"Parallel Universe: How Wall Street & Republicans Thrive On False Negative Hype," LeadStories.com, January 17, 2016

Parallel Universe

If you listened to the last GOP presidential debate in South Carolina or have watched with anxiety the tumbling of the stock market, with a downward spiral that comes close to the 10% official “correction” designation, you’d think that the US is on the verge of collapse. If you were young and ambitious or retired with a sufficient nest-egg, you’d be checking the Internet on where to immigrate. Who would want to live in a country that is unsafe, led by a president who “doesn’t care about America,” and an economy that is so bad that more illegal immigrants are leaving than entering our southern border (by as much as 140,000 from 2009-2014, according to Pew Research Center). The political climate in Washington, DC is so contaminated and corrupt that some leading members of congress (Steve Israel of the 3^rd district of New York is the latest casualty) are simply not seeking re-election (which is a guarantee to incumbents at the rate of over 96%, according to Louis Jacobson in Politifact).

But this isn’t the America I live in. I recall the announcement by the Bureau for Labor Statistics that some 292,000 nonfarm jobs were added in December 2015, that the economy was growing fast enough for the Federal Reserve to increase interest rates by .25%, that lower oil and gas prices and the discontinuance of the prohibition of oil exports will make the US not only energy independent and a net exporter of oil and gas but one of the leading producers of oil and gas in the world, and that overall we still enjoy civil rights that are denied by many of our allies, like Saudi-Arabia (whose legal system is based on a very strict orthodox interpretation of Sharia law). Paying less than $2/gallon of gas will allow all of us to spend more of our money on other goods and services which in turn will boost the economy, since about 70% of our Gross Domestic Product comes from consumer spending. Lower oil prices will lead to greater spending, and greater spending to economic growth; this, at least, is what neoclassical economic theory teaches us. But maybe this theoretical rosy picture is too naïve, maybe in the real world things work differently, even without a conspiracy theory at work.

In the real world of brokerage houses on Wall Street a stable economy that is slowly but steadily growing is not volatile enough for daily trading spreads. A bit of bad news followed by good news and vice versa ensures enough volatility to guarantee great profits. You can check the financial reports of any of the major investment banks in the US and see right away that the largest contribution to their bottom line comes from trading, what some call arbitrage (which is simply buying low and selling high). The margins are miniscule, but the volume is so large—billions of dollars daily—that by the end of the year there are substantial amount of money being made from little movements in stock or commodity prices. And when a bunch of hedge funds collaborate to bring prices down or up, as they have been fined after legal discovery, then the trust we have in the fairness of markets and the supposed reflection of prices of efficient information about supply and demand (EMH) falls apart. And if these margins aren’t sufficient, inside-trading is always available, as hedge funds, such as SAC Capital and its CEO Steven A. Cohen, have admitted as much when paying $1.8 billion(!) in fines.

Add to this the technically-enhanced “high-frequency trading” which finds the buying and selling prices of stocks nano-seconds before these prices appear on the market itself, and therefore are able to “game” the buy and sell orders before anyone else has a chance to fill them, and you have, once again, inside-trading plain and simple: information gained before anyone else has a chance to compete with you is still unfair, no matter what technical trick or loophole you were able to find. So, is volatility the dream of any trader? Yes, it is. Is knowing a bit before anyone else what someone is willing to pay for a stock inside-trading? Yes, it is. Grand conspiracy? Maybe not; but definitely an advantage to elite hedge-funds and investment banks that can game the system in the name of “free markets”; the term “collusion with impunity” seems apt. And when caught, years later, as Goldman Sachs was in its involvement with mortgages and the collapse of the economy, then a fine of $5.1 billion(!) makes it all okay—it’s the price of doing business. And the six million Americans who lost their homes can be forgotten. For those who are interested in a simple, straight-forward explanation of the mortgage bubble and its ensuing Great Recession, go watch the recently released movie The Big Short.

It’s plain why Republican presidential contenders claim that the country, led by a Democrat, is doing poorly—they want to build an argument for changing the guard: Democrats are bad, we are good, ergo: your next president must not be a Democrat but a Republican. It’s also plain why they would portray such a negative picture of America’s national security and its economy, not giving any credit to the president for any policy decision that helped us get out of the (Republican-induced) Great Recession of 2008-2012 or spending more on the Department of Defense than the entire world put together (ABC News 2/24/14), a budget which, incidentally, is voted on by Congress which, incidentally, is controlled by the Republicans. So what about the media?

You’d think the media would be smarter than all of that, telling us if the king has no clothes or telling us the truth about our own country. But you’d be sorely disappointed. What happened to independent reporting, cool-headed analysis, and a long-range perspective on what’s going on in the economy? What about calming the population rather than scaring it half to death, especially when there is no reason for alarm? Last I checked, there is something called self-fulfilling prophecies, the kind of alarmist pronouncements that make people withdraw their money from their local banks, only to perpetrate a run on the bank that in fact leads to its collapse… Have we learned nothing from our own economic history? Don’t journalists and pundits realize that the more positive their pronouncements are—given positive economic data—the better the economy (of consumers) will function? It’s plain that the latest negative hype is just a hype, nothing more nothing less. And the quicker we get over it, the better, because the American economy is still very strong!

Raphael SassowerWall

“Better way to describe it: Paris is us,” The Colorado Springs Business Journal, January 23-29, 2015, 23.

PARIS IS US

What does the callous murder of journalists and Jews in Paris have to do with Colorado business? Why should we, so far away from what happened, care?

Let me answer these questions by analogy, one that was famous in the 1950s and may have been forgotten by now. It was a Protestant Pastor in Germany, Martin Niemöller (1892–1984), who famously said (there are different versions):

“First they came for the Socialists, and I did not speak out—because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out—because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out—because I was not a Jew.

Then they came for me—and there was no one left to speak for me.”

What may seem remote at one point, the singling out of one minority group, becomes extremely relevant and personal at another. Lest we forget, there is some connectivity between all of humanity, and more specifically, between all the social, economic, political, and moral variables that guide us.

It’s inappropriate to compare what happened in Nazi Germany to what happened in Paris to a small satirical magazine with 60,000 circulation and to a kosher storefront. Unlike the German government who persecuted Jews and gays, socialists and Catholics, and others, the French government is sending police officers and troops to protect its minorities.

But the reason so many marched in Paris with signs that read “I am Charlie,” is that they didn’t simply want to show solidarity, but more importantly, they demonstrated that when something is morally objectionable, it cannot be contained; it spills over to every facet of the community.

When Wall Street misbehaves, Main Street is affected. When a so-called rogue trader throws off the balance of trades or “corners the market” in oil futures, for example, it’s not exclusively his affair.

His company’s reputation suffers, and it may even incur some fines. Wall Street gets a black eye as well, and regulators are seen as lax. Eventually, we can expect that the markets in general will be affected. Why should we care what happens to the case of the rogue trader, like the infamous “whale”?

As employees and employers, we have money invested in the markets, in the virtual safes of Wall Street, either through money market or pension funds. Likewise, interest rates—for cars and homes, business loans and credit cards—somehow are still dependent on what the giant Wall Street investment banks want us to pay. The Treasury Department responds to Wall Street, after all, in case you ever forget who has been heading it for decades.

In other words, “we are Wall Street” just as much as “we are Charlie.” You can pretend that financial or journalistic variables are separate from each other, but they are not! You can even claim that you don’t read French and that except for French Fries, you have no relation to France or its problems with extreme Muslims and their journalistic and Jewish victims.

But what will you say when this happens in New York? Still too far for you to identify with the problem there, on the East Coast? When the office of the NAACP was bombed here not long ago, was that close enough? Do you have to be African-American to be affected?

You may not care now, as Pastor Niemöller reminds us, because you aren’t a Jew or a journalist, black or financial maven, but when they come for you—who will speak out on your behalf?

When I see electricians changing wall-pack bulbs in below-freezing temperatures and the drivers who struggle in the snow to roll dumpsters to their truck for unloading—are they me?

When the guys in overalls come to empty 1,500 gallons of our grease-trap so early in the morning so as not to upset neighbors with the noxious odors of their work—are they you?

When the line-cook prepares your meal and the server brings it to your table—do you identify with their work, their diligence, their prayer for a good tip because they pay their own college tuition?

What the horrible incident in Paris should remind us all is that when catastrophes happen elsewhere, it’s only by random chance that they occur where and when they do. The idea that it cannot happen to you is preposterous, even fool-hardy.

The solidarity shown in Paris should remind us to feel sympathy and empathy with those around us, the people who serve and work for us, who teach and protect us, who lead and entertain us, and who might be victimized for no fault of their own.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

---

 [SG1]Care

“Who should be culpable for Citigroup’s bad dealings?,” The Colorado Springs Business Journal, July 25-31, 2014, 23.

Who should be culpable?

As we read about the latest bank settlement with the federal government, it may seem that $7 billion is a hefty fine to be paid by Citigroup. Apparently it’s not. Citigroup’s shares were up 3% on hearing of the settlement, so someone must be thinking it’s a good deal for the bank.

Some may argue that any settlement is better than ongoing investigations and the uncertainty that accompanies them, and therefore even $7 billion is a good deal, especially when no officer or director ended up in jail. These “decision-makers” or better yet “job-creators” are never touched by the long arm of the law. Are they above the law? Are they too rich to prosecute?

It’s a given that moral considerations aren’t part of the algorithm used by Wall Street mavens to make profits. It’s also a given that we shouldn’t judge banks’ performance by their moral aptitude or social contributions alone (even though some of them are proud of them). So, if we simply judge banks by the results of their financial performances, then Citigroup and its sister banks and hedge-funds are very clever indeed.

Knowingly commit a crime—fraudulently sell collateralized debt obligations (CDOs) tied to sub-par mortgages—make a huge profit for years, and then, years later, if and only if you are caught and convicted (which is possible but highly improbable), pay a fine. The billions you made along the way (whose value increases over time as you lend it again and again) remain yours minus the fines to eventually be paid.

Let’s translate this Wall-Street speech to a language the rest of us can understand. You and I steal money from unsuspecting people, make a profit off it, and pay a fine somewhere down the line if we get caught. If moral principles were invoked ahead of time, at the very beginning of the process, or better yet, before the crime is even conceived or committed, none of the awful things that follow would have ever happened.

The fact that the entire American economy (and large parts of the global economy) came to a halt because of such cavalier and criminal behavior may be worth recalling. It’s one thing to lie to secondary markets about the integrity of CODs, and quite another to create a financial bubble that is bound to burst. The “economy” isn’t hurt, it’s people who are hurt, flesh and blood.

The most successful program that the Bush/Obama Administrations undertook under the TARP initiative (close to $1 trillion in bailout funding) was in my mind “Cash for Clunkers” (Car Allowance Rebate System). The program lasted only a few short months in the summer of 2009, but the eventually allocated $3 billion provided for over 690,000 dealer transactions.

Whether the original intent was energy-savings, greater fuel-efficiency of trucks, or the stimulation of the car industry in the midst of the Great Recession remains unclear. But to actually put in the hands of individuals a credit towards buying a new car helped get reluctant consumers into car dealerships, 690,000 of them!, and helped car sales.

Just think what would have been the impact if the same voucher system of $2,500-$4,500 credit was given to homeowners. What would have happened if not $3 billion but $300 billion (much less than was given to large banks) was allocated to homeowners with vouchers worth $5,000-$9,000 each? Simple arithmetic would suggest that 34,500,000 transactions could have taken place, enough to avert the housing collapse, and the suffering of those facing foreclosures.

Instead of celebrating the triumph of the Attorney General, instead of feeling relief that justice is being exacted on corporate giants, we should pause and think again: is this the kind of country we want to live in? Is this the kind of capitalism we are willing to endure? Fines may assuage our outrage a bit, but justice requires more than a slap on the hand.

To put this $7 billion fine in perspective, Citigroup has a larger annual profit (on average) than the fine it just agreed to pay. Just like other costs associated with its operations, paying fines here and there is just the “cost of doing business.” Can you imagine that someone would routinely drive recklessly and threaten the lives of pedestrians and other drivers and agree to pay a fine here and there when caught without ever being threatened with a driver’s license revocation?

Would we feel sanguine to live in a community where known criminals like Citigroup’s officers and directors, executives and middle managers, get a pass no matter what they do? Citigroup’s crime was not victimless; its profits were at the expense of others; people’s lives were so affected that houses were lost, savings evaporated, and marriages dissolved. This was a crime, indeed, just as egregious and heartless as outright theft or burglary.

The idea that we can separate money from morals is false. The belief that my profits are never at your expense is also not true in all cases. So, before you decide what to make of Citigroup’s fine, just remember those you know who suffered in the Great Recession. Their sufferings were real; Citigroup’s weren’t (no matter what the Supreme Court says about corporations being citizens). And the culture of calculated fraud shouldn’t be ours.

 

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com