Pierre Bourdieu, Tim Geithner, and Cultural Capital

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

141 thoughts on “Pierre Bourdieu, Tim Geithner, and Cultural Capital

  1. This assessment seems completely plausible.

    More practically, I would add that Mr. Geithner seems to enjoy pulling the wool over peoples eyes – forgot to pay taxes & so on. I’m not so sure that his main reason for living is not to BS people and overwhelm them with his verbosity.

  2. I keep trying to make up conspiracy theories, but the real world keeps topping them.

    How is failing of empathy for anyone but the rich anything but corruption in a cabinet-level officer of a democracy? He’s supposed, after all, to be working for all the people. Oh, he’s not Madoff. But that actually makes Geithner more trouble, not less. Madoff is an obvious criminal. Geithner isn’t, so he’s got defenders. I don’t care how pleasant he is in the company of his social set. I care that he’s participating in the looting of the global financial system. And, you know, I doubt that these people are quite as clean as you imagine them. I’m sure (I’ve written this before in another context) that bankers are mostly pleasant people to hang out with, if one also a banker, if one is one of them. But memory is selective and malleable and members of the tribe remember less of their flaws than they would of strangers, or enemies. Outsiders see simply a tribe of looters. If Geithner wants to change the world’s view of his tribe, he’ll have to reform it–that’s his *job*, after all.


  3. its fine to live with sensibility’s of high culture. but you gotta’ pay your way and that doesnt mean leveraging people out of real choices that affect the bed they sleep on. being perfect in every way should pay less so that the super economy can stay within the realms of earth timespace.

  4. Well put, but you don’t need French sociologists to explain this: other chiefs of the NY Fed have tended to come from successful careers in finance proper. They’d already been in Jamie Dimon’s living room and were possibly less susceptible to the systematic courting you describe than the relatively young, relatively poor Geithner.

  5. This was mostly negative knowledge, right? On the upside, I believe it provided inspiration for Harry Frankfurt’s essay “On Bullshit”.

    James wrote:

    “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.”

    Hey, get a sense of humor.

    The analysis you ascribe to Bourdieu predates him by generations.

  6. James Kwak,

    Instead of speculating about Tim Geithner’s “cultural distinction”, it would be more enlightening if you explain what you would have done differently if you were in his shoes.

    Please evaluate each of your ideas against the following:

    1. Is it politically viable? Can you get congress and the country to go along?
    2. Is it legally viable? If not, how quickly can you get the legal change in place?
    3. Is it technically support by economic lessons from past recessions in the US?
    4. Is it the least damaging/shocking to an already extremely frail economy?
    5. Does it shorten the recovery time compare to the current approach?
    6. What is the total cost of your idea? Here I mean the cost of your plan to the society as whole (including reduced economic output if your plan shocks the economy into a deeper recession or takes longer for the recession to recover)

    Tim Geithner made a fair point to the congressional oversight committee. His point is when you judges his approach, what do you compare it against?

    As an intellectual exercise, I am sincerely interested in learning about better approaches. Perhaps you and Simon can put together an overall approach that is better than what Geithner and Bernanke is currently pursuing. I am fine if you take the good parts of the current approach and replace the bad parts with your own idea. Not that I think there is no better approach. It is just that I haven’t heard of a better approach from any of his critics. I myself have also not been able to come up with something better.

    If you cannot offer a meaningfully better approach, perhaps you need to reconsider the intellectual substance of your criticism.

  7. Are you basically saying “well, he’s not a bad guy”?

    He may not be malicious, but literally trillions of dollars of current and future money are at stake. I dunno.
    I don’t even know where to direct the rage. It seems
    like we’re back at feudalism, where the people at court
    have recourse and other don’t.

    So at some level, i have to say that he’s incompetent.
    If we carry back his tenure to the previous administration,
    the amount of time spent whistling in the wind versus coming up with comprehensive policy aside from shoveling money in until it gets better.

    I mean, what it comes down to for me is that I notice that most times when paul volker speaks, i say to myself, “hey, that sounds smart” and when i hear geitner talk, i feel like he’s obfuscating. truth may not be pleasant, but it has a certain amount of clarity to it.

    The other day where he said, “the vast majority” of banks are well capitalized. Well, yes, sure. If you count numbers of banks, that’s undoubtedly true. But it’s the top 10 banks that hold the majority of the money. The bottom few thousand don’t matter a hill of beans. Now why does someone say something like that?

    malicious no, incompetent, probably. Then eventually, someone starts to ask the question, who appointed this guy.
    who thought this was the person to put billions of dollars in the hands of. i mean, AIG has swallowed half of last year defense budget with no end in sight.

    i suppose that’s the point. if this post is really on the money, the person to really look to is his boss. and i like his boss, but there you go. or is there no responsibility?

  8. “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”

    Is making reference to a french intellectual your way of establishing your own distinction? (Serious question)

    Language plays a large role in the tribalism or separation of the priestly caste from the rest of the rabble.

    Sincerely, Vivian Smith-Smythe Smith.

    Exasperating question of the day: What is the deal with Africa? Simon Johnson was/is involved in programmes related to africa (through NBER?). Peter Boone as well. Sloan Foundation, the good friend of MIT has something going over there. The Koch family seems to love Africa. Is this all just a pile of altruism or is something else going on?

  9. After all the econospeak babel, and partisan patriotic platitudes and parables, – the end reality is that the predator feeds off the blood, swet, and teers of poor and middle class Americans. The people have no representation, and no voice in the mechanics of the government, which are owned and controlled by the oligarchs and predatorclass cronies responsible for conjuring, profiting from, cloaking, and exacerbating the worst economic crisis since the great depression.

    Why are these people not in jail?

  10. Yes, Wall Street people populate the Treasury department – just like we tend to see people from ag states end up at the USDA (like Tom Vilsack of Iowa, who heads up the nation’s ag deparment.) I don’t think that alone is indicative of corruption.

    However, a “moral hazard” arises when systemic risk crashes the system. The Wall Street-centric focus might not necessarily be the best solution, but it’s the one that the Wall Street guys are going to go with.

    Another thing to remember: At 47, Geithner came of age in the era of Reagan – and you simply cannot underestimate the revolutionary impact of Reagan’s first inaugural address (government is not the solution; it is the problem, etc.) on people of Geithner’s generation.

    The last 30 years have seen Reagan’s vision of a deregulated business environment come to life – the last eight years in particular were great for the “free market” advocates – but we gained nothing in the process.

    The Consumer Protection Agency was gutted – and we got lead in our toys and poison in the baby bottles.

    There was a lot of love shared between some Interior staffers and the people they were supposed to be regulating.

    The FDA became so depleted that they simply couldn’t keep up with the new drug applications they received from pharma companies – leaving new drugs in limbo, neither approved or rejected – the regulators didn’t have the resources/staff needed to review the info in order to make a decision.

    And over on Wall Street, the “free market” created an environment where the entire financial system collapsed under the weight of “toxic assets” collected by the financial companies when it was profitable to do so.

    So what happens? The problematic government Reagan hated now must step in to save Wall Street from itself – because, as we’ve all been told, the failure of Wall Street will take down our country.

    And yes, the Wall Street execs all need to get paid their usual salaries and bonuses – or else the system will erode even further. So we’re told.

  11. Hahaha, you actually think a person can rise to be the NY Fed and than the secretary of the Treasury by being incompetent!

  12. 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 image I got of him back then is that of a man excited by new ideas, and determined to help meld them into policy, if carefully; he was obviously turned on by the new world being carefully built by the princely mathematicians. Remember when during his first press conference he said that stress tests “borrow the medical term”; I think this speaks volumes of who he is.

    Given his intellectual style, some of which I had the privilege of witnessing, I’ve come to the conclusion that he views himself as what Bordieu (by way of Antonio Gramsci) may call an organic intellectual–i.e. someone existing within a specific context but attempting to build out of countervailing currents a new order. The problem, as I see it, is that all the ideas he was spinning into policy were either coming from Wall Street, or from economists who had come up through business schools influenced by Wall Street thinking, or from the average highly-educated economist–that is to say, someone who should have been a mathematician, and is therefore unwilling to engage in analysis that is too people-driven, choosing instead to stick to formulas. Thinkers of this nature seemed unwilling or unable to readily suppose, for example, that mortgage originators would take advantage of the package-and-sell model by lending to unworthy borrowers. (Unlike lawyers, economists aren’t generally cynical people.) The discussion is obviously shifting now towards more of a political economy approach, but Geithner is already sealed inside the Washington bubble.

    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. One great anecdote I heard: there was a seminar being given that he was supposed to attend; he was late; out of respect, everyone left a chair open at the front of the room for him; when he arrived, he slipped in the back and sat on a table.

    Given human nature and the predilections of the extremely vain, corruption still seems like a possibility, but an unlikely one. I think the primary thing to consider with Geithner is that he’s a great manager, but he doesn’t have an economics degree (something that was very evident); he didn’t even do his undergraduate work in econ. Yet, his career path put him at very high levels at very young ages with very informed people, and these people formed his economics education. The troubling thing is that the cast of characters around him hasn’t changed; even more troubling is that the president made it that way by choosing Summers, and hasn’t put anyone with a countervailing view on the cast. Maybe instead of an organic intellectual, we need a visionary.

  13. A a gallic reader to your blog, I certainly have to concurr.
    Here in France, Bourdieu is relatively discredited. Since his reading of the French society appears dated. But the current state of the new US upper class is clearly now a subject for sociological work by Bourdieu readers.

    I used to read and quote another Frenchman, Tocqueville. But the centralization of power has changed the US a lot. A move that certainly occured during the two world wars. It has been beneficial to a certain extent. That’s no more the case.

    New York and Washington have transformed the nation. Money is the issue. Let us hope that this new impressive US-centric blogosphere can offer the thinking required to break the mold.

    The need is getting more obvious the day. Back to your roots, America, local and democratic.

    I mean the great local democratic tradition, not democrat or republican.

    Good luck to everyone

  14. “But I have no reason to believe he is corrupt.”
    really? I have several trillion $ worth of reasons…funny that.

  15. Geithner supposed to be a regulator, controlling the out of control spinning Big Finance. Butttt….how can you control, be neutral, be alert when you have Big Finance in your genes, wine and dine with the Big Finance hot shots very regularly? Where is are your standards? Where your beacon?

    Bernanke supposed to be a regulator, as was Greenspan, as were all them risk managers of the Big Finance. Instead they all howled with the wolves in the forest.

    At the end, everybody wants to get rich and enjoy the Centre of Power that the Big Finance provides. Nobody wants to get their hands dirty with an honest job, producing stuff, repairing stuff, actually EARNING your money, instead of moving it around at insanely high cost.

    It makes me sick to the stomach to watch these vultures operate….

  16. It’s possible Geithner has internalized the Wall St worldview. Lawrence Summers too? Well, a lot of us did. We had to. The value of our 401(k) goes up and down because of what they think on Wall St.

    The question is not what a given politician or government employee did before 2008, it’s whether they’ve learned from the disaster of 2008. Have we all learned that it wasn’t wise to use our home equity to take vacations and buy SUV’s?

  17. As usual, good insight but I think you’re missing an important speculation about Secretary Geithner. Many people enjoy being around money and “important” people. They do so for a number of psychological reasons. Greed corrupts, if you hang around money and people perceived to be important you too (through projection) will be (sic) important, etc. It would have been a nice addition to your story to get some understanding of Secretary Geithner’s upbringing to see if his position at the New York Fed was a move up in his social stature. For additional insight into this and other important issues, see http://www.bobgreenfest.wordpress.com.

  18. I vote we get Elliott Ness on the job. He was not a lawmman who socialised with the Mafia!

    Even less a man who actively supported ongoing plundering of the country

    Do I hear a yea?

  19. People box themselves into old thought constructs all the time. It is very difficult to break free, specially when the folks around you feel their livelihoods will suffer. What is forgotten is that a strong capitalist ecosystem demands variety and encourages creative destruction. If you think your company, profession, institution is too important to be replaced, then you are the problem.

  20. I understand Geithner’s chief of staff is an ex-Goldman *lobbyist*. Puh-lease.

    Enough with the psychology. I’m sure pharma execs have ways of rationalising what they’re doing when they suppress key research re drugs’ terible side-effects. Everyone has a rationalisation for crime.

    Doesn’t stop it being a crime.

    And the Obama Government Sachs team stinks to high heaven. When everything points to corruption, even if you don’t have quite enough details to legally convict, it’s best to *assume* guilty until proven innocent when the welfare of a nation is at stake.

  21. I think that this theory explains a lot, but not all. I believe that the other form of “cultural capital” at play here is an advanced knowledge of mathematics (and its use in financial products). Many senior bureacrats stand in awe of those with facility in mathematics. Outside the ranks of the specialist technocrats who work themselves up through the ranks of the Treasury, bureacrats tend to be generalists who have broad policy experience across many departments. As “generalists”, they tend to lack such facility, which makes them prey to all sorts of bright ideas from their contacts on Wall Street. They are all too willing to accept reassurances from the whizzes that nothing can go wrong, that counter-party risk is manageable, etc. etc.

  22. obama chose geithner because (among other things) obama wanted continuity during a crisis. that necessitated choosing an insider plus someone who had the support of wall street. and, as much of the banking system is held together by trust and faith, an insider with support can hold things together much cheaper than an outsider or critic.

    the theme of this site is that continuity during a crisis is questionable, but that isn’t obama’s line.

    he’s going to be sacrificed if things either get better or worse. if better, he is gone because the public has lost confidence in him. (well, he was brought on board to instill confidence, ergo to lie.) if worse, he will be sacrificed as part of a deal to pay for more bailouts or for nationalization.

  23. Cultural capital is an interesting curiosity for the sociologists, but how can this be taken too seriously when Wall St. was all to eager to bring in anyone with a math degree into the fold, whether an MIT-educated member of the upper class or Chinese or Russian rocket scientists?

    I know that this blog could never do so, but you need to go back to the 19th century to look at the writings of Marx for a perfect user guide to understanding what is unfolding. Even Foreign Policy magazine has recently run an article on this. A great excerpt:

    “the need for a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe,” foreseeing that the development of capitalism would inevitably be “paving the way for more extensive and exhaustive crises.”

  24. i don’t think that knowledge of advanced mathematics is a factor at all. knowledge of advanced mathematics might get you a mid-level job at an investment bank. these jobs are well-paying, but not extremely well paying, and they certainly won’t make you oligarchy-level rich. the best paid people are, as in the rest of the world, upper managers and sales people, and these people have by and large no special knowledge.

  25. I want to thank you guys for this website. I have been following Simon since March and have learned so much.
    I am a 59 year old house painter that dropped out of the corporate world after 20+ years as a software developer for major corporations. My real concern here is about poverty. Not only how it manifests itself but how it gets created and it seems you have pointed me in the right direction. Hey, I want to have lunch with this guy too! knuckle sandwich?

  26. I don’t see this how this is trolling. The post is courteous and reasoned, on-topic and not inflammatory. I would hope that one can disagree without being a troll.

  27. Too bad about Bourdieu – I guess I’m out of touch. My main exposure to French intellectual life was during the 1990s, and perhaps by then Bourdieu was already out of favor. (For example, by the time Derrida exploded on the American university scene in the 1980s, he was already past his prime in France.) But I still think The Love of Art is a great book.

  28. I agree with you completely. I felt this phenomenon myself early in my business career. When you get close to people who are fabulously successful and wealthy (the top executives at one company I worked for each made over a billion dollars, with a “b” – and that was before the hedge fund managers made that seem like small change), it can be hard at first not to want to stay in their limelight.

  29. Of at least equal long-term concern is the reason that Prez Obama picked someone with Geithner’s weltanschauung and Larry Summers. If they mirror Obama’s own world view, he’ll stay with them for quite a while. The consequences may be dire.

  30. Wow, what a lame analysis. Reading this post made me think, for the first time, of ignoring Baseline Scenario from now on.

  31. Here, here…silly things. My point exactly. Too much time is spent here convincing us that a conspiracy of oligarchs has highjaced our economy and too little time is spent talking about reform and recovery. Even if you buy this line that Geithner’s an unwitting pawn in the hands of the “banksters”, who should take his place and why? How does James propose to depose a duly appointed cabinet secretary and have his candidate appointed in time to do something constructive? What about mortgage reform legislation working its way through the House now, which way is that likely to go? What other legislation should be considered. What about putting Glass-Stegall back together? Do we need to register synthetic securities? Are CDSs securities or insurance and how should they be regulated? Krugman’s got a plan. Stiglitz has got a plan. Where’s the Baseline Scenario plan?

  32. While it may be difficult to outline a fully comprehensive alternative approach, one obvious way that the bailouts could be improved is to extract better terms on behalf of taxpayers. Geithner thought it would be “counterproductive” to ask banks for some compensation in exchange for taxpayer guarantees of bank liabilities. It was apparently the FDIC that pushed for at least some sort of fee. Similarly, Geithner’s latest plan disproportionately benefits banks/private investors at the expense of taxpayers. In the AIG bailout, counterparties like Goldman were not asked to take a haircut to share the burden with taxpayers. The list goes on. Is it not completely obvious that the taxpayer is not being adequately protected?

  33. In this case, it appears that “cultural capital” is identical with “cognitive capture.” What is good for WS–the oligarchs of America–is good for America and, therefore, we must bail them out.

  34. Isn’t there a difference between belief in the need for institutions of a certain size and staffed with a certain level of expertise in order to fulfill certain monetary and economic functions nationally and internationally and the belief that the existing institutions staffed with the existing management that fulfill those functions are necessary to the fulfillment of those functions? In other words, perhaps Geithner’s worldview is that certain types of institutions are necessary as opposed to the notion that only the institutions as currently structured and managed are necessary. You and other commenters suggest that it is the latter. You may be right. Or not.

    But assuming that Geithner’s (and Obama’s) worldview is the former, how does he get from where we are today to a more functional system with the least cost and risk to taxpayers? I think the answer is: carefully. In other words by taking the traditional path of bank regulators – using tools that range from gentle persuasion (perhaps over breakfast) to increasingly stronger steps, Geithner may be able to achieve the appropriate restructuring.

  35. How can America possibly “grow” it’s way out of this Geithner / Summers debt…. 4 trillion….. Did you read about those rotten chinese who continue to steal our technology as fast as it hits their stinking shores. Yes, the NYT’s did an expose on cellphones. That costs $70-80 billion on lost revenues. But scope that out in the grand scheme…..

    Are those b’tards not stealing super computer technology, how about even our programming, – ou know what that costs to develop? All our maunfacturing…. where do you think Chinese automotive technology came from – …. GM has a thundering herd of $500,000K a year engineers,—- (or used to) —- and China gets this fruit for the price of one $50,000 Volt. Which they disassemble and clone, in a week. We should settle our balance of trade deficit with the stroke of a pen for technology transfers…….

    WTF – —- But we American’s are going to grow our way out of Geithner’s debt. Who is kidding who here?

    Yet Hollywood can beat the snot out of American kids who are “pirating” DVD’s and CD’s….. just like Americans getting rich selling houses to each other over the last 8 years.

    Economic Cannibalism.

    That’s my term without a PhD. Eating ourselves by charging each other fees and fines and rents. Until all the fabulously rich elephants on the head of the pin (Wall Street) topple the whole thing over. Musical chairs ….. the music is definately going to stop. And you fool’s think Geithner – Summers are great, doing us a favor by keeping your inflated stock values pumped up for a quarter or two.. Hold your breath.

  36. Nice post, James. Does a good job of supporting some of the reasoning behind the Atlantic article.

  37. Agreed. I thought this blog was about finance, banking, economics — that sort of thing. I don’t really care about how Mr. Geithner became the person he is, but what his plans and policies will accomplish — if anything.

  38. anne wrote:

    ‘The last 30 years have seen Reagan’s vision of a deregulated business environment come to life – the last eight years in particular were great for the “free market” advocates – but we gained nothing in the process.’

    Thanks for putting “free market” in quotes, I get your point. There’s been nothing TRULY free market, in the sense Adam Smith envisioned, about the last 30 years.

    I’m waiting for someone to explain to me how funneling $22.9 billion to Goldman Sachs constitutes a “free market.” My understanding was that Smith was writing AGAINST powerful mercantile interests choking the ability of small vendors to enter the market.

  39. I think you’re on to something here, but perhaps putting too fine a point on it to limit it to art. Fluency in art appreciation serves to demonstrate that you have excess time available, much as a suntan does, but with a little sophistication.

    There are a number of ‘truths’ that must be upheld at all times in order to be in a postion of Geithner’s level, and the best way to maintain them is to never even suffer the thought that those ‘truths’ might be false. The point of an Ivy League education is to learn that there are some things that it just wouldn’t do to think, much less say.

    The chief one in this instance is ‘What’s good for GM is good for America’, with GM standing in for the whole corporate power structure, including Wall Street. Timmy has, pretty obviously it seems to me, completely absorbed this notion to the point that it is as like the air he breathes. The notion of considering an alternative view never arises, and as such he is eligible for the Treasury, the Federal Reserve Bank, etc.

    Other Sacred Cows: American Exceptionalism – the notion that whatever the United States does in the sphere of foreign policy is just, by reason of the fact that we have done it and it we are the most just and greatest nation the world has ever known. Free Market Capitalism – the belief that we are laissez-faire capitalist society, despite massive government intervention in the economy, both at times of crisis and as well as normal times. American Democracy – the notion that we engage in wide ranging debate on issues and the masses of people have meainingful input in decision making.

    Recent events on Wall Street have reached such extremes that Republican idealogues (the people who actually believe in Free Market Capitalism strictly defined) have objected strongly to the repeated bailouts. These Republicans are at least idealogically consistent; they oppose government intervention on behalf of welfare mothers, middle-class college students, and Wall Street bankers. But, they have not been attentive to the ‘What’s good for GM…’ truth and they won’t be lunching at the Four Seasons.

    The recent history in Iraq (including the torture memos, the Downing Street memo, the failure to ever find WMD in Iraq or a credible link between Saddam Hussein and Al Qaeda) should put an end to the notion of American Exceptionalism. But, when you have been well trained, it never occurs to you think about those things.

    And, of course, the corporate media makes it easy by failing to report these things with any like the gusto they give to pronouncements about ‘smoking guns’ and ‘mushroom clouds’. This same selectivity makes it appear that there are huge differences between the Democrats and Republicans, when in fact, so far as the central ‘truths’ of American society or concerned, there is very little difference at all. Our wide raging debate extends from viewpoints on the right to the far right.

  40. James,
    I like the way you plunge in, and describe what is happening with ideas grounded in philosophy. This effort on your part is important. Philosophical maps of the political and economic landscape are essential — otherwise no useful responses are possible.

    In so far as I understand your premise, I agree with at least part of it. Yes, you are right, there has been “capture.” Your view seems to be that those who did the act of capturing were Wall Street people — while those who got captured were government regulators.

    In my opinion you are being too simplistically Marxist. You have stereotypical rich people creating culture (“superstructure”) that causes people like Geithner to come to have “false consciousness,” in which state they unwittingly serve the interest of the rich.

    There are all sorts of problems with your description. Is culture really the problem? How can a people live or even exist without culture? Is it bad for people to look at, or read and think about, the best that has been created over the centuries? Is the man who reads The Republic less able to pursue his “true” interest compared to the man who does not?

    Your categories, in relation to the terrain that you are trying to map, are vague, ill-defined – and, sorry, but they are hackneyed and unhelpful.
    Let me set forth another capture theory, not radically different from yours, but with a different nuance, and different prescriptions.

    My starting point is to note that the history of the American experiment is one of a steady rise to dominance of a political class. The process can be tracked in an endless number of ways, such as: by the number of people who work for government, by share of GDP spent by government, by tax take of government, etc. etc. In the 1960s, the process reached its point of culmination. No activity lay beyond the reach of Washington. Laws were passed about who we had to go to school with, who we could sell our house to, who we had to hire, what words we could not use when we got angry with each other, and so on and so forth.

    Government, as it gathered power, flattened out the population by taking away, by outlawing or by undermining every non-governmental source of power. The trouble is, this taking away of non-governmental power freed government itself from constraints upon itself. As Madison understood perfectly well, in the end power is only stopped by power. As non-governmental power weakened in the USA, the government first pursued an agenda of socialist reform. By the 1960s, this path was putting a strain on the productive middle class, and meeting resistance. What next? The political class “inside the beltway” figured out something rather crucial —- they figured out how to monetize political power. This monetization of political power is what we now call “crony capitalism.”

    Did the people in Washington capture the people on Wall Street, or was it the other way around? Who cares? The distinction is pointless. What we have now, and what we are faced with, is a powerful class of men who hold in their hands the reins of government. They are not afraid to guide government in ways vastly useful to themselves. The solution to the problem is not to give them more power. The solution is to make society lumpy, that is, find ways to encourage men who have power based on matters “outside the beltway,” who have confidence, who can and who are willing to create countervailing power.

    Of course, you won’t agree. Your most basic instinct is to want to give power to government for the purpose of making reforms. This response on your part is a triumph for those on the inside. They have gotten you to want to give them power – in the name of curing abuses they perpetrate. Fat chance such a strategy will work.

    If a person exists in this drama with false consciousness, it seems to me that person has to be you.

  41. All the talk about Sec. Geithner (and Summers) is quite misleading in one important aspect. President Obama hired him to do exactly what he is doing. Our President is very, very smart and very, very disciplined. These are good qualities. But if Sec. Geithner has is too close to Wall Street for comfort, think about who put him there.

  42. We all know Geithner is getting it wrong. Most importantly, Obama knows, and we keep reminding him. He is just stemming the crisis. The hammer will be coming down on all this Wall Street nonsense in the future. These are vestiges of a defunct and debunked legacy system. We know this is a zero sum game. Thain’s millions, “Sandy” Weil’s billions,…. they were plifered from 40 million 401k and IRA’s. And we have now exposed the cultural capital crooks. The last supper.

    It is a different kind of “swine flu” but the name is appropriate. The pigs think they can keep gorging at the trough. Typical of greedy stupid animals. Try and pull a starving dog away from his bowl of food and you will get your hand bitten off, even though you were the kind soul who put the bowl down for him two minutes ago.

    Do you see an analogy to the TARP funds?

    This is the outbreak of Swine Flu we need to care about. I feel sorry for 150 Mexicans who died over the last 6 weeks from influenza…. but did you notice, 150 Iraqi’s died in less than 30 seconds this weekend when suicide bombs went off in their family market. I didn’t see anything more than a collective yawn?

    Figure this out. While the swine were out shopping in November ’08, looking for new Art and Lambrogini’s – the rest of us were taking names and counting coup.

    Ps- NICE work Arlen Spector. You are exemplementary!!! My hero. Pennsylvania rules!~

  43. Having nothing to do with the current post, I want to congratulate those who operate the Baseline Scenario on one of the most informative, courteous, thoughtful sites in the media. Ten minutes with your financial crisis for beginners is worth several hours of TV or newspapers. Very understandable, very well-written. Hopefully as the site becomes more popular the tone will stay civil and informed – I confess I find the comments as informative as the posts.

  44. Sir, it may not be completely obvious that the taxpayer is not being adequately protected, but what do you propose you and I do today and tomorrow? I certainly do not want the Secretary of the Treasury tracking 187 million in bonuses while trying to manage a $4,000,000,000,000.00 bailout. If our (I presume you too are a taxpayer) preferred equity interests in banks pays a 5% dividend, do I care if it’s cumulative or not of if the interest is converted to common equity when the enterprise itself is being supported by TARP and CPP funds? Who do you propose should replace Geithner? Why? What measures would your candidate advocate? How do you propose we convince the President to ask for Geithner’s resignation? Is the Secretary of the Treasury the place to start when reforming the banking system? What’s wrong with House & Senate Financial Services Committees? Is the uptick rule sufficiently strong medicine? Would you propose a prohibition on “naked” trading of derivatives? The problem is not theoretical. Let’s get concrete. Let’s act.

  45. When is a crime not a crime?

    Say I manage to get Congress to pass a law (The Methodman Grant Act of 2009) that gives me money. I get a big fat check issued by the treasury, made out to me, and me only.

    Who knows how I did it. Maybe I wined and dined each and every member of congress with fast food. Or they just plain like me.

    Did I commit a crime getting my largess? Everything was done according to our laws by our elected representatives and their duly appointed officials. You don’t like it? Vote those who did it out.

    Maybe you do that. But I still have my money. The Constitution states you can pass no bill of attainder against me to get it back. I will enjoy spending your tax dollars.

    As for me and my (er, your) dollars, you would probably be thinking:

    When is a murder not a murder?

    This, in a nutshell, is our present situation, only several orders of magnitude worse.

  46. In terms of reform, let’s recognize that there is a fundamental tradeoff that all regulatory institutions face between access to information and political insulation.

    If we politically insulate an institution, we tend to cut that institution off from information.

    If we deepen the institution’s access to information, we by necessity reduce its insulation from political influence.

    The whole goal of corruption-resistant institutions is to find mechanisms for government agencies to get the information and tools to implement effective regulation, while ensuring that those institutions serve the public interest (as the public sees it, not as banks see it).

    (The New York Fed is an abomination in that regard – it is government capture in its purest form.)

    Finally, although institutional design is critical, no economic theory can adequately account for beliefs, alliances, and personal background. This is one of the reasons I trust Bernanke and Obama more than Geithner and Summers:


    “Born in New Haven, Connecticut, on November 30, 1954, Summers is the son of two economists, Robert Summers and Anita Summers, who are both professors at the University of Pennsylvania, as well as the nephew of two Nobel laureates in economics: Paul Samuelson (sibling of Robert Summers, who, following an older brother’s example, changed the family name from Samuelson to Summers) and Kenneth Arrow (Anita Summers’s brother). He spent most of his childhood in Penn Valley, Pennsylvania, a suburb of Philadelphia, where he attended Harriton High School.”

    Bernanke: “Born in Augusta, Georgia, Bernanke was raised in a ranch house on East Jefferson Street in Dillon, South Carolina.[3] His father Philip was a pharmacist and part-time theater manager, and his mother Edna was originally a schoolteacher. He is the eldest of three children, having a brother and sister. His younger brother, Seth, is a lawyer in Charlotte, North Carolina, and his younger sister, Sharon, is an alumna and longtime administrator at Berklee College of Music in Boston.”

    Geithner: “Geithner was born in Brooklyn, New York.[2] He spent most of his childhood living outside the United States, including present-day Zimbabwe, Zambia, India and Thailand where he completed high school at International School Bangkok.[3] He attended Camp Becket-in-the-Berkshires-for-boys, a summer camp located in western Massachusetts. He then attended Dartmouth College, graduating with a B.A. in government and Asian studies in 1983.[4] He earned an M.A. in international economics and East Asian studies from Johns Hopkins University’s School of Advanced International Studies in 1985.[4][5] He has studied Chinese[4] and Japanese.[6]”

    And, of course, we all know Obama’s background.

    Now, these don’t sound like people who really truly are trying to destroy the US economy, but you can clearly see how their world-views would have been formed by their childhood experiences and education.

    Summers is an intellectual giant who is somewhat disconnected from reality, more enthralled with his intellectual model of how the world works than how it really works. His version of honesty requires only honesty to his personal intellectual integrity.

    Bernanke is probably the most honest and humble guy in the lot, and probably the one who is most on the side of the US middle class. But he is also not one who seems prone to forcing his opinion down the throat of others (unlike, say, Summers).

    Geithner… well, that’s already been covered. Why Obama chose him, and stood by him, I do not know. Perhaps he will surprise us all, though I doubt it.

  47. There are way too many questions here for me to answer, but I think you should read up on moral hazard. It does make a difference that the government extracts concessions from bailout recipients.

  48. I recently saw a rerun of The Untoucables. There did seem to be a corresponcance to today.

  49. “there is a fundamental tradeoff that all regulatory institutions face between access to information and political insulation.”

    Surely you jest? I mean, come on – is there a requirement in the scientific method that requires us to become “intimate” with nature in order to conduct observation and experiment? Astronomy, perchance?

    A law that guarantees access to the books and internal records, that mandates record-keeping, and a budget that funds random inspections are about as close to the scientific method as one has to come for obtaining information about corporate entities that, legally, exist by records, and records only. The “personal touch” of having access to the CEO’s inner thoughts is an impediment, not an asset. A prohibition to revolve between public service and private enterprise goes a long way to eliminate the corrupt from the merely corruptible. If it takes decent pay to make sure that those that want to serve the public for their entire life can do so, I see no problem with that.

    If you want regulation with teeth, we can make it happen. Incorporation is not a right, it is a privilege. If you want to be in the driver’s seat, then transparency and accountability are the price. Without that, corporate entities are fundamentally incompatible with democratic structures.

  50. I am puzzled that someone who teaches in a university expounds the view that cultural sophistication perpetuates class dominance(unless you are clumsily trying to help the marketing department?) Shouldn’t logically one who holds this view resign from any liberal arts institution? Perhaps the art history department should be sentenced to slopping hogs, a la Mao’s cultural revolution?

  51. Nice article, James. You do a good job of explaining why Geithner may think the way he does. And I agree that he probably isn’t corrupt…in the Hollywood villain kind of way. But then again, I didn’t think Cheney was corrupt in that way either. Cheney in his heart I believe made decisions that he thought were best for the country he loved…however, years of hanging out with a “War is awesome even though I’ve never served in the military” crowd, a few more years as CEO of an oil services and exploration company and a good amount of paranoia will skew anyone’s worldview away from (what I will call) mainstream thinking. Years of hanging out with these bank CEOs and being rather young, it’s no surprise he thinks the way he does.

  52. I’m disagreeing with people a lot these days. This sociological explanation for people’s views is something I’ve never accepted. I’m a follower of Wittgenstein and Austin, and I remember Ernest Gellner’s Words And Things offering such a critique, in part, on why people were so silly as to accept ordinary language philosophy. Suffice it to say I don’t like that book, but I’m a huge fan of many of his other writings. He was a brilliant man, but his arguments in Words And Things are poor.

    I’m finding the explanations of Geithner’s views strange. He’s limited by the context he’s in. As Burke always held, there’s a difference between politics and political theory. Politics is the art of the possible. His only other real option is more stock for the govt, but that’s hardly a panacea.

    As near as I can tell, people are pissed that their pet theories aren’t being trumpeted by Geithner. Mine is Narrow Banking. Yet, I know that moving towards a Narrow Banking system would take time and be contentious. The current bill to seize large financial concerns is a huge step forward. That’s Geithner’s bill, unless I’m mistaken.

    Finally, Geithner was for giving a full govt guarantee at the outset of this crisis. I’m with him. At least he understands the harm of Debt-Deflation and how to try and stop it.

    I’m in general agreement with you on the problem that we face, but it’s much to soon to count Geithner out. The banks are losing power slowly. As well, I do not agree that the problem of bondholders is the same as the problem with the banks.

  53. Yes, and the financial wizards who thought you could use math to unload risk were about as useful as the string-theory physicists from which they were malformed. The math is fascinating, it all seems to hold together and offer so much tantalizing progress. But in the end, it is a huge failure for what it is ultimately trying to achieve. There is no unified theory, the math leads to nothing, and the finance built off the math leads to much less.

  54. The point is that by estabilshing the motives of those that do have the fingers on the levers one can better understand why certain alternatives are floated and others are ridiculed….like nationalizing the banks. I think that Simon has offered many such ideas.

  55. It may be instructive to read up on the history of the Federal Reserve Act (a good primer is available at http://www.bos.frb.org/about/pubs/begin.pdf or in printed form for free from the Boston Federal Reserve Bank).
    From the first, it has been an institution built on compromises between the interests of bankers and the interests of the public.
    (Incidentally, Rep. Carter Glass played a key role in the Act’s form and final passage, a fact Simon had an opportunity to mention on Moyers but did not.)

  56. I’m afraid I do not jest.

    Thousands of gallons of ink have been spent trying to figure out how to get companies to reveal information. It’s not as easy as it seems.

    Case in point: How much, exactly, are those mortgage assets that banks have on their books really worth? How much do bank execs really think they’re worth? If you ask them, they have every incentive to inflate the answer.

    Another case in point: What is the minimum amount of government support that it would take to get private actors to spend their own money to buy up those assets?

    These are just big points – there are thousands of little decisions that hinge on understanding what the private sector is really thinking, what they want, how they might abuse new rules or regulations, who is cheating the system and how, etc.

    It is non-trivial for the public sector to stay in touch when you deliberately cut off contact between agencies and businesses in order to insulate an agency. We can create formal mechanisms, but an incredible amount of information is traded through informal mechanisms.

  57. By the way, it looks like Nick Clegg has come out for Narrow Banking. But he’s the leader of the party. I would assume that President Obama would need to sign on before any member of his team could argue for it. Of course, I’m excluding the ever-popular trial balloon.

  58. Geithner has always spoken in public in managerial/political mumbo-jumbo. Most politicians do the same, but they don’t really pretend to be saying that much. Geithner uses the technique pretending to say technical things to a technical audience. That makes his delivery look far more foolish and disingenuous than that of other politicians.

    Based on the policies he’s selling, he (and his tribe) is either incompetent or dishonest. Take your pick.

  59. Having worked at a large investment bank, I’d say there is a world of difference between the way (new generation) market participants think and those that adore them. Wall Street types are trained to see every human relationship as a means to an end. I’m not sure they see Wall Street as worth saving, but they certainly see themselves as worth saving.

    You are probably right about the signposts of wealth and that, career-wise, Geithner has learned an etiquette that has allowed him to marry-up, so to speak. I’d say it has turned out well for Geithner, however: he has the prestige without the wrinkles.

  60. Alternative Scenarios

    Obama gets the financial oligarchy argument/threat completely. He is as smart or maybe crafty (Machiavellian doesn’t seem like the right word) as one would suppose a one-term, African-American senator would have to be in order to knock out the Clinton machine, and he is biding his time waiting for the right moment politically and economically to adjust the power structure.

    Before appointing Geithner treasury secretary Obama had a heart to heart talk with him in which Geithner said that he had had it with Wall Street’s political and economic power. Perhaps this feeling was a new revelation for Geithner after seeing how badly Wall Street screwed up the economy, perhaps for a guy like Geithner, who probably had many opportunities to jump ship for a juicy hedge fund job but instead chose public service, this realization was the culmination of a life spent observing and rubbing shoulders with the rich and powerful and seeing how corrupting their influence was on politics and the economy. Maybe this was the reason Obama stuck by him so faithfully when Geithner’s tax evasion blew up.

    Unlike his predecessor, Obama is definitely not intimidated by intellectually challenging people. He keeps Summers around (but not in the treasury secretary position Summers wanted) because it is useful for Obama to have intelligent, sharp witted, even arrogant people to bounce ideas off.

    Arlen Spectar’s defection has been in the works for a while. Obama has known and has been waiting for a bomb proof majority in the senate before tackling any of the potentially divisive issues like nationalizing banks.

    Just alternative possibilities. Plausible? I don’t know. Every day this financial crisis goes on I lose a little hope, but Obama has only been president for 100 days.

  61. 20th century philosophy can be viewed as various persons attaching academic narratives to many of Nietzsche’s most insightful aphorisms — Derrida and Foucault come to mind at once.

    Obviously, you could trace Nietzsche’s ideas back further, but I like to stop with him — he did have one of the coolest mustaches ever. Good enough reason for me :)

  62. Culturally, I think most of you have missed the big picture. The culture of Manhattan is uniquely elitist. To be “in” for decades has required a sufficient knowledge of the art world, theatre, fashion, classical music – the high arts. Geithner attended all the right schools and was weened on this culture. He is of that culture.

    Geithner’s father works at the Ford Foundation, and for time worked with Ann Dunham, Obama’s mother on issues involving indonesia. So there is a family connection to Obama. His mother is a classical pianist, and presumably Geithner was influenced by her music abilities.

    To be fashionable in this Manhattan culture, of which to be fashionable is almost compulsory to succeed, one must be politically correct and have a socially liberal outlook. Politically, most are of the elitist left, and when they are Republican, they are of old line Blue Blood/ Country Club set. Taint too many cowboy Capitalists in Manhattan.

    People normally protect their own. So it is with Geithner.

    The Bush family BTW is also Blue Blood with Wall Street ties. W strayed at times, but the Bush clan kept trying to pull him back often with success. All of Bush’s Treasure Secretaries were either connected Wall Street Blue Blood Republicans or Wall Street Democrats. None supported tax cuts. None were great advocates of the free market or conservative. So the meme repeated endlessly there was a wild free market ride in the Bush administration is just nonsense. Bush was a moderate, and for every free market move he made, one can find a another that was not market oriented.

    Bush when he tried to rein in Freddie or Fannie, he did so meekly; never with force. But he did allow the relaxing of banking reserves, which was not a free market move but a really stupid capitulation to the oligarchy.

    Geithner is much further to the left, but he still is of Wall Street. Anyone is thinks that a Global banking reserve currency is an acceptable thing is of the far left.

  63. “Is making reference to a french intellectual your way of establishing your own distinction? (Serious question)”

    As much as I like Kwak’s writing, I think you really nailed him with that question. Postmodern philosopher name dropping at its finest.

    It’s OK James, I enjoy showing off a familiarity with pomo philosophy too…

  64. Stats Guy – what do you think of Lloyd Blankfein, the son of a postal worker? His background didn’t seem to leave him at all interested in the middle class.

  65. There’s no need for any Bourdieu theory. It’s more like a mafia system. You could call it “the country club mafia”.

    Geithner has been sent to do the dirty job but he will be rewarded. Five years from now, he will have a lucrative position in some top bank. You could argue that he could already have such a position right now and it’s probably true. But after what he’s gonna to do for them, he and his family will be looked after for a very long time. He will be part of the very core of the mafia.

    The reason why the wealthy will always win is that they can always find dogs willing to work for them. You don’t need to be born rich. If you have enough brains to go to Yale or Harvard, you can make the connection. You just have to kiss their asses and show them that you will do anything to defend their interests. You will be welcomed into the mafia. Progressively. And if you do what Geithner is going to do, you will “be made”.

  66. After reading this article, the comments to it, and the NYT (excellent) look at Geitner’s ties to Wall Street, I am left with this thought. In fields such as law or the court system, where decisions have a real life impact on the actors, even the “appearance of impropriety” is unacceptable, and in fact, grounds for either recusal, reprimand, or sometimes prosecution. Here we have decisions that impact not only millions of citizens lives now but for generations, being made by someone whose relationships with the “actors” are, beyond any impartial look, improper or at least hugely tainted. That Mr. Geitner’s decisions and “solutions” favor those interests from whence he came is so obvious as to be beyond question. His demurrals that he has never and would never make decisions based on his associations and relationships are worth what? Do we take one at their word when looking at conflict of interest scenarios? Of course not, who would admit to such a bias. Me thinks Mr. Geitner doth protest too much; but of course what else can he do. There is no alternative reality he can point to that justifies some of his positions.

    Do I believe he is corrupt. No. From his world view, he likely thinks he is the “white knight” in our time of distress. My ire, I guess, would be directed at why someone with so obvious a bias, would be allowed to formulate policy without the other party’s (taxpayer) interests being taken into account. As to the issue of “conflict of interest” obviously the standards for the rest of us differ from those of the financial oligarchs.

  67. Bourdieu is quite a determinist… This post is quite interesting, but as said in some other comments : it should not mean Geithner is not responsible for what he’s doing !

    And that raises a big problem that is actually one of the main aspect of this crisis : nobody is responsible. The system is built in some way that wipes out every responsablity for any agent taking a part in the mess. It is impossible to find anyone guilty… (Madoff is not responsible for the economic breakdown).

    This might be because it is the whole US country that is responsible : its way of living is the cause of the mountains of debts.

    From my french point of view, I must say it is a usual behaviour : you americans can hardly think about the consequences of your acts. Although you keep on claiming that you’re acting with pragmatism, you always forget about what you will have to pay later.
    The cost of the war…the cost of a nation living over its means…etc.
    For you americans pragmatism seems to mean what is effective right now. Well you should start thinking middle and long term. It is a bit easy to pop up and say
    ” ho ! what happened this invasion of Irak was not a solution ? Oh making live our population was not a solution ? ” etc . etc .

    Come on…

    the other day I found an article of WSJ from 2006, an (american) economist says this about the fact that personal saving rates were negatives for that year :

    “The day of reckoning for consumers and the U.S. economy has been predicted for the last couple of decades. It hasn’t happened. Is this a case of “we ain’t seen nothing yet” or we do need to rethink the doom and gloom story? Here are couple of things to keep in mind:


    Why would foreign investors keep lending to the U.S.? There are at least two reasons. First, the U.S. is still the largest and, arguably, the most resilient economy in the world — and will be for another few decades. World lending to the U.S. over the past two decades has paid off handsomely in terms of rapid global growth. Second, the U.S. does have a comparative advantage in producing financial assets (yes, debt). Think of the U.S. economy as a giant hedge fund. No, this is not a bad thing in this day and age of rapid financial innovation.”

    “Think of the U.S. economy as a giant hedge fund”…I like that one !

    See, that guy “represents”. You don’t need to change or add a few regulations…
    You need to change your state of mind and educate your people.

    To say “oups I didn’t mean it !” after the damage is done is bullshit. The 600 000 irakis you have killed will stay dead. Same thing for the few american soldiers (very few if you compare to the number of their victims). For the billions of people who will suffer from this subprimes crisis, it’s the same thing. As well your forthcoming generations will have a hard time.

    Conclusion : you all need to use your brain and wake up immediatly. You have to accept that your country cannot stay hegemonic forever with credit tools. If you want to stay on top stop thinking only about tomorrow. The west coast is colonized, you cannot start to exploit some other territories once you spoiled a region.

    PS :
    sorry for the grammar and the spelling.
    and yes, we french are certainly arrogant but still if you had listened to us in 2003 for Irak, you would not be in that bloody mess. (renaming “french fries” “freedom fries” lol)
    and we don’t care if you feel sorry.

  68. A big part of the problem here is that wall street investment banks put up the seed money for Obama’s presidential campaign. It would be very difficult for him not to put one of their people in as Treasury Secretary. Much of what is wrong with our economy comes from the need of politicians to raise money from the very corporations they are supposed to regulate.

  69. You have a point. My priority is reform. I believe if reform is thoughtful and sufficiently thorough danger from “too big to fail” will be greatly diminished. If reform is punitive, however, and handled clumsily, there is a good chance the taxpayers could lose his entire investment and guarantees he has made will be called upon.

  70. i disagree. i agree that it wasn’t done well, but i disagree that it is impossible to do well.

  71. Nice analysis James, thank you for sharing your insights.

    These kinds of elite, informal social bonds are very difficult to break, and are very daunting to challenge directly. However, someone with sufficient social skills and intelligence, with clout and passion, and predisposed to do the right thing, could still accomplish quite a bit.

  72. Without a doubt, your best post yet, James. You have achieved what T.S. Eliot dubbed the “objective correlative” (when “blogging” about Hamlet back in the day): I was immediately overwhelmed by all the post-WWII gallic existentialist writing I so admire; the political writing by the likes of BHL I find so intriguing; the practical reality of trying to distill into something intelligible the aspirations of those folks driven by their desire to be perceived as Nietzsche’s übermensch, or transcendent men, among whom we must count M. Geithner. It is this vanity that leads him to these displays. Well done, Sir. Once again, we see Orwell’s man of action and belief — perhaps best exemplified by P. Volcker — vs. the introspective man as exemplified by none other than J-P Sartre.

  73. At this late hour, permit me to express my sincere gratitude for the uplifting level of the discourse. To one and all, congratulations on contributing to a “super” bulletin board (or is it) blog?
    This beats any Yahoo, Raging Bull, etc. dialogue.
    I’m addicted.

  74. Well stated.

    I think ultimately this is the problem with the echo chamber of Washington as well. Who do our congressmen talk to? Not the little guys, not the guy on the corner, not James Kwak, not Paul Krugman, not even the obnoxious Tom Friedman.

    No, they talk to lobbyists, big business people, rich people, people in the “overclass” as it were. People who are all part of the same “establishment” class who all share the same groupthink. That they come to the same flawed conclusions over and over given the input should be no surprise, it should be the expectation.

    Does that mean they’re bad people? That they aren’t operating honestly? No, certainly not, but in the end it doesn’t matter if they’re honest or not, what matters is the policy and the policy sucks.

    In truth the vast majority of people operate in good faith and practically no one actually believes they are committing evil. The Nazis, the Stalinists, Pol Pot, the Taliban, the Spanish Inquisitors, Dick Cheney, Al Qaeda whoever – none of them did or does what they do to be “evil”. If asked they would all say it’s for “the better of the country”, “the better of the world,” “the better of God”.

    Of course it’s little consolation to their victims that they are “good at heart” or would make “good friends” (if they weren’t too busy having you waterboarded that is). What matters is the implemented policy, and in the above it was/is evil.

    So getting back to Timothy Geithner (who to note I am most definitely not comparing to any of the baddies above). Timothy in the worldview that he exists in, in the echo chamber of high finance, I am sure is trying to do the best he can with the tools that he believes he has. He is not bad, nor I’m sure does he believe he is “bad”.

    Unfortunately however he is handicapped by his limited view and the constant reinforcement he receives on the golf courses and in the tables of the Four Seasons. If all you talk to is rich people, the only perspective you have will be a rich person’s perspective. And there is the crux of the problem.

    So if Timothy implements bad policy because of his faulty oligarch-centric worldview, it doesn’t matter if he’s the most honest, friendly, good hearted guy in the world. It’s still just bad.

  75. As I recall, “Engine” Charlie Wilson also said “and what’s good for America is good for General Motors.”

  76. You will find parallels with the British attempt to create “brown shahibs” during their rule of India. This was institutionalised through the Indian Civil Service (ICS) where the incoming Indians graduated as Brown Shahibs complete with the belief that the British rule was good for India, etc. These Brown Shahibs played a glorius role in the attempting to quell the freedom movement etc.

    Read Rudyard Kipling, watch Gunga Din, etc for more examples of this phenomena.

  77. I’ve been reading this blog since last October and have recommended it to many friends and coworkers. I have a deep respect for Messrs Kwak & Johnson.

    While the post was good, if a bit too heavy on pomo philosopher name dropping, the comment stream is just plain ironic. It seems as if people are crawling out of the woodwork to congratulate Mr. Kwak on his fine discussion of ‘art history’ and then prove their understanding by dropping the names of the other prominent figures in ‘art history’ (Sartre, Heidegger, Nietzsche, etc).

    An alternative reading of Mr. Kwak’s post is that his references to French philosophers were simply an attempt to give an aura of authenticity and legitimacy to his discussion of cultural capital. Referencing figures from the grand narrative of philosophy was his tool to get a very basic point across about Geithner.

    He could have stated his point about Geithner much more concisely if he just said Geithner was ‘a chip off the old block’.

  78. I always appreciate the honesty of your posts Mr. Kwak. Most people wouldn’t admit that, but I think it’s just human nature. 90% of the people are like that. I think Geithner is sincerely trying. So I can forgive him if he doesn’t get it perfect. I wish they would be more hard-nosed with these banks and eventually break them into smaller pieces. It’s obvious to me when credit unions aren’t having much problems that the banks lack of regulations encourages severe risk taking. Severe for taxpayers anyway. I am curious to know Mr. Kwak’s opinion on if and how Arlen Spector’s jump to the democratic party will change things.

  79. We circle around yet again, after much lofty discussion to the fact the “little people” or the population I frame as poor and middle class Americans effectively have little if any real representation in the government, and no practical voice, or input into the conduct of the government. More alarming, the governmnent is owned and controlled by the predatorclass, or the “overclass”, elites, the superrich, the “banksters” the “oligarchs” who infiltrate, collude with, or bribe and coerce the government and relevant organizations, agencies, and committee’s within the government to advance the best interests of the predatorclass, and select cabals and oligarchs – to the great disatvantage and deleterious impact on America’s poor and middle class.

    The Obama government, – any government should provide some mechanism for the peoples voice to be heard, and for the people or large constituents of people have imput into the conduct of the government.

    If not, then we must revisit the very concept and definition of demacracy, wherein as I understand it, – the authority of the government is derived from the consent of the governed. If we are a democracy – then why do so few have so much power over so many? And why do themany have so little voice and influence in the conduct of the government, while thefew effectively own and control the government and reap the extraordinary benefits and largess from the government and heap all the costs, debts, burdens, pain, and suffering the shoulders of the children of themany? Are we a perverse democracy, or a 21st oligarchy?

    The decisions and policies applied to redress the great unwinding will define exacty who we are as a people, and what we are as a nation? Apparently at this point, we are leaning toward the oligachy camp, and entrenching almost total control of the wealth, resources of the nation, and mechanics of the conduct of government into the greedy hands, engorged pockets, and offshore accounts of the predatorclass. We are apparently of governmnent of the predatorclass, by the predatorclass, and for the predatorclass, and the people have absolutely no voice or influence in the conduct of the government.

    I hold onto the a gossamer thread of hope that the Obama government is making these seemingly predatorclass intensive and benefiting decisions with the greater good of the America people at heart, and that once a level stability is reached, – the Obama government will focus on rescuing, buttressing, shielding, and advancing poor and middleclass American, and put the predatorclass back in the keep.

    Laws were broken. Ethics are non-existant in the predatorclass. Tax evasion, collusion, fraud, predatory lending, insider trading, and sundry acts financial malfeasance and perfidy are systemic through-out finance sector, regulator agencies, the Fed, and the Treasury. How else do you explain all these cabals and organization missing “derivative rick, CDS spreads, the housing bubble, the subprimeloan debacle at the root of many of these socalled innovative products, the credit crunch, and the brutal unwinding and most severe economic crisis since the great depression. Whatever these people were paid, – it was grotesque overcompensation for woefully poor performace.

    Criminality is institutionalized and indoctrinated into the culture and the DNA of the creatures conjuring these “innovative” products. Securitizing iredeemable debt is sophisticated PONZI scheme, and so an illusion.

  80. Without sounding to obvious, i was startled by this quote from Thomas Jefferson: “I believe that banking institutions are more dangerous to our liberties than standing armies … If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    I am afraid in my simplistic opinion, we are doomed to failure and the end of the USA as we have known it.

  81. hey, i was one of those anti-globalization “rabble”!! and now look at me, reading this blog…

    i’ll never have the cultural capital, but i’m getting my degrees, and wall street, i’m coming for you!

  82. TonyForesta I note your comment re lack of ethics. Could you explain on what base you expect ethics to stand? Would we expect people admiring Sartre’s philosophy to think ethics is whatever the strongest decide? Therefore should this be seen as stemming from a lack of an external moral absolute? We could ask; does Wall Street Banking self-validated determinism flow inexorably thru a body of causes and thence to effects – but based on what?

  83. James,

    I agree with what you’ve said, but as someone pointed out above, you’ve gone through a very colorful narrative to state what any 8 year old on a school playground knows is painfully obvious: like-minded people tend to stick together.

    Scale this up to our financial/economic elite, and we have the close relationship between our financial regulators/public servant economists and pinstriped financiers. The only question is who are the cool kids and who is the quiet kid that desperately wants to be part of the cool-kids’ group. The obvious answer of course, is that the financiers are the cool kids, and the regulators are the shy ones.

    Now, there is a psychological debate as to why are there classes in society like this and why can’t we all be equal and love each other equally, but I think that its a dynamic that we’re hardly going to see go away in human nature any time soon. Losers will always want to be cool kids. More constructive perhaps, is to figure out how did the financiers become cool kids and the regulators become losers?

    Again, obvious answer – money. True, regulators have power, but financiers have enough money to more than compensate for that small lack of power. And here is the fundamental point – if we are truly to have a push-pull relationsip between wall street and washington, then the intellectual caliber AND the relentless ambition that is attracted to Wall Street needs to be attracted at similar levels to the office of the regulators. And here our metaphor continues elegantly: because of the far superior pay prospects of wall street, the cool kids of the playground are generally the ones in the private sector and the quiet/shy ones are found in the regulator’s office. And while not everyone on Wall Street was an ex-Princeton lacrosse player, those who weren’t were probably electrical engineers from MIT. So the regulator consistently loses out on the most ambitious and the brightest talent…and will be consistently behind those it is trying to regulate.

    For further clarification – take a look at where the class of 2008 from MIT went for employment (http://web.mit.edu/career/www/infostats/graduation08.pdf). Page 3 and page 12 are particularly compelling. I think you’ll find that the SEC, the FED, and the Treasury are rarely if ever mentioned….

  84. Sorry, but how can anyone be said to possess integrity if they don’t pay their taxes? That they are simply captive of their a particular culture, such as Wall Street? Subscribing to a culture that tolerates dishonesty is still a choice, whether your culture is Wall Street or Main Street, academic or journeyman. If, as I believe, paying your taxes is a basic obligation to your country and to your fellow citizens, then your choice not to pay these is a deliberate decision, no matter how captive you are to any culture. In fact the term “captive a culture’ implies a lack of free will. I don’t buy this line. Honesty and responsibility are required of all of us who live in an benefit from a society. You could even argue that more is required of public officials.

    From tnose who stubbornly embrace of a belief system that has been shown not to work … heaven help us.

  85. For an excellent description of an alternative to the current policies, see this article by Joseph Stiglitz in The Nation. http://www.thenation.com/doc/20090323/stiglitz/single?rel=nofollow
    Scroll down to the subheading “Is there an Alternative” if you want just the prescription without the background. The basic thrust is that we have longstanding rules for dealing with failed businesses, including banks. They are adequate to the current job and will cost the public far less than what we are doing. The bank owners will lose their investment, but depositers will be protected. The current bailout plan is all about protecting the owners from losses caused by their own risky and shortsighted practices.

  86. How can you discount rank corruption as a motivator for a guy who didn’t pay income tax he obviously knew was owed? That seems to be at least as corrupt as, say, shoplifting.

  87. Uh,,, no knuckle dragger. Geithner made a $7,000 mistake on a deduction using Turbo-Tax. If you have ever used Turbo-Tax you would understand why…. ($29 software – worth every penny) Geithner deserves tarnish – but over the misplaced and mis-directed Wall Street and Bank Oligarchy financial support which becomes more obvious, as the huge red nose on your face, day-by-day.. You keep trying to run this Re-thug-lican tax-thief herring down the street for traction which is not there :)

    Like Olympia Snowe (our next democratic Senator) said this morning. The Rethug’s are headed for having the smallest “tent” in history. You will have 38 dinosaur Senators (Imhofe, Cornyn),… a herd of wacko conspiratorial rednecks,… and the Rapture Evangelicals.

    Anybody else want to join the party. …. There’s lots of room. Ha!

  88. excellent post james. i think sociology does play a role in people’s thinking. and yes,,,most people want like minded people working for them and with them. the financial world has the limra test that they have people take before a job is offered. i took a loadful when i was a young buck with diff companies. apparently i wasn’t the right fit at the time. a blessing today. also, the lsat that would be lawyers take targets a particular way of thinking. then there’s nepatism at certain corporations. it’s all there and unlikely to change.

  89. A troll is not defined as someone presenting a thoughtful view that you don’t happen to like.

  90. it is not possible to know how the financial industry will change as a result of the latest crisis

    many middle and wealthy class people have suffered losses – the cultural ethic that has prevailed since around the election of ronald regan has as failed them

    understandably many are calling for change now

    change will come

    the tidal wave created by the flawed financial structure has slowed but it has not stopped

    we are still absorbing the effects of the problem

    the political debate that is necessary for change has yet to begun

  91. Why cite Baudrillard when you are really talking about Gramsci’s concept of cultural hegemony? The form of groupthink you discuss went way beyond Wall Street to capture the Clinton administration and the UK Labour government and to invade the EU Council if not the whole EU Commission. It also colonised the IMF and World Bank and OECD. The world’s elite media from the WSJ to FT and The Economist was a most efficient transmission mechanism.

  92. You have to have a theory of what the math is explaining before the math does anything but make you seem smarter to people who don’t know math. The problem – in both finance and physics recently – comes when the original theory doesn’t empirically work and people try to fix it by sticking more complicated math on top rather than revisit the theory. The fact that it takes increasing amount of time to come up with experiments to disprove the new crazy math just means there is more time for people to get suckered in before it is revealed that, surprise surprise, the underlying theory still doesn’t do a good job of describing the way the universe works.

  93. really important post as understanding human behavior is extremely important. i believe the gov’t knows a lot more about it than we think.

  94. Hmmm. I wonder if citing Bourdieu, Baudrillard, or Foucalt isn’t itself an instance of perpetuating class distinction and demonstrating group membership. No deep theories are needed to explain Geithner’s solicitude for bankers. It’s clear enough that he shared their worldview, particularly since it comported so well with his own self-interest.

    In any case, the interesting question for me is how that worldview came to enjoy such uncritical acceptance among a broad swathe of the cognitive elite. I think the answer must lie in the intellectual dominance of economics in undergraduate education. I certainly imbibed from Samuelson a notion that markets discipline behavior, that people earn what they’re worth, and that attempts to intervene in the marketplace invariably result in inefficiences that leave the majority of people worse off. Indeed, I believed these ideas so well established that I assumed that people who didn’t accept them were not serious interlocutors–in the way that, say, creationists are not.

    Yet it turns out that this entire worldview had a flaw in it. What that flaw was, I can’t say. Perhaps the classroom models had an overly tenuous relationship to reality. Perhaps they failed to account for the more subtle ways that money accretes power and distorts the market.

    In any case, as we extricate ourselves from this mess, I hope that we as a society relearn the value of skepticism: Why weren’t our alarm bells going off at the site of 25-year-olds making million dollar pay days? Why were we titillated rather than indignant at stories of $30,000 trash cans?

    It is overly harsh to say that free-market ideology was just another in the litany of ideological attempts humans have developed to legitimize social and economic inequalities. Clearly, it’s done much more good than, say, a belief in caste or the divine right of kings. But to the extent that it has blinded us to the human cost of inequality and the indiscipline of our economic and political leaders, it has also done enormous harm.

  95. one might think that this mess was to test a theory at all costs and learn from it. to evaluate the classes and thier reactions. let’s put the wealth effect to the test.

  96. Intriguing post jamzo. Yet, I would offer that the issue is not losses per se. An individual worth 20million dollars, who suffered a 50% loss of wealth as a result of the crisis, is still exceptionally wealthy relative to the rest of the population. On the other hand middle class Americans who were counting on their home equity and 401ks for retirement, who have lost 50% of their wealth, are facing punishing realities, – like the inability to retire, or having to put off retirement for another decade, or not being able to finance a college education for their posterity. Many American’s on the lower end of the middle class are facing dire consequences as a result of the economic crisis in the form of lost homes, lost jobs, and lost hope.

    Which leads to my response to notabankers ethics query above. One of the most injurious and invidious methods for blurring both ethics and the rule of laws is making the complex what is, or should be relatively simple. I am not suggesting their are not an infinite array of philisophical and legal inquiries that can be entertained when discussing ethics or the law, – of course there are as many points to discuss as there are stars in the heavens. But simple logic would demand that a baseline ethic be define and framed by obvious determinations of right and wrong. Abusing, robbing, pillaging, decieving other human beings is wrong. Colluding, bribing, coercing, and monopolizing government leadership with the specific intent of benefiting one segment of the population (the predatorclass) to the great disadvantage, and injury of the rest of the population is also wrong.

    The complexity of the alphabet soup of securitized innovative financial products is specifically designed by those who conjure those products to cloak or mask the legitimacy, credibility, and perhaps legality of the underlying math supporting those socalled innovative products. The predatorclass then bribes, coerces, or infiltrates the government, political leadership, the Fed, the Treasury, and the regulatory agencies to insure this needless and deceptive complexity remains cloaked, untransparent, off the balance sheet, unregulated, and basically un-monitored. This insider, nepotistic, predatorclass collusion, dealmaking and collaborative turning a blindeye to risky or even shady, or illegal (as in PONZI scheme) entreprizes is systemic through-out the current financial system and culture, and clearly conduct unbecoming. There may be technical caveats or loopholes that do not specifically define these enterprizes as illegal or as crimes – but the spirit and intent of these enterprizes is quite obviously to advantage and make imponderably wealth one very select and relatively small segment of society (the predatorclass) and radically disadvantage, and rob and pillage the wealth of the rest of society, (poor and middle class.)

    Basic human decency is, or should be the baseline for the framing of any code of ethics, or the rule of law.

    How do Wall Street oligarchs and the predatorclass cronies profiting from those oligarchs measure against this simple baseline?

  97. This answers the question, “Were the regulators captured?” How can you capture one of your own?

  98. Thank you for this well stated view of the situation. Some would indeed appreciate the disappearance of the wrong behavior you identified. Others would see this as an abridgement of their rights!

    However I truly regret to draw attention to the unfortunate reality that ‘Basic human decency’ is in such short supply that the principle governing commercial dealing is ‘caveat emptor’!

    Relying on ‘decency’ rather than regulation will be interpreted by many as ‘anything goes’ and others will say ‘I have to act similarly to be competitive’.

    Consider a non-regulated road system and the likely consequences. We are also undoubtedly happy that air-traffic regulations prescribe required behavior.

    Now in our financial shambles one may simplistically think that the first thing to do is to immediately legislate enforceable commercial road rules and then on that certain base, correct the damage. I take this view.

    I am many years away from schooling in the classics and philosophy. However I have learned repeatedly that self-regulation is non-regulation but rather convenient opinion. Now all regulation has to be relative to some absolute. If I survey a piece of land the positioning metrics are valid relative to an external absolute and never to an internal point. This is why I earlier asked what is the external moral absolute which will anchor the desired moral or ethical behavior. I’m sure you would agree that this absolute cannot be a person, however fundamentally decent.

    If we don’t put in place a regulated marketplace (minimal?) anchored to an external absolute then we have no reliable basis for anything. So we need to urgently identify the external anchor. What is the external moral absolute? The Constitution is one such external example but we need, as you have instanced, that immovable anchor. Are we in fact ready to face this fact?

    Now Mr Geithner and his team have apparently evaded this issue while throwing money at the BAU crowd who are ungoverned in their behavior. No other example of such complex but poorly regulated human interaction comes to mind. Therefore let us encourage TG to get some game rules in place fast!

    I would appreciate your thoughts on this intentionally slimmed down posting.

  99. just a simple observation. do you think the big banks were on board with the gov’t in a little experiment?

  100. Poignant commentary notabanker. We agree in the – “unfortunate reality that ‘Basic human decency’ is in such short supply that the principle governing commercial dealing is ‘caveat emptor’!”. Yet, while I think we can agree that the buyer must be aware to the extent that the buyer understands the specific details of the contract, – but for example you cannot expect the buyer to be aware of every intricacy involved in the manufacture of a Porshe, or Kobi beef, or the Iphone, or any worthy product or service. A certain element of trust is afforded, (and in civil societies demanded) by the seller of the product accepting that said product meets a certain basic standards in common products and services, – and in luxury items, – a high degree of excellence. Intentinionally breaching that trust, (selling inferior or not fully, or intentinally mis or disexplained products and services) is the spirit of fraud, – and if not criminal, – certainly conduct unbecoming.

    Intelligence operations can and must operate in the blackworld. Finance ontheotherhand, and all banking operations must be exposed to the light of day and total transparency, or we find ourselve involved in the kind of crony capitalist predatorclass horrorshows we must all hazard and endure today, wherein select cabals or cronies, or oligarchs game the system for their own exclusive benefit and grant themselves exclusive immunities – and heap all the terrible costs, debts, deficits, pain and suffering of the select cabals or cronies or oligarch poor gambling choices and catastrophic losses.

    We are all going to pay for our sins, – but that pay and debt must be distributed equally with equanimity which means the predatorclass who are largely responsible for the horrorshow crisis must pay their fair share of the costs and debts resulting from the most severe economic crisis since the great depression.

    And lastly – I know this is uncomfortable for the sheltered academics and the obdurate criminals in the predator class who obfuscate, apologize for, defend, excuse, and/or support the rob-from-poor-and-middleclass-Americans-to-feed-the-superrich,-the-predatorclass policies, – but there is an even darker side to these dynamics, and a blackswanlikeevent the scholars and swindlers and thieves in the predator class are not appreciating. ABUSE will not, will never be tolerated. Overt ABUSE will exact kinetic and percussive responses. The predatorclass imagines they are Olympian, untouchable, supremist, exceptional, mastersoftheuniverse, – but they are wildly mistaken. Hopefully we will all work through this crisis with equanimity and some basic human decency toward our fellow human beings, – or if not – then any pretense of basic human decency is null and void, – and in a world where there are no real laws, there are no real laws for anyone.

  101. Forgive the double post but I meant to say: {“Intelligence operations can and must operate in the blackworld. Finance ontheotherhand, and all banking operations must be exposed to the light of day and total transparency, or we find ourselve involved in the kind of crony capitalist predatorclass horrorshows we must all hazard and endure today, wherein select cabals or cronies, or oligarchs game the system for their own exclusive benefit and grant themselves exclusive immunities – and heap all the terrible costs, debts, deficits, pain and suffering of the select cabals or cronies or oligarch poor gambling choices and catastrophic losses, – (on the poor and middleclass.)

  102. I used the term “cultural capital” in the Atlantic article. I think it’s a useful concept for this situation. If you’re going to use someone else’s term, you should say where it came from.

    I also think it’s an apt metaphor. When I read the Times article, I immediately thought of The Love of Art.

  103. I’m skeptical about Specter changing much. I don’t think 60 is a magic number, because the Democrats are unlikely to be able to hold 60 votes together on any issue of importance. In particular, when it comes to financial regulation, the big banks have plenty of Democratic allies.

  104. Coffee Boy, I think you are very right. One of the basic problems is that Wall Street is so damn attractive in so many ways. We would be much better off if people did not make so much money there. Is that possible? Maybe. I think you have to look at why investment banks make so much money – if they didn’t, they wouldn’t be able to pay their bankers as much as they do. The main reason, I think, is that their fees are exploitatively high (think IPO underwriting, or asset management, which is the most ridiculous example). Then you have to ask why the fees are so high – presumably it’s barriers to competition. So what are those barriers and how can we bring them down? I”m not sure about that, but that’s the direction we need to look in.

  105. all i got to say,,,from experience,,,do not screw with the united states government. they have my my full confidence and admiration. from experience!

  106. The problem with the idea of cultural capital as applied to the current banking/financial class is that I am not sure what the “culture” is that distinguishes the in-crowd from the unwashed masses.

    Whatever it is, it sure as [expletive deleted] ain’t classical music or painting or mathematics or whatever. The average investment banker I know wouldn’t know Gauguin from Monet or Bach from Wagner if they were both played on period instruments.

    It isn’t mathematical prowess, either. As a friend of mine who is a math and econ wiz from a working class background found this out when he got to meet some actual live New York investment bankers (from Goldman) for the first time.

    My friend wanted to talk formulae. The bankers didn’t have the faintest idea what he was talking about, nor did they care. They wanted to party, do fat rails, and sleep with models, not explore Gaussian distributions or whatever.

  107. Dear Simon,

    Just wondering when will you start advocating Volcker as a replacement for Geithner. Any insight about the likelihood of such a scenario, from previous IMF experience?

  108. I appreciate the shout out to Bourdieu and other French thinkers who have contributed a lot of interesting ideas over the years. However I think this is a misapplication of Bourdieu to the milieu of banking. As Sid above comments, many of these bankers/masters of the universe are not really very interested in the content of culture or establishing that they know certain things about works of art. What suffices in the world of finance, as far as I understand it, is a certain clean, in many cases, handsome and athletic look (though not in all cases) and fairly good social manners which makes one “presentable” but there is some weighting against actually understanding and using the language of cultural criticism. As Sid mentions, these guys are often the Ivy league equivalent of frat boys.

    This is not to say that these people, when they become rich enough, do not hire art historians to help them buy art or marry women who will guide them to accumulate the right kind of art work and raise their cultural level ever so slightly.

    Bourdieu’s theory is far more applicable to European business circles where knowing something about culture is a plus. Here in the US, you’re considered to be a “wuss” if you are too interested in culture.

    On the other hand, knowing something about spending and earning lots of money IS a cultural “ticket” into the inner sanctum, but without the “distinction” trappings that interested Bourdieu. If you can talk about building or buying your second or third or fourth home, that is more important than Monet.

    Re: Geithner I think he comes from a similar social class that many of the Wall Street guys come from (upper middle class) but he is more serious than they are. On the other hand, he is not TOO serious and too much of a wonk. When he speaks he doesn’t communicate a decisive commitment to anything and he doesn’t really seem to be a broadly read or even a particularly interesting person. I think he is not motivated by “o’erweening” ambition but neither is he a slouch.

    I think he is where he is because he is generally non-threatening.

  109. Re Kobe Beef — even this world has been infected with the fake quality bug. AAA is being stamped on food just as on securities, companies, and countries. One of the most celebrated restaurants in Hong Kong just lost its chef because they insisted he buy imitation Kobe beef from China (Supposedly Wagyu), fake Alaskan Lobster, etc.

  110. One of the most remarkable things one repeatedly encounters as an expat is the unfortunate American aversion to “foreign” ideas, particularly French ideas. Still a mystery to me how so many otherwise reasonable people can blow off so many centuries of human endeavor and insight from the elevated position of a culture younger than the school my seven-year-old daughter goes to.
    Pierre Bourdieu is widely recognized as one of the preeminent social thinkers of our time, a man who blew off a world-class career in academia to take his show to the streets, and who died suddenly of cancer, at the peak of his powers and in the midst of a meteoric rise in popular influence and potential power.

    The human race needs a few heroes. He’s one of mine. The US could use a few like him.

  111. Be of good cheer, James. Your reaction to Bourdieu is, I believe, far closer to the general academic view than that of Daniel de Paris. Bourdieu’s description of the genesis of class distinctions is likely to rile those who avoid the rabble–and who feature centrally in his analysis…. His abdication of his place in the great ivory tower for the noise and chaos of the streets is also seen as class treason, and as evidence of being a “not serious” sort of person by that same group he speaks of- who have learned to speak of Monet and Rembrandt in the proper way.
    For another view of economic issues that’s often very well informed, I suggest that you drop into the European Tribune.

  112. If more Frenchmen would remove their ethereal heads from their ethereal buttocks and deign to engage in civil discourse with the rest of humanity instead of mincing around the world with an air of superiority (that seems to be spreading as easily as the swine flu) the rest of the world might be more receptive to their thoughts. Desert Island — you have a choice of your beloved Pierre versus Voltaire. Tell me with a straight face that you’d choose Pierre. If you can, begone, because you are more interested in appearing acquainted with exotic and esoteric thinkers than you are with sharing in improving the lives of other people.

  113. How about asking questions like: “Why do so many people think we need Wall Street.” It’s an abomination. If we want to grease the wheels of a saner form of Capitalism by letting people buy stock in companies, all we need to do is create a completely transparent, open and automatic trading system. You will not be able to convince me we need to keep derivatives or shorting alive. There is no need for them except to greedy, conniving, and piggish. Of course we still have the problem of cnbc, and the Cramers and “Analysts.” We still have the problem of the ratings agencies. If we can manage to make honest institutions of these, however, it just might function as intended instead of as a huge corrupt casino.

  114. William Reddy has developed the concept of emotional community, which I have found useful in thinking about the crisis. We all belong to several emotional communities but Geithner and other financial types live in a particularly tight world. They spend most of their time at work surrounded by people of like mind. Most of the people they work with have similar values and ethics. Their emotional highs and lows flow from their communities values. Some of them have a larger sense of community but, Sommers I think would be a good example, are clueless outside of their experience. It would be foolish to think that the financial community is capable, as a whole, of escaping the narcissistic tendencies that besets elites.

  115. Bourdieu would no doubt have been incredulous at your categorizing him as a ‘postmodern philosopher’ given his (almost irrational) hatred for both postmodern theory and philosophy.

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