advantage

The Wall Street Journal, usually the megaphone of Wall Street's more devout worshippers, has a very readable cranky counter-argument today. It seems most of what you read about stocks and investments is tailored to please the large company offering them. This happened with the private rating agencies who tailored their assessments to their customers' demands, which is like an oncologist asking you whether you'd like him to see cancer on your x-ray or something nice. Financial analysts and journalists have been far too nice to Wall Street for years. This is how bubbles are made.

Love, money, admiration, credit ratings, applause, sexual favors, media coverage, protection, immunity, security, and (apparently) the blessings of God, Jesus and the Holy Ghost all increase as you move up the scale. The bigger and richer you are the more you get, the more help you get, the more sympathy you get, the more everything. (The Queen always gets the most presents, not only because everybody wants to please her but because, unlike other mortals, she has two birthdays every year.)

The rich today are handled with the gentle concern the vulnerable once could beg for. The poor and vulnerable are increasingly scorned. Is this because of the Prosperity Gospel? It's strange to think that Darwin and Herbert Spencer's bleakest thoughts are now the guiding principles of the followers of Jesus. (As Herman Cain says "If you aren't rich, blame yourself!") The most popular churches say that riches are a sure signal that God loves you more than other people. No wonder they're popular; they tell their biggest donors exactly what they want to hear. Churches kiss up, not down like they used to. We always knew the rich really inherit the earth, but now it's part of the gospel, preached from the pulpit and included in the holy decrees from the Wall Street Journal op-ed pages.

The Vatican's careful protection of its shepherds is nothing compared to the protection financial journalists and analysts give to the enormous banks. They praise bad investments and cover up dubious ones. They praise those who reward them for their praise. Is this their job? Is the priesthood meant to interpret and warn or is it there to uphold the almighty? It's a sad and dangerous fact that all favors and advantages accrue upward unless something corrects the system. Peer review applies the corrective rigor to the scientific community, where even consensus has its contrarians who insist on the alternate possibility.

Competition used to apply this rigor to free enterprise. Competition gave the entire system greater stability. Failures, a natural event, still happened but they were smaller. Now we have Too Big To Fail. Now failure and consequences are only dished out to regular people––whose only mistake was believing a corporation's annual report or the admiring words of a financial analyst who privately wanted the love of the CEO and the board. Increasingly, rewards are privatized upward while risks are socialized to everybody else, to ordinary people, less exalted people, to laid off employees and to us as taxpayers.

In a quarter when Goldman Sachs announced a half billion dollar loss it also announced ten billion dollars in bonuses to the executives who delivered that loss. How many billions did the US Treasury throw at Goldman during the recent crisis? Did Goldman absorb any losses from the havoc it helped create? What is wrong with this picture? We once had restrictions on this kind of thing; we demanded them and they served us well. Until we forgot why they were there, and began believing the Reaganite fairy tale about the self-regulating genius of Wall Street. About how our economy was magically protected by fairies and elves. The bigger they are the more regulation they need. It would give the rest of us more freedom and less to worry about.

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