Braintruster Robert Johnson, Director in the Economic Policy Initiative of the Roosevelt Institute, explores why outrage is vital to reform of the financial system.
I hold my hands in front of me to block my line of sight
It seems my eyes are growing tired of staring in the light
The more I see the more I feel the less I want to know
Because if you think to much you'll blow your mind
You might just lose control and scream
--Lyrics to "Scream," by Seven Nations
In Matt Taibbi's vivid and provocative new article in Rolling Stone, "The Great American Bubble Machine," the man absolutely screams. Evoking the image in Edvard Munch's famous Norwegian painting, Taibbi sounds the alarm to American readers as he explores the sordid story of Goldman Sachs and Co. Tracing 90 years of political and market history, Taibbi colorfully describes the firm headquartered at 85 Broad Street as: "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Such evocative imagery will surely be discounted by some as hysterical or exaggerated, particularly by those whose senses are deadened by the business press or CNBC-style babble. Rather than engage in a dissection of the details, I would like to explore why Taibbi is screaming and ask why he is screaming for all of us in a way we are not seeing elsewhere in the media. In addition to screaming for us, I wonder whether he is also screaming at us. One thing is certain: he is screaming in a way that a healthy press would do in a hysterical time. Goldman Sachs' uncontested success blurring the boundaries between market and state is symbolic of a tremendous malfunction in finance, politics and civil society. That the firm is well-managed by all measures and that some fine, well-meaning individuals work there is beside the point. Taibbi is telling us that the rules are rigged. That we are being abused.
This is a time for vivid outrage.
Taibbi's rage is filling an emotional void. It is a reaction to what is missing after this profound speculative episode that the IMF suggests will cost over $4 trillion in losses on balance sheets and untold trillions in lost output. It is fury over a crisis that is, by any measure, the most profoundly damaging episode since the 1930s (and the Bank for International Settlements Annual Report released this week strongly suggests that the burden on stockholders is far from over).
What is it that leads to screaming? A wonderful passage in John Kenneth Galbraith's A Short History of Financial Euphoria helps explain. Dr. Galbraith seeks to identify the common elements that recur organically in the buildup and aftermath of every financial boom-bust episode:
"The final and common feature of the speculative episode--in stock markets, real estate, art, or junk bonds--is what happens after the inevitable crash. This, invariably, will be a time of anger and recrimination and also of profoundly unsubtle introspection. The anger will fix upon the individuals who were previously most admired for their financial imagination and acuity. Some of them, having been persuaded of their own exemption from confining orthodoxy, will, as noted, have gone beyond the law, and their fall and, occasionally, their incarceration will now be viewed with righteous satisfaction.
There will also be scrutiny of the previously much-praised financial instruments and practices--paper money; implausible securities issues; insider trading; market rigging; more recently, program and index trading that have facilitated and financed the speculation. There will be talk of regulation and reform."
Note the elements: anger, recrimination, introspection, law breaking, incarceration, regulation and reform.
Despite the fact that our news media have been filled with financial stories from Bear Stearns failure in March '08 to the present, the elements listed above seem neglected, muted, or in short supply (Gretchen Morgenson is the exception that proves the rule). This is disturbing, particularly given the scale of losses that the taxpayer has been forced to absorb, along with disappearing funds for future roads, bridges, healthcare, schools and a tax drag on wealth creation. It is into the void created by the tepid media coverage of this horrid and costly episode that Mr. Taibbi has screamed.
There is an age-old tension that emerges in situations like this. You can feel it yourself. We know things are not right but do not exactly know why. Finance is complex. Since the progressive era, trust in "experts" has often been suggested as the best way for society to handle such complex phenomena. We are encouraged to delegate to the likes of leading academics, the Federal Reserve, the Treasury Secretary, and financiers themselves to keep an eye on the public interest. Public officials are explicitly employed to undertake this task on behalf of society. Those in the private sector often appeal to experts, encouraging public. deference to their superior knowledge. Experts are thought to be the custodians of the nation's health.
"The stupidity of the average man will permit the oligarch, whether economic or political, to hide his real purpose from effective control..... Since the increasing complexity of society makes it impossible to bring all those who are in charge of its intricate techniques and processes, and who are therefore in possession of social power, under complete control, it will always be necessary to rely partly upon the honesty and self-restraint of those who are not socially restrained."
The problem now is that the experts and leaders from finance have failed us miserably. They have let us down and we know it. We do not trust in the system. No one thinks the Federal Reserve did a bang-up job in the years preceding this crisis. The failure is much more profound in the private sector, yet for the most part that failure goes unacknowledged. Even with losses and bailouts, we have to fight over bonus payments to those who feel entitled, despite the cost they have imposed on their stockholders and, more importantly, society.
What we are witnessing, as I have written elsewhere, is a perverse form of insurance pay off. Let's call it political insurance. Ordinarily when insurance is offered, a premium is paid and, over time, the provider of insurance sets the rate on the premium so that they make a bit of money despite periodic payouts for accidents. What we have here is different. The financial sector, and other large patronage donors, spend billions of dollars on lobbyists and campaign contributions. Politicians then run their expensive election marketing campaigns with the proceeds. And finally, the contributors buy downside loss protection from the politicians and their appointees.
Who provides that downside protection? You and me. The taxpayer. The body politic. We get used by this refracted process, and our system is mislabeled as a representative democracy. And, to add insult to injury, we are forced to endure the the horror of the awful marketing campaigns of politicians using the their payoff money to protect donors with our the tax base. The media is on the take, too, collecting advertising revenue from financial companies and from political campaigns. Far be it for them to step outside this circular flow of funds that impedes our political system from incorporating feedback from evidence of its own dysfunction.
We are amidst a crisis of political legitimacy. The leaders of our complex financial firms have failed. They have failed as stewards of our nation's future. They have failed as protectors of our public Treasury. Now, with trillions guaranteed, hundreds of billions of bailouts paid, and very little in the way of investigation, firings, or prosecution of the perpetrators, we are all being asked to calm down, move on, and stop acting like populists (a pejorative term when used by elite media or financiers). In the mean time, the perpetrators of this disaster confidently pay their political soldiers for another round of lobbying/campaign contribution money. (For more detail on the numbers and firms involved see "Sold Out: How Wall Street and Washington Betrayed America". See also Thomas Ferguson's fine work collected in his book, Golden Rule.)
Returning to Taibbi's startling article, there are many reasons for the amplified language he chooses to confront us with in rendering the social experience of Goldman Sachs (an experience that is certainly not unique to that firm). Perhaps it is illumination that Goldman Sachs and the leaders of finance have failed us as stewards and experts and that makes him mad. Or it could be that he is angry at the American people for trusting the financiers and enduring this abuse with little visible reaction. Or that the Bush and Obama Administrations and Congress have shown such little interest in investigating what happened, who did wrong, or who should be fired after drawing on the public purse to the tune of several hundred billion dollars!
It is hard to know what is in a writer's head and heart, but the Goldman Sachs piece is so intense in comparison to Taibbi's recent offerings that I sense a message of personal revulsion. For clues to what may have triggered this revulsion, I look back to his writings when he first returned to America and the book that acquainted me with his work: Spanking the Donkey: Dispatches from the Dumb Season. The book concerns the absurd carnival of the 2004 Democratic primaries. In the introduction, Taibbi describes how he had worked in Russia as a journalist for 10 years. He details the atrocities he saw, along with his sense of sympathy and fascination for the terrible things before his eyes. In Russia, he was an observer and not an accomplice, but when he returned to the USA in 2002, Taibbi felt less detached looking at his home country: "We are a country that has a large majority that on some level knows something is terribly wrong, but can't find any positive idea that it can follow and build upon..." He describes how he had no idea how to cover the Presidental election but found the need to develop a strategy to move ahead: "...I did not see much that suggested to me that a groundswell of change is on the way. But I do believe there is a strategy to pursue in the meantime, and that is TO REFUSED TO BE LIED TO...." On the strength of that insight, Taibbi set out to write a book about lies - how to recognize them and stop believing in them.
Taibbi's look at Goldman Sachs illuminates what is missing in our political energy as we prepare, as he suggests in the article, to get our lunch eaten again in the energy trading market. What's missing is a recognition that we have been violated by experts and leaders. What's needed is a proper cleansing of social misdeed through outrage.
It causes me great pain to think that this sensitive and brilliant young writer, who had a ringside seat for the grotesque rape of the body politic in 1990s Russia by rapacious private oligarchs, is sickened by what he sees in the USA now! Let me say that again. He watched the rape of the Russian people up close and he is sickened by what is happening in the USA right now.
Maybe when you see it happen in a foreign country, tragedy can be seen as comedy. Perhaps when it happens in your own country and devastates the people you love, things take on a darker tone. Or maybe it really is as objectively bad here as his scream indicates. Or at least becoming so. Whatever your interpretation, we all owe thanks to Taibbi for screaming. He is warning us, and it will do us all some good to feel his rage and connect it to the rage that resides within each of us.
Feeling Taibbi's outrage will help us refuse to be lied to by the experts in media, politics and finance. It will help us see through them when they pretend that they have not let us down or play the same old dysfunctional political patronage game to insure that things do not change. It will help us force them to give up some of their advantage to restore some balance and better serve the American people.
Rob Johnson is a Senior Fellow and the Director of the Project on Global Finance at the Roosevelt Institute.