Tuesday, February 17, 2009

Am I a Hypocrite?

We've had an interesting confluence of events lately, one bringing with it an opportunistic chance for those who would seek to pounce upon my distaste for hypocrisy and inconsistency to accuse me of the same. In the past ten days or so, we've had a Navy Cruiser grounded off the coast of Hawaii, and we've had the heads of the major Wall Street firms hauled before Congress and told that their pay (and those of their senior executives) was going to be drastically reduced by legislative fiat.

In the case of the former, I supported the Navy tradition and practice of relieving the Commanding Officer of that vessel; in the latter, I advocated a dream sequence in which the executives and their assistants told the Congress and the Obama Administration (and the class envious American people) to "fix it yourself". Seizing upon a perceived inconsistency in my logic, some have attempted to equate the situations. In the process, they have 1) significantly misinterpreted my support for single sanctions in the relief of commanding officers 2) significantly misinterpreted or plainly made up my logic with respect to Wall Street executives and 3) demonstrated a profoundly misplaced sense of class envy. There is no inconsistency in my thinking on this matter.

First and foremost, what makes the tradition and practice of removing Commanding Officers from their positions in the event of mishaps so special is its uniqueness in our society. What makes it unique is the unique concept of command at sea, something not found in many other bureaucratic structures in our society--certainly not in American business. Command--and the concomitant inexorable linkage in authority, accountability, and responsibility--is possible only because of the amount of responsibility vested in the Captain. In the case of the cruiser off the coast of Hawaii, we look to the Captain for responsibility because he ultimately decides the disposition of his ship. Had the battle group commander ordered him to proceed to that spot--had the Navy removed his paper charts and forced him to navigate with a specious electronic system only---had he grounded his ship in an attempt to save lives in battle--had he positioned his ship to obtain a more advantageous fire support situation---had his ship lost all mechanical control in the event of a catastrophic failure of engines and generators--each and every one of these events would logically be seen by most to mitigate the Captain's responsibility because others would have assumed portions of it. But it is not so in the Navy (at least not generally--there are exceptions). Again, the Captain decides on the disposition of his ship. If after the battle is over, or the crisis is past--he is shown to have disobeyed a lawful order, well then he is gone anyway.

We do not vest our CEO's with this kind of authority, and any attempt to affix a level of responsibility to any one of these CEO's or even the group as a whole denies many other worthy parties of their due in the blame. Let me quote from an earlier entry I made on the extent of shared responsibility in the current crisis:

"We find ourselves today in a crisis of our own making. Well-intentioned politicians on both sides of the aisle looked at the distribution of wealth in our country and realized that not only did home ownership represent a large portion of individual wealth, but that it made up a disproportionate amount of the difference in average family net worth between white America and the rest of the country. To address this difference, policymakers (again, on both sides of the aisle) pushed for programs that would make obtaining mortgages easier. Mortgage lenders were pressured to lower their standards, and they pressed back for government protection from the increased risk of default. Enter Fannie Mae and Freddie Mac, who insured many of these “sub-prime loans” and the financial world who further reduced the risk to lenders by “securitizing” the mortgages—eventually reaching a point in which there was no asset to back the debt. Heavy marketing of these new mortgage vehicles attracted speculators and middle class customers, many of whom improperly assessed their own risk tolerance as they took on more debt than their previously sufficient cash flows could handle. Government regulators looked the other way or improperly assessed risk, all in hopes of fueling the policy ends of increased home ownership and economic growth. Upon a predictable decline in housing prices, the whole house of cards (pun intended) fell in on itself helping to cause our current situation."

So we are to perp walk these guys off to jail while Barney Frank and Chris Dodd go on pompously berating the men who made their policy goals happen? Should we remove Barney Frank and Chris Dodd punitively from their jobs while George Bush walks free? Or should we just haul them all off to jail and be done with it? Whereas command is the singular responsibility of the Commanding Officer, these CEO's operated in a heavily regulated and overseen market in which their latitude and prerogative was greatly impacted by conditions and circumstances beyond their control. A Captain does not answer to shareholders or a board of directors. A Captain at sea is in a very real sense law unto himself. This is not the case with CEO's.

To my second point--has anyone heard me say or write that I don't think CEO's guilty of malfeasance, manipulation or any other criminal act should escape prosecution? I hope not, because then you would be guilty of hearing and seeing things. I want the FBI to investigate and prosecute to the fullest extent any and all executive who did not play by the rules. I want them to go to jail. I want them to be punished for acts that were plainly illegal and for which they were responsible. Additionally, has anyone heard me full-throatedly support bonuses for executives in failing firms? Has anyone heard me say that there is any logical and conceivable reason these executives should have been compensated as they were? No. I supported here in this blog, the levels of compensation they were making when their companies were returning shareholder value. I think the system is out of whack when it compensates people for diminished shareholder value.

Finally, this wasn't about folks being prosecuted...this was about a group of (largely) men with hundreds of years of experience in an increasingly complex financial world having their worth and value controlled by the Congress of the United States in an act of flat out class warfare. This was about the concept of creative destruction, in which recessions and contractions in a capitalist system are necessary to its continuing growth, and the kind of vision and experience that will be necessary to set the stage for our recovery from this current contraction. This was about a wake-up call to those who would look to our government as the engine for this recovery without thinking clearly about what our government does well and what it does poorly. This was about trying to bring perspective to the fact--not the opinion--that the current crisis had many fathers, and that looking to scapegoat the CEO's was childish, short-sighted, and potentially dangerous.

So, have I been inconsistent? Not from where I sit.


Anonymous said...

Bryan, great posting re: accountability. I'm sad about the lack of political will -- or, at the very least media attention -- to also focus some blame on the individuals obtaining these loans. Some people re-financed their homes every year for 2,3, or even 4 years obtaining $20K each time. Some did this based on asset appreciation but some (as you may have seen on 60 Minutes last weekend) used tricks like indicating the salary of their dead spouse to demonstrate how the extra debt would be serviced. There is no doubt that a poor incentive system from mortgage brokers up created a culture of debt pushers who perpetuated fraudulent loans, but should there be no accountability for the persons living way beyond their means?

Anonymous said...

Pete, you already know the answer to that question. Not in our new America. To most of us, it would be a source of great shame to fall short on even one mortgage payment. But there's simply no shame anymore. No shame in accepting government handouts, no shame in blowing off your mortgage responsibility, etc. There was a story in our local paper the other day about a couple who'd fallen on hard times and was about to lose their home. Cabinet maker dad was running short on new business. And mom? Well, she'd 'EVEN CONSIDERED going back to work.' Left the workforce as a nurse 15 years ago to raise one teenager. Perfectly healthy and clearly had an employable skill. If you're about to lose your home, how much CONSIDERATION does that really take the average person?

If we see fit to limit the compensation of the bankers who accept government help, we ought to go a step further in our demands. If we're giving government assistance-welfare-out, maybe we should demand accountability for the expenditures of those recipients.

Sorry, I'm getting off topic here. CW, I see no inconsistency in your stances. Relax, big guy.

..... said...

Well put. Nothing to add except, no not a hypocrite.

Dan said...

"We don't make the rules, we exploit them."

Anonymous said...

What is a hypocrite?
1 : a person who puts on a false appearance of virtue or religion
2 : a person who acts in contradiction to his or her stated beliefs or feelings

No, you are clearly not hypocrite, nor would i ever attribute that criticism to you. I feel hypocritical behavior is malicious in nature and deliberately pursued. CW, the man I’ve known for some 10 plus years, is innocent of the charge.

We agree on your compensation views. However, to be sure let me state mine - I believe public employee salaries should be controlled by laws governing government employees. If a civilian company takes public funds… well the rules change. I suspect we are in violent agreement with the concept and oppose this type of class warfare.

Now onto the inconsistency I perceive in your logic. Unlike the other contributors to this blog i see inconsistency in your application of removing leaders. And your detailed explanation, although passionate and orderly, does little to sway my perspective. You state: “Command--and the concomitant inexorable linkage in authority, accountability, and responsibility--is possible only because of the amount of responsibility vested in the Captain.” Doesn’t a CEO hold the same responsibility for the success of his or her firm and shareholders as sea captain holds to the Navy and US taxpayer? Like the bank executive’s combine 100 years of experience, which you cite as evidence to retain their services, doesn’t the ship’s leadership have over 100 years of experience? Aren’t they positioned ideally to ensure that the ship not a ground again? For the financial executives it is not life or death consequences, but life or death of the institution they are charged with leading. I think strong believe so…..

In summary – these financial giants made bad business decisions and demonstrated poor judgment that directly led to their companies running around. Congress did not force these individuals to approve high risk mortgage loans (less FNM and Freddie, which lobbied for the right). Under their watch these companies made awful decisions and we the federal taxpayer are bailing them out. Not unlike the Sea Captain… where the US tax payer will provide the funds to repair the Navy ship. Either way bad decisions prove that the aforementioned “experts” are suspect and highly questionable.

Furthermore, small banks are largely healthy because their leadership understood the associated risk with providing and leveraging risky mortgages. Perhaps these prudent leaders should be elevated….JPH

Anonymous said...

More from JPH

Leadership positions are bequeathed to (deserving) individuals due to one’s proven technical competence, potential for increased responsibility and judgment. The Navy Captain’s judgment like SOME financial titans failed. You admire the firing of one for failure but you support the continued employment for an equally grievous offense. My friend, this is the inconsistency I see.

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