"There are only two ways of telling the complete truth—anonymously and posthumously."Thomas Sowell

Tuesday, March 08, 2016

America, How much is too much? The Inside Job, Money Never Sleeps, the Big Short

The documentary film Inside Job, the movies Money Never Sleeps (the sequel to Wall Street), and the Big Short, tried to teach us lessons about the danger of excessive gain. Yet, they failed in their main educative goal. Instead of showing us the folly of an excessive appetite, the desire for more profit to the point of destruction, they showed us that it works as the main players within the various scandals have succeeded. The main players and even most of the major players have kept their fortunes, avoided prison, and continue to run their firms. Even though some firms, like Lehman Brothers went bankrupt, most involved in the crisis continued to operate despite the crash.

The cautionary tale became a how to manual for greed, excess and instability.
Both Oliver Stone and Michael Lewis, the author of the Big Short, were concerned that their cautionary tales, their jeremiads, had become instruction manuals for others to emulate. Instead of being seen as a villain, Oliver Stone’s character Gordon Gecko, the predatory trader, became lionized as a Wall Street icon to emulate. I know when I was at university many students in the senior year economic seminar (I was an economics graduate) saw the film as a template for what they wanted to achieve. Even 25 years and two stock market crashes later, viewer still remember Gordon Gecko. He has come to epitomize the tantalizing potential of financial system. Charles Ferguson, by contrast, had a more direct goal. He wanted to explain "the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption." In this, he partially succeeded, yet the final lesson, though, appears to be that if you are big enough, financially or politically, you can get away with it. Even if the firms corrupted the public, they ensured they appeared to work within the greater public morality the rule of law. Even when they did fall afoul of the law, they ensured they appeared to comply by sacrificing “rogue traders” to satisfy the public and legal outrage. What all three films miss with their focus on the symptoms is the cause. The regime has become corrupted not by the financial system or the desire for financial gain, but by America’s educational system. The American regime has become habituated to a disordered love of gain. We are now educated to pursue gain no matter the cost to others so long as we benefit. It is not so much that gain occurs or even great gain occurs, it is that the immoderation that drives the gain beyond its beneficial limits has become celebrated as normal behaviour.

Gain is good but greed is bad.
To start to understand the crisis and its effect on the regime, we need to understand the difference between good and bad gain. For that we turn to Plato’s Hipparchus or the profiteer.[1]  We could stay on the surface and express our indignation that excessive gain has been made by Wall Street and the individual executives.[2] We could look at that gain as shameful, excessive, and potentially fraudulent. Yet, that would only leave us on the surface without an understanding of the deeper threat to the regime. We miss the deeper connection between a love of gain that drives the pursuit of money and the love of gain that drives the pursuit of wisdom. At a crude level, the two loves of gain are connected within a regime. When they are mismanaged, which is increasingly the case in the United States, will lead to corruption, decay, and ruin. The love of gain is necessary for markets and for life to succeed. In that sense, gain is good, although greed, its perversion, is not. We have to understand what is good about gain and what can make it bad. What Plato’s dialogue helps us to consider is that the gain pursued on Wall Street is a crude, or low, form of gain which needs to be moderated, or restrained, or guided by a higher form of gain. As Plato’s Socrates intimates in the dialogue, philosophy is a love of gain. What distinguishes them, though, are the ends to which the gain serves. The love of gain has become distorted and because it has been distorted, the regime is in danger. Yet, what is the source of the crisis?

Education: has the love of knowledge become the love of corporate sponsorship?
The regime is only in trouble to the extent that our young are educated to pursue gain as love of money, a lower form of safety and comfort, rather than higher, noble, goals in public service as public virtue. To the extent that the educational establishment has encouraged our best and brightest to go to Wall Street, to pursue private gain, rather than Washington, a public service, then it has failed the regime. Even when it does encourage them to go to Washington it is based on the love of a lower gain, power, so that the goal is less the common good than the private interests. “What can I get for being in public service becoming a well-paid lobbyist?” We are in danger of having generations that are no longer being educated to the good or even the noble. Instead, they are being educated to a lower goal, the pursuit of profit to achieve safety and comfort, or simply the pleasant. In themselves, these goals are not problematic. They become problematic because they have replaced the higher, nobler goals for a republic serving the public good. We have become corrupted; the regime has become disordered by the pursuit of wealth without limit. The love of gain is in danger of becoming a love of tyranny.
Having been left almost empty of the noble and the good, their understanding is such that the high is only now understood and pursued in terms of the low. In particular, the brightest minds are attracted to money, status, and celebrity rather than fame through service, and duty to the republic. Students, but more importantly their teachers, appear to have forgotten moderation of an education in republican virtue. They have been seduced, because their teachers have been indoctrinated in it, by a Machiavellian immoderation that replaces virtue with a tyrannical virtu. Instead of a healthy thymos needed to sustain the republic freedom, we see an immoderate pursuit of profit without regard to the public consequences.

Wall Street’s excess where bad gain has replaced good gain
The financial crisis revealed a pursuit of profit has become shockingly immoderate even by Wall Street standards. For the firms operating within the financial system, there is no deal too big, there is no profit too large, there is no financial instrument too complex to pursue, there is no law that cannot be bent or changed to enable a deal. The immoderate ethos is expressed in the use of Collateral Debt Obligations (CDOs) and associated financial instruments. The instruments were designed on Wall Street for Wall Street because of the need to deal with risk to protect one’s profit. The underlying reason for the instruments was to create something, a compact between financial houses to avoid suffering loss (an injustice), yet, the parties involved did not believe that justice was desirable (explaining the risks) and thus gave a decent veneer to what could be called a swindle. In this, the parties were involved not to gain, or to show their clients the best gain and how it was achieved, but to avoid loss and insulate themselves from any loss that may be inflicted upon themselves. They ensured that someone, preferably someone else, would have to take the loss (suffer the injustice). In such a transaction, there is no common good only the desire to ensure that the loss is inflicted on someone else. All of this was done with the appearance that the risks had been controlled so that the investment, as any investment can be, was “safe”.  Built on a risk foundation that was becoming increasingly tenuous, the market became increasingly unstable, but the demand for these “risk free” instruments increased.

How much is too much for the stability of democracy? 
The question haunts America because the financial crisis is not simply about unemployment, jobs, or economic growth. The financial crisis reveals a crisis within the regime. The low gain, the one pursued by Wall Street can no longer be separated from the political health of the regime. The ethos that has infused Wall Street has influenced the political regime. In this, the nexus provided by the educational system within universities becomes important. As Montesquieu warned, Republics fail when they become gorged on luxury and consumption in which status is related to celebrity and measured by wealth.[3]

We have moved from the pursuit of happiness to the pursuit of hedonism
The love of gain has been diverted from the ends of the regime. The issue is more than going beyond the pursuit of happiness. It is that the regime’s definition of happiness has been corrupted. The love of gain has become an end in itself it no longer serves the common good. The higher end of virtue or the health of the regime has been lost. The challenge is not about protecting Main Street from Wall Street’s excesses through increased regulation. Such an approach is treating the symptom.  Americans need to reconsider how they became ruled by love of gain which is less than love of wisdom or at least love of wisdom as practices by political men. Americans cannot find political men guided by a teaching instil a love of wisdom (good gain) over gain simply. To reverse the crisis, we need reform. America needs reform within the education system is paramount because it is what shapes the young. The lessons from history are there, the question about their future is there for Wall Street and Main Street; will they do the right thing? More deeply, is America’s future Wall Street or Main Street? Does anyone have the courage to reform the system?

[1] ^ Thomas L. Pangle, (1987), The roots of political philosophy: ten forgotten Socratic dialogues, page 78. Cornell University Press.  My analysis follows Bloom’s analysis within this book as well as Jason A. Tipton’s Love of Gain, Philosophy and Tyranny: A Commentary on Plato's Hipparchus Vol. 26/2 (Winter 1999) Interpretation: A Journal of Political Philosophy for a general overview see http://en.wikipedia.org/wiki/Hipparchus_%28dialogue%29


Tom Van Dyke said...

To reverse the crisis, we need reform.

But of what?

Lawrence Serewicz said...

I would say two areas. First, a reform of the educational system for a start. The Universities are now more of a business, selling a social experience, than a place of learning. One thing that is apparent is an understanding of the principles that animated the Declaration of Independence, which encouraged political moderation and by extension financial moderation, if they encouraged free enterprise, would need to be taught.

The deeper problem, though, is that instead of reforms, which would address the underlying issues, what animates the human person as a citizen within the Republic, we have "cures" that relieve the symptoms in the same way that modern natural science "cures" us of any self-inflicted ailments, there is a pill or procedure for it, which gives the public, and their teachers for the most part, a distorted view of the problem, why reform is required, and how to achieve it.

It may be that we simply follow this trajectory as the demos slowly, but surely, becomes more immoderate in its desires so that so long as the train keeps going no one asks what fuels it or where it is going. I was reading about Athen's failure to reconcile democracy with empire and even though they lost their empire, they remained a democracy. The issue though was this the same democracy that created the empire as the one that lived on after it. Somehow I doubt it was.

The second reform is in our foreign policy. We appear, since ww2 to have taken on more of an imperial role in maintaining the international system than was intended when the UN was founded. We may find that even after 9/11 we have taken on an imperial role within international system by choice masked as necessity.

If the polity cannot reform itself, if it has come to see immoderation as the normal situation, we find that reform is not possible without defeat. A chilling thought, but one that comes to mind if the immoderation within the domestic realm is matched by an immoderation in the external realm. An external defeat may not be imposed, but we may die by suicide.

Tom Van Dyke said...

The US took on an activist foreign policy after being forced to intervene in 2 world wars and then international Communist tyranny warming up in the bullpen.

As for the universities, I cannot help but agree


Of course, the culture of the West remains the primary object of study in humanities departments. However, the purpose is not to instill that culture but to repudiate it—to examine it for all the ways in which it sins against the egalitarian worldview. The Marxist theory of ideology, or some feminist, poststructuralist, or Foucauldian descendent of it, will be summoned in proof of the view that the precious achievements of our culture owe their status to the power that speaks through them, and that they are therefore of no intrinsic worth.

but we also must honestly question if we as a nation were ever all that virtuous, human nature being what it is.

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