France in the 1960s and 1970s was the source of a tremendous amount of new philosophical, literary, and critical thinking – Foucault, Derrida, Lévi-Strauss, Baudrillard, Barthes, etc. But in my opinion, the most important member of that intellectual generation was the sociologist Pierre Bourdieu. In Distinction, Bourdieu’s best-known work, he described how economic class is reinforced by cultural capital: economic elites create cultural distinctions, and pass on to their children the ability to make those distinctions, in order to use cultural sophistication as a means of perpetuating class dominance. This may sound abstract, but think about the example that is the subject of Bourdieu’s The Love of Art: museums. Upper-class parents take their children to fine art museums and teach them how to talk about Rembrandt, Monet, and Picasso; later in college, job interviews, and cocktail parties, the ability to talk about Rembrandt, Monet, and Picasso is one of the markers that people use, consciously or unconsciously, to identify people as being from their own tribe. (Note that democratizing museums – making them open to anyone – doesn’t undermine cultural capital, because the key is not looking at paintings, but learning how to talk about them.)
We used the term “cultural capital” in our Atlantic article as a way of describing the influence of Wall Street over Washington. By this, we meant that one of the primary means by which Wall Street got its way in Washington was by creating and propagating the understanding – among sophisticated, educated, cultured people, as opposed to “populists” or the “rabble” that showed up at anti-globalization protests – that what was good for Wall Street was good for the country as a whole. We didn’t mean to say that old-fashioned campaign contributions and lobbying did not play an important role. (We did, however, say that we thought out-and-out corruption of the Jack Abramoff variety was probably a minor factor – not because we have any insider knowledge one way or the other, but simply because such criminal behavior was simply unnecessary given the other levers available.) But I don’t think that implicit quid pro quo bargaining is a sufficient explanation, because I believe it entirely possible that there are honest politicians and civil servants who really, truly believe that they are acting in the public interest when they come to the aid of the largest banks.
Tim Geithner may very well be such a man.
The New York Times ran a long article today about Geithner’s close connections to the New York financial elite during his years as president of the Federal Reserve Bank of New York, a curious public-private entity that plays a crucial role in the operation of the Federal Reserve, yet is governed by a board a majority of which is elected by the private sector banks themselves. The general thrust of the article is that Geithner had close relationships with many of the people whose banks it was his job to supervise, and that many of his proposals and policies have been generally friendly to those banks. But it should be noted that even after reviewing Geithner’s calendar for all of 2007 and 2008, with all its tantalizing mentions of posh meals and get-togethers (the Four Seasons is mentioned seven times), the Times did not find a smoking gun. Geithner was approached as a candidate to be CEO of Citigroup (an offer he quickly rejected), but nowhere is there any evidence that he traded favors for any kind of personal gain.
Instead, what the article portrays is a continuing series of close contacts – breakfast, lunch, dinner, coffee, charity board meetings, etc. – with a set of very rich, very powerful, very impressive people who all believed in the importance of Wall Street, and the importance of lighter regulation of Wall Street, and the importance of making sure that Tim Geithner believed in it too. It’s doubtful that there was anything close to a countervailing influence from people who thought that Wall Street was taking excessive risks and needed to be reined in; the first meeting with Nouriel Roubini was on August 28, 2008. I don’t mean to imply that Geithner was an impressionable youngster when he arrived at the New York Fed. He was 42 (older than I am now), and he had grown up in the Treasury Department in the Clinton administration. But that was a Treasury Department headed by Robert Rubin (former head of Goldman Sachs, later head of the executive committee at Citigroup) and his disciple Larry Summers, both of whom were strong believers – at the time, at least – in the importance of Wall Street and free financial markets.
The Geithner presidency seems to have represented the high point of a long tradition of cozy relationships between the head of the New York Fed and the banks it supervised. The Times article points out that Geithner’s two predecessors ended up as executives at investment banks, and his successor came from Goldman Sachs. But under Geithner, the relationships may have been their coziest:
Other chief financial regulators at the Federal Deposit Insurance Company and the Securities and Exchange Commission say they keep officials from institutions they supervise at arm’s length, to avoid even the appearance of a conflict. While the New York Fed’s rules do not prevent its president from holding such one-on-one meetings, that was not the general practice of Mr. Geithner’s recent predecessors, said Ernest T. Patrikis, a former general counsel and chief operating officer at the New York Fed.
“Typically, there would be senior staff there to protect against disputes in the future as to the nature of the conversations,” he said.
And at the same time, Geithner seems to have been an especially able advocate for Wall Street, both while at the New York Fed and as Secretary of the Treasury. The Times focuses on a few incidents where he took the banks’ side against other regulators, such as the debate over adopting Basel II, which essentially allowed banks to use their own risk models to determine how much capital they needed. And it should be undisputed that since taking over Treasury Geithner has taken positions that are generally friendly to the large banks (Public-Private Investment Program) or reflect a Wall Street-centered worldview that misreads public and political sentiment (AIG bonus fiasco). He has also continued to surround himself with people from Wall Street, including his chief of staff, the law firm that drafted the proposed legislation giving Treasury resolution authority for non-bank institutions, and the asset management firm handling Treasury’s troubled assets. None of this is new, of course; Treasury has been hiring people from Wall Street for years. And that’s precisely the point.
I don’t know Tim Geithner. But I have no reason to believe he is corrupt. Instead, the simplest explanation of the Times article is that he has internalized a worldview in which Wall Street is the central pillar of the American economy, the health of the economy depends on the health of a few major Wall Street banks, the importance of those banks justifies virtually any measures to protect them in their current form, large taxpayer subsidies to banks (and to bankers) are a necessary cost of those measures – and anyone who doesn’t understand these principles is a simple populist who just doesn’t understand the way the world really works.
Returning to my initial theme, he got the cultural education that rich people get, except instead of just going to the Metropolitan Museum of Art and the Museum of Modern Art, he was educated in the culture of Wall Street. Just like an education in art history is a marker of class distinction that is used to perpetuate class distinction, an education in modern finance is a marker of distinction that sets off those who understand the true importance of Wall Street for the American economy. As long the powerful people in Washington, including the regulators who oversee the financial industry, share that worldview, Wall Street’s power and ability to make money will be secure.
That is the importance of cultural capital.
Update: I’d like to recommend this comment by former young Fed-er, which inexplicably got caught in the spam filter for the last eighteen hours. Here are some excerpts:
I don’t know Tim Geithner either, but I did used to work at the Fed at a very low level, but a level sufficient to grant access to those weekly briefings you see on his calendar, during which he would be briefed by the Fed’s research economists. His thinking was definitely steeped in Wall Street kool-aid. He would often pose opinions generated by Wall Street economists and executives to the Fed’s economists as a way of challenging their thinking and getting them to explain themselves. One got the sense that he spent an awful lot of time talking to Wall Street executives, but that was, after all, a big part of his job.
What is so shocking is that now, when the mess that is the current system has been exposed to him and everyone else, that his thinking doesn’t seem to have changed at all. We were all surprised to varying degrees by the financial crisis (Roubini least, I guess) and many are now trying to rethink the system; Geithner still seems wedded to Wall Street’s way, which is to say, “innovation”, lending determined by the vagaries of the trading floor, big bonuses, and the whole misbegotten quantitative finance approach (i.e. everything, from incentives to risk and all the complexity of human relations, can be written on a napkin using greek letters and equals signs). . . .
The other thing I got from witnessing these meetings is that, in support of the cognitive capture theory (as opposed to the corruption theory), given that he was such a careful and deliberative thinker, he seemed to have a good deal of integrity. He respected people’s opinions and considered them carefully, and he gave credit where it was due. He seemed to follow a Gandhian leadership philosophy: lead by walking behind.
By James Kwak