Dependent upon what one thinks about what has been written on this blog in the past, it's too bad that I can't seem to find the time to write more often or offer more original thought. However, the following, which appeared in today's NY Times, is really worth reading and expresses a lot of what I have been trying to convey.

May 12, 2012

Capitalists and Other Psychopaths

By WILLIAM DERESIEWICZ

THERE is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A recent study found that 10 percent of people who work on Wall Street are “clinical psychopaths,” exhibiting a lack of interest in and empathy for others and an “unparalleled capacity for lying, fabrication, and manipulation.” (The proportion at large is 1 percent.) Another study concluded that the rich are more likely to lie, cheat and break the law.

The only thing that puzzles me about these claims is that anyone would find them surprising. Wall Street is capitalism in its purest form, and capitalism is predicated on bad behavior. This should hardly be news. The English writer Bernard Mandeville asserted nearly as much three centuries ago in a satirical-poem-cum-philosophical-treatise called “The Fable of the Bees.”

“Private Vices, Publick Benefits” read the book’s subtitle. A Machiavelli of the economic realm — a man who showed us as we are, not as we like to think we are — Mandeville argued that commercial society creates prosperity by harnessing our natural impulses: fraud, luxury and pride. By “pride” Mandeville meant vanity; by “luxury” he meant the desire for sensuous indulgence. These create demand, as every ad man knows. On the supply side, as we’d say, was fraud: “All Trades and Places knew some Cheat, / No Calling was without Deceit.”

In other words, Enron, BP, Goldman, Philip Morris, G.E., Merck, etc., etc. Accounting fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury. The Walmart bribery scandal, the News Corp. hacking scandal — just open up the business section on an average day. Shafting your workers, hurting your customers, destroying the land. Leaving the public to pick up the tab. These aren’t anomalies; this is how the system works: you get away with what you can and try to weasel out when you get caught.

I always found the notion of a business school amusing. What kinds of courses do they offer? Robbing Widows and Orphans? Grinding the Faces of the Poor? Having It Both Ways? Feeding at the Public Trough? There was a documentary several years ago called “The Corporation” that accepted the premise that corporations are persons and then asked what kind of people they are. The answer was, precisely, psychopaths: indifferent to others, incapable of guilt, exclusively devoted to their own interests.

There are ethical corporations, yes, and ethical businesspeople, but ethics in capitalism is purely optional, purely extrinsic. To expect morality in the market is to commit a category error. Capitalist values are antithetical to Christian ones. (How the loudest Christians in our public life can also be the most bellicose proponents of an unbridled free market is a matter for their own consciences.) Capitalist values are also antithetical to democratic ones. Like Christian ethics, the principles of republican government require us to consider the interests of others. Capitalism, which entails the single-minded pursuit of profit, would have us believe that it’s every man for himself.

There’s been a lot of talk lately about “job creators,” a phrase begotten by Frank Luntz, the right-wing propaganda guru, on the ghost of Ayn Rand. The rich deserve our gratitude as well as everything they have, in other words, and all the rest is envy.

First of all, if entrepreneurs are job creators, workers are wealth creators. Entrepreneurs use wealth to create jobs for workers. Workers use labor to create wealth for entrepreneurs — the excess productivity, over and above wages and other compensation, that goes to corporate profits. It’s neither party’s goal to benefit the other, but that’s what happens nonetheless.

Also, entrepreneurs and the rich are different and only partly overlapping categories. Most of the rich are not entrepreneurs; they are executives of established corporations, institutional managers of other kinds, the wealthiest doctors and lawyers, the most successful entertainers and athletes, people who simply inherited their money or, yes, people who work on Wall Street.

MOST important, neither entrepreneurs nor the rich have a monopoly on brains, sweat or risk. There are scientists — and artists and scholars — who are just as smart as any entrepreneur, only they are interested in different rewards. A single mother holding down a job and putting herself through community college works just as hard as any hedge fund manager. A person who takes out a mortgage — or a student loan, or who conceives a child — on the strength of a job she knows she could lose at any moment (thanks, perhaps, to one of those job creators) assumes as much risk as someone who starts a business.

Enormous matters of policy depend on these perceptions: what we’re going to tax, and how much; what we’re going to spend, and on whom. But while “job creators” may be a new term, the adulation it expresses — and the contempt that it so clearly signals — are not. “Poor Americans are urged to hate themselves,” Kurt Vonnegut wrote in “Slaughterhouse-Five.” And so, “they mock themselves and glorify their betters.” Our most destructive lie, he added, “is that it is very easy for any American to make money.” The lie goes on. The poor are lazy, stupid and evil. The rich are brilliant, courageous and good. They shower their beneficence upon the rest of us.

Mandeville believed the individual pursuit of self-interest could redound to public benefit, but unlike Adam Smith, he didn’t think it did so on its own. Smith’s “hand” was “invisible” — the automatic operation of the market. Mandeville’s involved “the dextrous Management of a skilful Politician” — in modern terms, legislation, regulation and taxation. Or as he versified it, “Vice is beneficial found, / When it’s by Justice lopt, and bound.”

An essayist, critic and the author of “A Jane Austen Education.”

If there is a consistent theme in all implosions in the markets, it is that, people have very short memories. So, here we go again.

I have tried to convey, when market participants - that, by their nature are driven by avarice - operate in what is essentially an unregulated environment, the potential for disaster increases exponentially. To read a bit between the lines in what follows, keep in mind that what happened to lead us over the cliff in 2008, was that the disclosure regulations relating to unconsolidated subsidiaries were gutted at the request of the bank lobby. Both Sarbanes Oxley and Dodd Frank attempted to force financial institutions to fix these rules but the ABA is just too powerful and has too much money to throw at regulators, including the congress.

The issue is, depositors and investors in financial institutions have the right to know what the bank's capital ratios are. To the extant liabilities are off the books, it is impossible to determine what an institution's real net worth is - just ask Moody's and S&P ... just ask the SEC, they don't know either. Never mind that, just ask the chairman of any of these banks. They don't have a clue about the kinds of risk that their bank is taking.

Anyhow, the following is an editorial from Saturday's NY Times that goes right to the heart of the matter:

Their Contributors’ Bidding

Don’t they ever learn? Large bipartisan majorities in the House and Senate have now passed the deeply flawed JOBS Act and President Obama is expected to sign it soon. The full name is equally seductive: Jump-start Our Business Start-ups Act. What it is is an invitation to a fresh round of financial malfeasance. It rolls back important investor safeguards from the post-Enron Sarbanes-Oxley law and the post-financial crisis Dodd-Frank law.

The official justification for the legislation — debunked in expert testimony — is that rules on disclosure, accounting and auditing make it unduly difficult for new companies to raise money by issuing stock. The real driving force behind the bill is the eagerness of politicians in both parties to please bankers and business executives who relentlessly demand deregulation and have the deep pockets to get their way, especially in an election year.

The drive to deregulate doesn’t stop there. Bipartisan majorities in the House passed two more damaging bills last week that would undercut provisions in Dodd-Frank to rein in derivatives, the complex financial instruments at the heart of the financial crisis. The bills’ supporters say the measures are mere technical corrections. In fact, they are aimed at limiting regulators’ ability to police derivatives.

The more egregious of the two would exempt a swath of derivatives transactions from almost all Dodd-Frank regulation — including reforms to enhance transparency and deter fraud. At issue are deals that occur between bank affiliates, as opposed to between banks and their clients. Such transactions can be routine and harmless, or complex and risky. Current law gives regulators the authority to decide which ones require scrutiny, but the House bill would broadly exempt the deals from regulation — in effect, replacing regulators’ authority with a statutory ban on regulatory oversight.

Two more measures to shield banks from derivatives regulation could come to the House floor in the next months. One would water down pending rules to require that most derivatives be traded on open exchanges, rather than as private contracts between banks and clients. Exchange trading is a vital step toward a stable and transparent market, but banks oppose it because it would reduce the fees they earn from dealing in the dark. Another bill would let the banks avoid Dodd-Frank regulation by conducting derivatives deals through foreign subsidiaries, a loophole that would virtually invite banks to engage in unregulated transactions on a potentially vast scale.

Unless President Obama changes his mind, the JOBS Act is a done deal. And sooner or later, investors will be harmed by its heedless weakening of important protections. Congressional Democrats and Mr. Obama can still stop the attempted rollback of derivatives’ regulation. They need to refresh their memories about how the country got into the financial mess — before it happens again.

How many of you - does anybody read this? - were aware that the congress passed the American Jobs Creation Act? Several months ago, there was some talk about a provision giving multi-national companies a "tax holiday" on repatriated non-US earnings. The last time that this was allowed, the same rationale by the corps, e.g., "we'll create more jobs with the tax savings", produced no real uptick in employment at the affected companies. The feeling this time was, that congress would actually do the patriotic thing, and not allow a tax holiday. Sorry folks, we loose again - the companies paid a 5% rate.

Here is the text summary of the NPR story from this morning:

Corporations don't lobby Congress for fun. They lobby because it helps their bottom line. Getting a regulation gutted or a tax loophole created means extra cash for the corporation. But getting laws changed can be very expensive. How much money does a corporation get back from investing in a good lobbyist?

It's a messy, secretive system so it was always hard to study. But in 2004, economists found a bill so simple, so lucrative, that they could finally track the return on lobbying investment.

The American Jobs Creation Act benefited hundreds of multinational corporations with a huge, one-time tax break. Without the law, companies that brought profits earned abroad back to the U.S. had to pay a tax rate of 35 percent. With the law, that rate dropped to just over 5 percent. It saved those companies billions of dollars.

In a recent study, researchers Raquel Alexander and Susan Scholz calculated the total amount the corporations saved from the lower tax rate. They compared the taxes saved to the amount the firms spent lobbying for the law. Their research showed the return on lobbying for those multinational corporations was 22,000 percent. That means for every dollar spent on lobbying, the companies got $220 in tax benefits.

I don't agree with the math, but you get the idea. Just more proof that congress works for the corporations and not the citizens of the USofA.