The Fourteenth Banker Blog

July 1, 2010

The Ritual of Reform

Filed under: Running Commentary — thefourteenthbanker @ 9:47 AM

On the last day of June the House voted in the much modified FinReg. Perhaps sometime in July it will become law. My last posts have already made it clear that I believe the impact to be limited and much delayed. We must continue to address the critical problems that Dodd-Frank does not address. Among these are a pathological social deviancy, opportunism and plundering by many of our corporate persons.

In psychology, the term ritual is used in a technical sense for a repetitive behavior systematically used by a person to neutralize or prevent anxiety. Dodd-Frank might fulfill the psychological ritualistic function. We have a problem, real wounds, real outrage, real need of solutions. Our well greased democratic process spits out an Act. We have relief from anxiety, healing, justice, and solutions. Or do we?

This Act seems impotent in the face of plundering financial institutions like Goldman Sachs. Naked Capitalism discusses a NYT piece that reveals another layer of the stinky onion pulled back.

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

The post and article go on to detail the web of interrelationships, conflicts of interest, and pandering by starstruck regulators, no doubt awed by the wealth and power of Blankfein and his type.

Can these type of institutional managers be trusted by individual citizens? Corporate profits are on the rise, so much so that Goldman’s Abby Cohen is predicting a 16% rise in the stock market in the second half of the year. Yet, corporations are not hiring in any quantity and opportunistically lag in restoring 401K benefits cut back during the crisis. Recall with me that the 401K is the new retirement plan for most working Americans. Defined benefit plans are virtually gone for non-union, non-government employees. Those that remain are grossly underfunded. Cash Balance Pension Plans pay paltry returns and compound slowly. Some firms have also cut back on Cash Balance Pension Plan contributions. So they are not defined benefit plans, and can’t be counted on to be defined contribution plans.

So have our corporate persons become a threat engendering angst? Are they rogues or products of our society? Given the pervasiveness, I posit that we can only tag them as “fat tail” outposts of corruption on a bell curve that supports that fat tail. So the only solution is to change the underlying structures which allow such a fat tail to exist.

To do so, we as a society must operate with a reciprocity that includes altruistic punishment. That is, the level of cooperation in society requires some players to punish bad actors, even at some cost to themselves. So far there is no movement to do this.

Therefore our reform exercise serves a more ritualistic than practical purpose.

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1 Comment »

  1. Given the massive use of the word ” Reform” in law over the past fifty years, might one conclude that the word and concept is really a euphemism for endemic corruption in a degraded state? Going further, experience shows that states are themselves paragon’s of corruption depending on the political meaning of the word corruption. Other than size and passage of time , are not the corruptions of the Republic of Florence any different than the corruptions of the US political system? The real meaning of the word corruption in politics is the success of your adversary in securing use of the state to their benefit. Since oligarchs run every political system might this just be squabbles? What would be the agreed ideal political definition of reform to , say, Ron Paul and Noam Chomsky? Going back similarly to , say, Martin Luther King and Governor Faubus of Arkansas. Even more interesting would be the definition of reform in the minds of the smoke belching, farting and tippling geezer denizens of my local Butch’s Bar? Every one of the lot here are some kid’s beloved grandma and grandpa. But alas, politics is by definition mendacious as all hell. I got a taste of the political cacaphony this past weekend when my daughter’s family visited with some friends. In my case, I opened the Pink Elephant Bar in my library. Ohh, did the mass political nastiness sally forth since all are presently functionally unemployed. My daughter’s business is near dead and the friends had been without jobs for a year. Butch’s Bar was tame in comparison given equal states of Schockerdom in both cases.

    I do not think the yuppie elite employee kind of oligarch understands the volcano they reside on top of.

    Comment by Jerry J — July 1, 2010 @ 12:31 PM | Reply


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