Anyone who has read this blog long enough knows I'm an Ayn Rand fan--not the creepy college kid kind, but rather someone who came upon her writing later, sees the value in many of her ideas, and enjoys the intellect evident in her writing.
I'm looking for an Ayn Rand moment now, an "Atlas Shrugged" moment, to be exact. We're in the midst of a horrific financial crisis, much of which must be fairly laid at the feet of Wall Street execs, some of whom have taken monstrous bonuses and salaries home even as their businesses sank. The President and now Congress each sought to "limit" the compensation paid to executives in the businesses that took the public's money. Sounds great, doesn't it? Let's stick it to the fatcats. Problem is, it is these fatcats, their knowledge of the industry, their experience, their vision--upon whom we all are going to have to rely if those businesses are ever to pay back the public's money.
I'd like to see a press conference...Tuesday...in which a group of known, experienced executives from the companies involved...look the cameras in the eye and say, "Fix it yourselves" and walk away to their Bar Harbor, Jackson Hole, and Upper East Side haunts. You want to see the stock market crash? Push them that far.
This class warfare, this creeping socialistic approach to market economies...can and will have real costs. If these guys take their jacks and their ball and go home, we are royally screwed.
What do I suggest? I say, let's use the market to incentivize these guys to pay back the government loans, quickly. Let's encourage those companies to tie executive pay to performance AND the speed in which the public's money is returned to them. Let's not incentivize them to go off and take a two year hiatus, only to return to the industry when the heat is off and they can be paid what they're worth again.
Sunday, February 15, 2009
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17 comments:
I second your motion, CW. I remember the day like it was yesterday: my high school line coach pulled me aside after practice in December of 1988 and handed me three books. The books were huge, and I wondered if I was part of some strange joke. When I saw the titles of the books, "Anthem," "The Fountainhead" and "Atlas Shrugged," I immediately suspected some kind of religious evangelism was at work. I had no idea how wrong I was.
Now this coach was a man of few words, great expectations, and uncompromising demands for performance. He was from Boston and wore a single cloverleaf tattoo on his forearm-- a distinguishing feature as he was powerfully strong and his forearms we bigger than most folks' thighs. All this to say he did not immediately come across as a deep thinking intellectual. Again, wrong on all counts.
Handing me the books in a comic fashion, he dropped all three volumes with a single hand. I caught them with both hands as their weight nearly toppled me over. He said, this is my gift to you. These changed my life, and they can change yours, too. It's a lot to read, but you're going to need them. Your life is going to depend on them.
His speech was more than I'd ever heard the man say at any one time. It reinforced my religious suspicion. He absolved my misconception by explaining that there wasn't anything more to this than a simple philosophy. That philosophy would help me understand the nonsense that was ahead of me. I could tell he was deadly serious, and I wondered what that might be.
This was after football practice on a chilly day as the sun was setting, and I had to get to my car and on my way home. The cares of a teenager held my attention, and I politely took the books the way a kid politely accepts the Christmas gift socks and shirt from grandma. I put them in my desk drawer and promptly forgot about them for years.
It would be nearly a decade before I got around to reading them. Coach was right, and I wish I'd read them right away. I'm grateful for that defining moment after football practice. Because of that time, I'm able to join CW in knowing the truth of what we see here now.
CW, please let me know if you suddenly move to a gulch in Colorado. I'm in.
Ace--I'm not ready for Colorado yet--not because it isn't an interesting idea, but because I haven't done anything yet in life to be valued greatly by my fellow man. Maybe in a few years....but for now, any utopian capitalist society in a hidden Colorado valley that would have me isn't up to scratch as a utopian capitalist society.
Why don't we let Mr. Galt be the judge of that, ok CW? :)
I'm against class warfare - no argument on this point. I am not worried that they'll take their toys and go home though. No chance that they'd show such solidarity, nor would it be long before someone stepped in to fill the vacuum. Additionally, I remain unconvinced that their knowledge of the industry, their experience, and vision will make up for their lack of judgment, honesty and humility. We will find ourselves in this pickle again. These corporate titans are no makers of things. They are not the innovators whose inventions will help our nation maintain its edge. They are alchemists who use arcane formulas that they hardly understand themselves. They don't respect the notion of risk. They think they can eliminate it (at least for their wealthier customers) while taking advantage of those who want a free ride (yes, shame on the rest of us). They don't respect history and they generally lack honor. I paint with this broad brush, because I have yet to hear any of their brethren stand up and denounce such poor behavior. Their silence speaks volumes. You recently wrote about the accountability of a Navy ship's Captain. Why is their none for corporate titans? Why do we continue to reward bad behavior?
I love Ayn Rand's writings as well, but I don't agree that there is a parallel here.
How do we encourage them to do these things that you suggest? Where is the stick that tells them that if they don't do their level best to help solve this problem, that someone will step in and make it uncomfortable.
Why haven't they come together to suggest a solution? "Hey fellas, some of our buddies have really dorked this up and John Q. Public is out for blood. For those of us still around, we'd better suggest a solution before one is provided for us."
Anne--great post, thanks. Had a chat online this morning with someone else who put forward one of the same propositions...that these guys are essentially a dime a dozen and someone else would "step right in" and take their place. Why is it that now the we are in one of Schumpeter's "creative destruction" phases of capitalism, everyone wants to believe these guys are all of a sudden not worth a damn. I don't see it that way. I see them as having a great deal of value to a system that has to overcome its mistakes, and I think we are not valuing their expertise sufficiently.
Yes...they made colossal mistakes...but did we take the NASA scientists outside and shoot them (or clamp down on their salaries) when Apollo 4 burned at the launch pad? No. We recognized that if we were ever going to get to the moon, those guys were going to get us there. I think it is similar in our current crisis...if these guys are so incredibly replaceable, then I fear for our free-market system that previously ascribed such value to their labor. Oh yeah, that's when they were raking it in for their shareholders.
If I were one of them, I would have said to Congress "you know, what--I'll cut a deal with you. I'll take NOTHING until this company has paid its debts to the American public...but stay out of my way when it comes to how I compensate my executives between now and then, as they and I are going to be ultimately what drags this country's butt out of this mess".
Misanthropic, indeed, for there is no love here. Who is it exactly you're referring to on this matter? I'll agree that few if any of our corporate leaders of today are cut from the same cloth as Hoover, Mellon, or Ford, but the game hasn't changed all that much in American industry. Which is why CW's point is appropriate... in Atlas Shrugged more titans sold out than remained true to sound business principles.
To me this is all about that which Pericles spoke of in his funeral oration. Freedom is rare because courage is rare--by extension America has been in a rare position because of a few courageous leaders who by providential forces won the day.
It seems to me the signers of the Declaration of Independence set this ball rolling, and the titans kept the momentum going. The only question left is who, if anyone, will step up today.
Which begs the question, CW, and we've discussed this before... what would have to happen to legitimize a John Galt uprising? At what point are real men and women compelled to resist, even if by force, the course of political events?
Not intending to sound too misanthropic, of course.
Some thoughts:
A titan is made of the stuff that precludes from consideration ever abandoning his sinking ship, taking all the lifejackets with him while his crew/shipmates perish.
A "golden parachute", by its very nature, precludes personal accountability, or at the very least, diminishes it significantly.
Responsibility, accountability and authority are as intertwined and interdependent as the heart, lungs and brain. If one is weakened, the others suffer and if one dies, they all die.
If one absolves a positional titan of accountability up front by saying "don't worry about failing for we agree to provide you with all you'll require to land comfortably even though your company and her people will perish", then the only hope, the ONLY hope, for this positional titan to become an actual titan, is for him to hold HIMSELF accountable against his own greater standards and to exercise personal courage in carrying out his responsibilities (as in not succumbing to CBC accusations of racism for following good lending practices, passing up a seat on the irrational exuberence bandwagon of subprime mortgages, to name two).
Concepts like responsibility, accountability, duty, honor, courage, commitment and the like are more endangered than Marin County marsh mice.
Yet still, I choose only to comment while others "do". Your question, Ace, about when are good men and women compelled to act, leaves me wondering whether I really am a good man or if it is simply not yet time to act. It is a piercing question.
Mudge--you write "A titan is made of the stuff that precludes from consideration ever abandoning his sinking ship, taking all the lifejackets with him while his crew/shipmates perish."
But that's the really great thing about "Atlas Shrugged". It was the Titans who packed up and left! Here's a bit of the Wikipedia article on the book:
"The main crux of the book surrounds the decision of the "men of the mind" to go on strike, refusing to contribute their inventions, art, business leadership, scientific research, or new ideas of any kind to the rest of the world. Each man of ability eventually reasons (or is convinced) that society hampers him with unnecessary, burdensome regulations and undervalues his contributions to the world, confiscating the profits and sullying the reputations he has rightfully earned. The peaceful cohesiveness of the world begins to disintegrate as each of these men of ability slowly disappears and society loses those individuals whose mental effort allows it to continue functioning. The strikers believe that they are crucial to a society that exploits them, denying them freedom or failing to acknowledge their right to self-interest, and the gradual collapse of civilization is triggered by their strike. This is not to say that they believed that giving the creators their due would cost civilization. Rather, the strikers believe that the current irrational altruist/collectivist culture impeded them and therefore the rest of society as well. As such it would serve no one's interest to continue to allow himself to be exploited, although the strike is not primarily motivated by the harm the current state of society does to others as well."
As these men dropped out, one by one, those left behind--the "looters" who had been robbing society of what made it great by pushing a concept of coerced self-sacrifice--consistently referred to the missing as "selfish" and "irresponsible", as their world slowly ground to a halt without the minds of its best men and women.
What these guys on Wall Street have is knowledge---certainly not enough knowledge to have seen coming what came--but far more knowledge than the regulators, the press, the government, and the bureaucrats, about how to GET OUT OF the mess. Paul Krugman is an economist and columnist because he did not have the GUTS to take the risks required in business. Instead, he took his brilliance to the study of economics where people pay him and give him awards irrespective of the practical application or the demonstrated efficacy of his ideas. If he dropped out, we'd be no worse for the wear. If these Wall Street guys--and I don't mean just the top guy at each bank--I'm talking about the top 5 or 10, the guys with plenty of resources to sit it out--drop out, we'll be in a world of hurt. Instead of capping their pay, we should be unleashing their pay, all in the pursuit of moving the economy forward.
Stream of consciousness...
Knowledge alone is not enough. It needs to be tempered with foresight that one will never be able to beat "the game." What I am asking for is a little humility and forebearance in the face of such awesome power and responsibility. Seek profits that maximize the bottom line. Fatten the wallets of your shareholders, but pause from time to time and try to capture what happens if one is wrong? The system doesn't allow for that. If one had argued that continuing to work collateralized debt obligations was a bad thing, that guy would have been replaced.
I don't advocate "shooting anyone in the head" for failure or for a (with which I don't agree) limit to executive pay. Half a million a year hardly constitutes a head shot.
These men are hardly superhuman and I don't believe for a minute that the market is perfectly rational. The sum of millions of predictably irrational actors underpinning and informing the market hardly adds up to rationality.
I digress. It has been widely reported that many of them did not even really understand the mechanisms at play. Roll the clock back a few years and look at the fellows at LTCM, two of whom developed the option pricing formula. Nobel Prize winners. Again, I do not think knowledge is enough. A huge flaw in our system is that leaders will down play the low level signals that a long term catastrophe is in the offing and subordinate the good of the many (however you might want to define it) for their short term success.
Without some external oversight (not regulation), we are doomed to relive this again and again.
I guess that I am hearing that we must only trust. These are the smartest guys we have and the Krugmans of the world cannot hold a candle to them and we dare not muck around in their business for fear that one day they'll consider our questioning attitudes too onerous for their tastes, who is left to verify? Who is smart enough?
Government service cannot provide the salaries that the free market demands for their talents. And with rare exception, few would deign to consider public service as it is the way station for those who can't hack it in the real world. Even in those exceptions, are they impartial overseers or is the perfume of their former positions still fresh upon them?
The definition of insanity is...
What are we doing differently this time? What incentive do we provide them to not only continue to maximize their profits in the interests of their shareholders, but also to consider how the "100-year flood" might create fantastic negative externalities like the one in which we now find ourselves.
Given globalization, I would also submit that an increasing number of our best minds are coming from other countries and might still be happier to work under the yoke that some might feel is too burdensome.
Anne--one of the best posts ever on this site. Well done. I will continue to ponder my position.
Misanthy, I hate to dispute CW, but that post reinforces a mythology and complete misrepresentation of the facts of our current situation.
Who are you referring to here in this analysis? If you referred to the GSEs and their legislative sponsors I would tend to agree with you.
Business leaders and the companies they lead are chastised and controlled by market forces. The only thing preventing that mechanism now is government intervention. No amount of oversight would prevent that. Added to this, shareholders are responsible for the risk/reward decisions their executives make and are not entitled to government protection or special consideration. A closer reading of the misanthropic "Anne" post suggests an endorsement for some of the most frightening notions of the 20th Century. If insanity is in play, it is found in the fact that even after 100 years of failure in this type of government our leaders are still falling for it.
"Work under the yoke..." That is most progressive, Comrade. We should be on the lookout for a much more sinister motto which tends to follow the policies endorsed in Anne's post. That one is a bit more circumspect, namely "Arbeit Macht Frei." I look forward to working with you all, standing shoulder-to-shoulder in the government labor camp.
Ace -
Since we can't prove the notion that "no amount of oversight" would prevent chastening and control by market forces, I'll take you at your word that this is true.
I would on the other hand ask you to describe what a closer read of my statements prescribes other than obliquely aligning my idea with Nazis'.
I think you give me too much credit for suggesting something that I have not intended. Either that or I am just too dumb to understand what I'm writing.
I stand ready to be schooled by you in what the facts of our current situation do represent.
One might assume that your selection of a nickname is what obliquely aligns you with the Nazis, Misanthrope (for readers understandably unfamiliar with the reference, the misanthrope is a person who hates humans or humanity in general). I hope you'll forgive me if I misread the confluence of your nickname and the thinly veiled ideas you present here.
"Without some external oversight (not regulation), we are doomed to relive this again and again" seems like advocacy for a political commissar, and in fact was the rationale the Bolsheviks used to deploy commissars during collectivization.
"I guess that I am hearing that we must only trust." Interestingly, you omit any analysis of the contrary notion that we would be asked to trust the overseers and the non-economic motives that drive them. I am sure these overseers would have only altruistic motives for certain. No? It seems to me your argument against free market forces is rooted in the altruistic presumption which, as a century of failure demonstrates, results in the enslavement of both man and the mind.
"Fatten the wallets of your shareholders, but pause from time to time and try to capture what happens if one is wrong? The system doesn't allow for that." That's good advice right up until the moment you start advocating government enforcement of these ideas. This is pure evil disguised as pristine goodness--you insult an entire cadre of entrepreneurs who think of little else than what might go wrong. It is government interference with the markets via GSEs that did this, and it is noted that your critique does not mention the bonuses or folly of the GSE executives or the legislators that motivated them--providing housing for people who cannot afford housing.
"Government service cannot provide the salaries that the free market demands for their talents." This is certainly not true for the GSE executives, but it sounds as though you advocate higher salaries for even those who profit from the destructive activities of the GSEs. This leads to remarkable folly in both government and in the market.
"What incentive do we provide them to not only continue to maximize their profits in the interests of their shareholders, but also to consider how the "100-year flood" might create fantastic negative externalities like the one in which we now find ourselves." This is the most egregious assertion of all unless you refer to the GSEs. Which brings me to the question--are you referring to free market players in business and industry or are you referring to the Fannie and Freddie Mac execs who got outrageous bonuses as they wrecked the economy? Have you any inclusion for the legislators that drove the GSEs to commit this crime despite the repeated warnings of the regulators?
I have no idea of knowing your motives, and I do not seek to judge them one way or the other. The part I can evaluate is the basis for the ideas you advocate. The ideas in your post are the stems and seeds of some very dangerous and addictive stuff, the ends of which are demonstrably evil and, naturally, misanthropic
Misanthrope: a person who hates OR distrusts humankind.
Additionally, it is a satirical play by Moliere in which the protagonist is some one keenly aware of the flaws and foibles of others, but blithely unaware of his own. A little inside joke to remind me to constantly self-assess. I do distrust those who argue by selective observation and selective reading, though.
Some small points and I’ll be happy to let you have the last word.
One might assume. Remember the old admonition about assume. Never to do it because it makes an Ace out of you and me.
Other aceumptions you make “seems like advocacy for a political commissar.”
No. We already have regulatory structures in place in government and in the private sector. I just want people to do their jobs. Have a questioning attitude. Someone should have asked, “Why again are we allowing banks to get severely overleveraged?” “I’m just a former farmer from X state who got elected to Congress? Please explain it to me why this is a good idea?”
Omitted analysis? I am not sure how I might have analyzed “the contrary notion that we would be asked to trust the overseers and the non-economic motives that drive them.” We have trusted them (Congress, regulatory agencies, and corporate executive boards) and they’ve been asleep at the switch or unwilling to rock the boat.
The screw-up with the GSEs is not in dispute. The lack of regulation of derivatives is also not in dispute. Unleashing these poorly understood mechanisms in the market was like introducing a new pharmaceutical to consumers without the proper clinical trials or oversight (see: FDA and Vioxx).
Re: “pure evil disguised as pristine goodness,” and insult to the “cadre.” If they did little else than think about what might go wrong and yet we still find ourselves here, I find that extraordinarily disturbing. To my mind it suggests that they were either incompetent or not doing their jobs.
Re: GSEs. No argument here. Should Raines and his successors be in the town stocks? I think so. Home-ownership society policy was bad. Yep. However, my point is that there is blame to go around and that a little introspection about what we did wrong, how individuals took advantage of the system or became less sharp in their professionalism. Please recall that the market’s solution to some of this oversight I’ve been talking about was supposed to have been provided by Moody’s and its ilk. That process failed.
Re: My egregious assertion. "What incentive do we provide… ourselves.”? I do believe that was a question (perhaps a tad bit rhetorical, but I allow that I am open to evidence to the contrary). You, however, just responded with your own questions. I bear no burden to prove anything to you.
Ace: “I have no idea of knowing your motives, and I do not seek to judge them one way or the other. The part I can evaluate is the basis for the ideas you advocate.
The ideas in your post are the stems and seeds of some very dangerous and addictive stuff, the ends of which are demonstrably evil and, naturally, misanthropic.”
I’m sure that it is just I who misunderstands your statement. I would argue that a man’s motives, why he acts, is integral the foundation of the ideas he advocates. Evidently you don’t believe that, which allowed you to make your insulting evaluation. You misread me entirely. I wonder if you are so bound up in the ideal of objectivism/libertarianism/purely free markets that you do not allow yourself to see how the irrationality of human behavior creates these market inefficiencies.
Maybe it is recognition of these irrational behaviors that have led men to think more non-market control was necessary. There is no doubt in my mind that their uneven and mis- application contributed heavily to our current state. We could remove every regulation every concocted, but we could never make all men act honestly or rely on the hope that they are smart enough to have figured out all the angles.
At this point, I have exchanged all that will with you on this subject. I am now forewarned that I should keep you in mind for further posts and draft several versions, taking special care to anticipate any aceumptions you might make, before I post my final version – footnoted accordingly, of course.
Commerce and trade has been going on since Adam and Eve, yet many of the contributors here enjoy citing the "unquestionable fact" that capitalism and the associated free market economy are evidently and clearly the best and most advanced system -- all others systems namely anything akin to socialism is destined to failure. Perhaps, but we should be careful when citing free market capitalism’s past 100 years as absolute evidence of future success. Lots of other variables contributed the past 100 years - scientific advancements and rapid movement of commerce to mention only two, had a lot to do with it.
The absolute and unquestioned assumption that our loosely regulated free markets are the only possible successful method is becoming a weak argument in many places in the world. We need to continue to challenge our assumptions and when necessary update our checks and systems. I digress....
Regarding Wall Streets Titans - Send the big shots that ruined their companies packing. Clearly based on their demonstrated incompetence and or unethical behavior they do not have the moral or proven leadership ability to right this troubled industry. CW, you clearly articulated why a Navy Captain that runs his ship aground should be relieved; why would you not take the same approach to these Captains of industry? I don't mean to sound like i am attacking, but I see quite a bit of inconsistency with your logic. JPH
CW - Sorry, was on the road and am a few comments behind. When I spoke of positional titans taking all the lifejackets, I was speaking of those who shirked their responsibilities to keep their ships off the shoals THEN took their golden parachutes (mixing metaphpors--all the lifejackets) while those who provided either labor or resources (employees or investors) were left to fend for themselves as the ship slipped beneath the waves. You could have saved a lot of blog space with all that Wikipedia paste. I have read Atlas Shrugged, years ago at your recommendation. There is a difference in the Titans (upper case) of AS and the titans (lower case) of which I write above. The ones of AS left as a matter of principle from a position of having successfully built and run their companies. They were making a statement about the self-destructive philosophy that everyone was owed something of the wealth these men accumulated. I have never suggested we cap pay. Ever. On anyone. If you can command someone to pay you that kind of money, then good on you. What I was talking about is telling someone up front, that he is going to be just fine if he runs his ship aground. That doesn't sit well with me from an accountability standpoint. And my point following that was that REAL Titans, not just the positional ones, have the moral fortitude, the courage and the personal integrity to hold themselves accountable when no one else around them does. These are the leaders who because of that accountability, whether internally or externally imposed, are emboldened to do the "right thing" irrespective of the pressures around them. Such men don't sway with the wind. They stand strongly anchored to their principles. I respect those Titans greatly, and I am in agreement with you that they are the ones who will help lead us out of this mess...if we allow them to. Could you imagine a Sam Walton, when his company started to slip, pulling out all his assets and saying "well, I tried". I think he would have died trying to pull it out of a dive. My point is, there are damned few real Titans out there. But thank God there are at least some. And shame on us if we exile them to find their own utopia.
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