The Downfall of MF Global: Implications for Banks Too Big To Fail

Here is an alphabet-soup of regulatory agencies that let MF Global, a financial services company that specialized in futures-trading, engage in much, too much, risk: SEC, CME, CFTC and FINRA. On one level, regulators will never be able to stop practitioners from making risky or simply bad decisions; a business system populated only by firms above average is by definition impossible. As long as their managers have any freedom of movement at all, some firms, including some in the financial sector, will inevitably fail. The question I want to pose is whether this means that firms too big to fail (TBTF) should be allowed to exist at all. In short, although MF Global itself was not TBTF, the risk Corzine (who had been chairman of Goldman Sachs) permitted suggests that human nature might be insufficiently disposed to support mammoth concentrations of private capital whose fall could mean the collapse of the financial system itself. Ultimately, I suppose, human nature can only go so far, organizationally speaking.

The full essay is at "The Downfall of MF Global."

Having It Both Ways: American Culture or Merely Congress?

Under the terms of the debt-ceiling budget agreement enacted during the summer in 2011, members of a joint Congressional committee, evenly divided between the parties as well as between the two chambers, had until Nov. 23 of that year to recommend ways to reduce budget deficits by at least $1.2 trillion over 10 years. Both houses had to vote on the package by Dec. 23, 2011. If no legislation is enacted, the government would automatically cut almost $500 billion from military spending, with an equal amount from nonmilitary programs, between 2013 and 2021.

The full essay is at "Congress Reflecting American Society."

11/11/11

In Berlin at the Brandenburg Gate on 11/11/11 in 2011, costumes were the norm in the evening as revelers celebrated the numeric convergence. I suspect that unlike the Chinese, the Europeans were struck by the convergence itself, rather by any good luck attached to the numerology. I myself was struck by the convergence alone. Both at 11:11am and 11:11pm, I was surprised that other Americans around me seemed to be either ignorant of the alignment or utterly indifferent to it. It occurred to me that just as a given time-date system is artificial, so too are human cultures—which include political and economic values that are stitched together by leaders who peddle meaning to the masses. Both our systems and our ideologies are all too limiting, yet we can find meaning in them. Perhaps this is ultimately why we have them and the leaders that trumpet them or suggest new ones. I contend that 11/11/11 too plays into the human instinct for sense-making, especially in terms of visual and cognitive symmetries.

The full essay is at "11/11/11"

Contagion Beyond the Headlines in the E.U.

The E.U. states of Greece and Italy were grabbing headlines during the first two weeks of November 2011, given the dramatic resignations of Papandreou and Berlusconi. The only other state to get some attention was France. The Wall Street Journal noted on November 12^th that concerns had been quietly building about France. According to the paper,“French bond yields rose to four-month highs, one day after Standard & Poor's Ratings Services erroneously issued a message saying it had cut France's triple-A credit rating. The yield on France's benchmark 10-year bond climbed 0.02 percentage point to 3.46%. That was 1.66 percentage points over yields on comparable German government bonds. France now has the highest government bond yields among its triple-A-rated peers in the region.” However, it seems overly dramatic to say that a .02 percent increase evinces a climb. Moreover, 3.46% is well under 7 percent, which is the level that was presumed at the time to signify the need for a bailout. Relative to the changes in the Italian yield, those of the French bonds could be viewed as relatively moderate, The French yield was still closer to that of Germany. Although not a red herring, the concern over France masked some real sleepers that were poised to take a hit in 2012. 

The full essay is at "Debt Contagion in the E.U."

For more on this topic, see Essays on the E.U. Political Economy

On the Allure of Popular Suffrage

In the European singing contest/show in which Susan Boyle competed, she lost the top spot to a teenage rap group. The method of selection made all the difference. Rather than having a three-judge panel of experts on singing determine the winner, the general public could “text” via cell phone or other device to vote. That one of the judges explicitly advocated for Boyle after her final performance (just before the voting) was no never mind to the general public that submitted a majority of the votes. To be sure, there were certainly non-music reasons to vote against her. Most notably, the suggestive comments she made on stage just before her first performance, including, “I’m 48, and that’s not my other half” (as she was swinging her hips as if she were sexy), were downright emetic, if not utterly bizarre. So it is possible that the voters put her personality defect above her excellent singing. It is also possible that the “texters” responsible for a majority of the votes simply preferred rap music. I do not like rap “songs” that include shouting and swearing; I do not even regard such “songs” as music. Otherwise, I could sing a song simply by yelling at you. From what I saw, the rap group in the competition was not swearing, but the “singing” did sound at times like shouting to me. Moreover, the group members seemed more oriented to dancing than singing. It is possible that the votes for that group went for any of the fads being represented rather than to singing per se.

The full essay is at "Popular Suffrage in Democracy."

Liturgical Vestments as Doorways into the Divine: On the Importance of Transcendence

In the Book of Genesis, God makes garments of skin for Adam and Eve and clothes them. Gianfranco Ravasi, a Roman Catholic Cardinal and de facto cultural minister of the Vatican, reflected on the meaning of liturgical vestments while he was in New York with prominent designers to preview the upcoming exhibit, “Heavenly Bodies: Fashion and the Catholic Imagination” at the Metropolitan Museum of Art. That fashion could point to the transcendent would seem to go against the ostensibly fundamental  dichotomy between the superficial and the significant.  The religious quest can be understood in such terms as transcending the image to the underlying ineffable mystery that must characterize the transcendent.

The full essay is at "Liturgical Vestments as Doorways."

Novartis Invested for Bribery in the E.U.: On the Ethics of Suffering

Two former prime ministers, the central bank governor, and the federal commissioner for migration stood accused by prosecutors in the E.U. state of Greece of receiving bribes from Novatis “in exchange for fixing the price of its medicines at artificially high levels and increasing” the company’s access in the state.[1] The state legislature voted in February, 2018 to investigate the accusations and to vote by secret ballot at the conclusion of the investigation on whether to revoke immunity, which would be necessary for any of the accused to be indicted. The prime minister at the time, Alexis Tsipras, said, “Those who enriched themselves from human pain must suffer the consequences.”[2] This statement reveals an ethical truism of sorts—namely, that people who knowingly cause others pain should suffer.  It is right, in other words, that they suffer.

The full essay is at "Novartis and Politicians: On the Ethics of Suffering."

For more on unethical business, see Cases of Unethical Business

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1. Nici Kitsantonis, “Did Novartis Bribe 10 Politicians? Greece Approves an Investigation,” The New York Times, February 23, 2018.

2. Ibid.

Constricting Debate in the Public Square: The Case of Gun Control

The managements of large corporations attempt and, I submit, often succeed at keeping the most financially threatening alternatives in public policy off the public’s radar by pressuring media and using public relations campaigns. As U.S. president Obama’s health-insurance proposal was being debated in Congress, health insurance companies deftly either kept the single-payer proposal off the media’s discussion or relegated the policy as radical. This term, if stuck to a proposed policy, is the kiss of death in a society of incremental change. Such change, if the only game in town, can unfortunately come to be viewed as constituting major change. The gun-control debate in February, 2018 after the shooting of 17 people at a high school in Parkland, Florida is a case in point.

The full essay is at "The Constricted Debate on Gun Control."

The First Multiracial U.S. President: Leadership as Personified Symbol over Political Advantage

Barak Obama had a tendency to modify his manner of speaking, and even his dialect, to fit with his audience. Listening to his speech to the National Urban League, I was stunned; early on, he pivoted off from his ordinary manner of speaking to speak in what was surely a more familiar way to much of his audience. The crowd loved it. The audience must have been looking at him as the first black US President. It occurred to me while listening to him and observing his strategy to connect to his audience that although there would be less political advantage in it, he could have run for president by presenting himself as multi-racial (technically, mulatto). 

The full essay is at "Obama: The First Multi-racial U.S. President."

The Commercial Media as Gate-Keepers Looking Down on Bloggers as "Non-Journalists"

In a few days during July in 2010, the American media was obsessed with Shirley Sherrod, who in a tightly edited video clip had made apparently-racist statements about not helping a caucasion farmer because he was caucasion. She was quickly fired by Tom Vilsak, the US Secretary of Agriculture, who, like the journalists and the NAACP, had failed to look at the full video.  The day after Sherrod was fired, the NAACP looked at the full video and realized that she was actually a racial healer rather than racist.  In the fuller video, she said, “I have come to realize that we have to work together … we have to overcome the divisions we have.”  Even as she used questionable language, such as “his own kind,” it should not be forgotten that the clan killed her father.  In other words, she deserves some slack.  At any rate, it was not long after the NAACP’s about-face that the agriculture department and the media were doing also doing an about-face. According to the NYT, “the White House and Mr. Vilsack offered their profuse apologies to her for the way she had been humiliated and forced to resign after a conservative blogger put out a misleading video clip that seemed to show her admitting antipathy toward a white farmer.”

The full essay is at "Bloggers as Journalists."

The UN Court Obviating War: The Ruling on Kosovo's Independence

The UN’s highest court ruled in 2010 that Kosovo’s declaration of independence from Serbia did not break international law. President Hisashi Owada of the International Court of Justice said international law contains no ”prohibition on declarations of independence” and therefore Kosovo’s declaration ”did not violate general international law.” Kosovo’s statehood had been recognized by all of the United States and most of the States of the EU.

The full essay is at "UN Court on Kosovo: Avoiding War."

Upside-Down Corporate Governance at AIG

I contend that Robert Benmosche, CEO of AIG, had an incorrect understanding of corporate governance when he told Harvey Golub, then-chairman of the board, on July 14, 2010, “One of us should stay and one of us should go.” He should have, “Please let me know if the board would like me to go.” Put bluntly, the CEO works for the board, not vice versa. The previous May, Benmosche told Golub, “We can’t work together. I need a partner who I can bounce ideas off and give me advice.” However,a CEO and a chairman do not work together as partners. Rather, the chairman—and the board more generally—act on behalf of the stockholders to oversee the management, which the board has hired. In other words, a CEO is an employee whereas a chairman is not. Benmosche’s comment is actually rather presumptuous.

The full essay is at "Corporate Governance at AIG."

On the Strategic Use of Regulation: Financial Reform at the Bequest of Wall Street

According to The New York Times, Wall Street bankers were busy working on how to weaken the regulations or otherwise profit from them before the ink was dry on the financial reform law of 2010 . First, regarding trying to profit from the new regulations, BOA, Wells Fargo and other big banks that were faced with new limits on fees associated with debit cards were imposing fees on checking accounts. Compelled to trade derivatives in the daylight of closely regulated clearinghouses rather than in murky over-the-counter markets, titans like J.P. Morgan Investment Bank and Goldman Sachs were building up their derivatives brokerage operations. Their goal was to make up any lost profits — and perhaps make even more money than before — by becoming matchmakers in the vast market for these instruments. That critics were pointing to them as a principal cause of the financial crisis made no difference to those bankers. Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks found what they thought was a solution: allowing some traders to continue making those wagers as long as they also work with clients.

The full essay is at "Strategic Use of Financial Regulation."

Presidential Leadership

In the wake of the failure of the joint congressional committee that was tasked with coming up with a proposal to reduce federal deficits over a decade by $1.2 trillion, Michael Bloomberg, mayor of New York City, said at a news conference, “It’s the chief executive’s job to bring people together and to provide leadership. I don’t see that happening.” The mayor may have been wrong. Take the word executive: literally it is to execute, or implement, which implies management rather than leadership. Put another way, implementation depends on a goal already established, presumably by a leader. To lead is to formulate a vision of social reality that is an ideal, and thus consisting of goals rather than actualities, and then to persuade others to accept that social reality. Once the directionality is established, the means, or strategies, can be executed by managers (i.e., those who manage the implementation).

The full essay is at "Presidential Leadership."

On Educated Representatives and Large Districts: A Critique of Democracy

Democrat Georgia Congressman Hank Johnson said during an Armed Services Committee hearing in late March, 2010 that Guam would be in danger were more US troops sent there. “My fear that the whole island will become so overly populated that it will tip over and capsize,” he said in all seriousness. “We don’t anticipate that,” responded Adm. Robert Willard. Did Hank Johnson's constituents want their representative in the U.S. House of Representatives to be at least nominally educated?  Lest one replies with "of course," it could also be that people may want their representatives to be like them, or at least to reflect what they value. 

The full essay is at "Educated Representatives and Large Districts."