Matt Taibbi is at it again, this time with “Wall Street’s Bailout Hustle.” I can’t really comment on many of his substantive claims, but there is an awful lot of smoke at this point for one to suppose that there is no fire. Note especially the point that the financial system “assumes a certain minimal level of ethical behavior and civic instinct over and above what is spelled out by the regulations” (p. 7).
That’s the thing. We have not only replaced a manufacturing economy with a financial economy (see Kevin Phillips). We also have a financial elite is completely corrupt — with devastating consequences to the rest of the economy and the long term prospects of growth. As Taibbi notes, the system depends on a “true believer” syndrome in which people simply can’t believe they were conned. We desperately want to trust our elites — the people who come from the best schools and have close ties to the government. As Francis Fukuyama emphasizes, trust in elites and the assumption of civic mindedness are critical characteristics of individualist societies:
To this set of traits, Francis Fukuyama also adds trust as a critical virtue of individualist societies. Trust is really a way of emphasizing the importance of moral universalism as a trait of individualist societies. In collectivist, family-oriented societies, trust ends at the border of the family and kinship group. Social organization, whether in political culture or in economic enterprise, tends to be a family affair. Morality is defi ned as what is good for the group—typically the kinship group (e.g., the notorious line, “Is it good for the Jews?”). This lack of ability to develop a civil society is the fundamental problem of societies in the Middle East and Africa, where divisions into opposing religious and ultimately kinship groups define the political landscape. The movement of the West toward multiculturalism really means the end of individualist Western culture. (See here, p. 27)
We are entering an era where trust in political and cultural elites is fast becoming a thing of the past. Robert Putnam has shown that trust is lower in multi-ethnic societies. This decline in public trust will be accelerated when people really grasp the enormity of the disaster created by Wall Street and its close connections to the government. It’s really the end of a key feature of what made Western societies so successful. As Taibbi points out, there’s no change on the horizon–just a short pause for reloading.
Finally, I can’t help referring to today’s Doonesbury cartoon about the development of an ethical sense among bankers. The banker begins as a college grad who thinks “I hope to do something of value well and be fairly paid.” By middle age he is saying “I demand to be paid obscenely well for destroying value.” The cartoon illustrates the point that lack of trust in financial elites is very widespread and that they are reasonably portrayed as a predatory elite rather than an elite that helps create value.
The only problem with the cartoon is that it’s at least doubtful that the people who make it to the top in this system ever thought much about creating social value. As Edmund Connelly’s recent blog recounts, there is a very long history of vastly disproportionate Jewish involvement in financial fraud. And rather than a long history of civic responsibility, there is a long history of Jews thinking of themselves as outsiders in Western societies — a hostile elite with a strong sense of historical grievance. The long term prosperity of the society is certainly not uppermost in their minds.
This is the relevant passage from page 7 of Taibbi’s article:
Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. “The most valuable part of the bailout,” says Rep. Sherman, “was the implicit guarantee that they’re Too Big to Fail.” Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. “It’s evidence,” says Rep. Kanjorski, “that they still don’t get it.”
More to the point, the fact that we haven’t done much of anything to change the rules and behavior of Wall Street shows that we still don’t get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.