The Goldman Sachs Resignation Thing, Part II-- Fatally Flawed

Yesterday we took a look at the toxic culture around the resignation of Greg Smith from Goldman Sachs. Recall that one of my financial advisors, in explaining to me why he was leaving a senior VP job at one of the Wall Street bankster operations, said "I'm not moving from one pile of shit to another." Although I didn't identify him, he decided to elaborate on that statement today and I decided to share it.

After 12 years of working with this company, 9 with Citi Smith Barney and the last 3 with the joint venture of Morgan Stanley and Smith Barney, I'm leaving to pursue an opportunity to create a high touch wealth management platform with a smaller boutique international bank.  As we discussed, the culture at this firm has drastically changed since the merger. The company now employees a combined 18K financial advisors straining the resources that we are accustomed to using to best serve our clients. It is now a much less personal work environment where little value is placed on human capital. Senior management is less interested in who works for them and more interested in the bottom line. In order to get from 8% margins to the desired 13-15% that our CEO is stating to the Street we will for certain see more cut backs on resources. In my particular case in dealing with very high net worth clients I have lost the ability to leverage the total relationship through the firm. What I mean by this is now, even at the $100 million in assets level, no attention is paid to give them a comfort level and feel that this is a partnership. I am now viewed as a vendor! Even less attention is paid to the normal clients that have worked hard to build what they have. Now I'm not saying anything is happening to hurt the clients in any was, this is still a top notch firm with high levels of integrity, but we lost the personal touch. My whole business has been built on service and trust and I am now leaving because it feel it is impossible to deliver within this behemoth of a firm. This also goes for the other majors.

OK. I don't think David Korten gives personal financial advise. But I'd like to continue along the lines of what we saw from him yesterday in regard to the financial and economic advise he's giving a different kind of client: society. Again, from Agenda For A New Economy.

The institutional system of the old economy [so what we were dealing with yesterday in the whole Goldman Sachs thing] lacks the ability to self-correct, not only because its most powerful decision makers are insulated from the social and environmental consequences of their decisions but also because their definition of system health and success is itself fatally flawed. They take the rate at which their financial-asset accounts are growing as the measure of success and allocate resources accordingly, wholly unmindful of any connection of their decisions and rising unemployment, family and community breakdowns, collapsing fisheries, and melting glaciers.

They are most exuberant about the economy's performance when a financial bubble is rapidly inflating, a condition of disequilibrium, and respond by feeding the bubble, a path to certain system collapse.

The Keynsian economist John Kenneth Gallbraith called this self-destructive predisposition "irrational exuberance" and demonstrated that it is the condition toward which capitalist systems have consistently self-organized for more than 360 years, with no apparent ability to self-correct or learn from experience.

...Social justice and fairness are foundational underpinnings of a good society. When wealth and income are highly concentrated, the majority of people are denied basic opportunities for personal and social development. A growing body of research suggests that societies that share wealth and work equitably among all their members enjoy great physical and emotional health, stronger families and communities, less violence, and healthier natural environments. They are also more democratic and more resilient in the face of crisis. This is not a coincidence. A significant wealth disparity creates severe psychological and emotional stress and insecurity even for those at the top. Sharing prosperity brings greater health and happiness for all.

So if the system can't self-correct-- in other words, if the banksters at the top can't help but keep the irrational exuberance on full throttle regardless of the consequences to society and to the environment-- where do we turn? Government? Well, that should be the answer. But... well this week Barbara Ehrenreich dealt with why it hasn't been the answer, at least since the election of Ronald Reagan.

We call it “the nation’s capital,” but that’s increasingly a misnomer.  Consider Congress, where as last year ended 250 members, or 47% of our representatives, were millionaires, and the estimated median net worth of a senator was $2.56 million.  Or consider the city of movers, shakers, and lobbyists they live in.  In Washington D.C., “the top fifth of earners in the District make an average of 29 times the income of the bottom fifth.”  In average annual household salary that translates as $259,000 versus $9,100.  For the capital’s top 5%, that number is $473,000, “far above the $292,000 averaged by their counterparts in other large cities.”

Washington as the people’s capital?  More reasonably, it’s the capital of American wealth in a country in which the super-rich, after taking some lumps in the Great Recession, are again outpacing everyone else. [H]alf a century ago Michael Harrington pointed a finger at the world of American poverty, calling it “the other America”-- and that label stuck. Today, in a country where Hispanic and African American wealth was nearly wiped out by the bursting of the housing bubble, the elderly have increasingly seen their savings evaporate, and the poor are ever less “other” and ever more us, a new Harrington might consider labeling the world of the wildly rich, that 1% and their eternal bonuses, as “the real other America.”

It’s all too fitting that the leading Republican presidential candidate is a quarter-billionaire.  He may be running as a Washington outsider, but unlike most Americans, he’ll be right at home in the new Washington.

...In his defense, Harrington did not mean that poverty was caused by what he called the “twisted” proclivities of the poor. But he certainly opened the floodgates to that interpretation. In 1965, Daniel Patrick Moynihan-- a sometime-liberal and one of Harrington’s drinking companions at the famed White Horse Tavern in Greenwich Village-- blamed inner-city poverty on what he saw as the shaky structure of the “Negro family,” clearing the way for decades of victim-blaming. A few years after The Moynihan Report, Harvard urbanologist Edward C. Banfield, who was to go on to serve as an advisor to Ronald Reagan, felt free to claim that:

“The lower-class individual lives from moment to moment... Impulse governs his behavior... He is therefore radically improvident: whatever he cannot consume immediately he considers valueless… [He] has a feeble, attenuated sense of self.”

In the "hardest cases," Banfield opined, the poor might need to be cared for in “semi-institutions... and to accept a certain amount of surveillance and supervision from a semi-social-worker-semi-policeman.”

By the Reagan era, the “culture of poverty” had become a cornerstone of conservative ideology: poverty was caused, not by low wages or a lack of jobs, but by bad attitudes and faulty lifestyles. The poor were dissolute, promiscuous, prone to addiction and crime, unable to “defer gratification,” or possibly even set an alarm clock. The last thing they could be trusted with was money. In fact, Charles Murray argued in his 1984 book Losing Ground, any attempt to help the poor with their material circumstances would only have the unexpected consequence of deepening their depravity.

So it was in a spirit of righteousness and even compassion that Democrats and Republicans joined together to reconfigure social programs to cure, not poverty, but the “culture of poverty.” In 1996, the Clinton administration enacted the “One Strike” rule banning anyone who committed a felony from public housing. A few months later, welfare was replaced by Temporary Assistance to Needy Families (TANF), which in its current form makes cash assistance available only to those who have jobs or are able to participate in government-imposed “workfare.”

In a further nod to “culture of poverty” theory, the original welfare reform bill appropriated $250 million over five years for “chastity training” for poor single mothers. (This bill, it should be pointed out, was signed by Bill Clinton.)

Even today, more than a decade later and four years into a severe economic downturn, as people continue to slide into poverty from the middle classes, the theory maintains its grip. If you’re needy, you must be in need of correction, the assumption goes, so TANF recipients are routinely instructed in how to improve their attitudes and applicants for a growing number of safety-net programs are subjected to drug-testing. Lawmakers in 23 states are considering testing people who apply for such programs as job training, food stamps, public housing, welfare, and home heating assistance. And on the theory that the poor are likely to harbor criminal tendencies, applicants for safety net programs are increasingly subjected to finger-printing and computerized searches for outstanding warrants.

Unemployment, with its ample opportunities for slacking off, is another obviously suspect condition, and last year 12 states considered requiring pee tests as a condition for receiving unemployment benefits. Both Mitt Romney and Newt Gingrich have suggested drug testing as a condition for all government benefits, presumably including Social Security. If granny insists on handling her arthritis with marijuana, she may have to starve.

What would Michael Harrington make of the current uses of the “culture of poverty” theory he did so much to popularize? I worked with him in the 1980s, when we were co-chairs of Democratic Socialists of America, and I suspect he’d have the decency to be chagrined, if not mortified. In all the discussions and debates I had with him, he never said a disparaging word about the down-and-out or, for that matter, uttered the phrase “the culture of poverty.” Maurice Isserman, Harrington’s biographer, told me that he’d probably latched onto it in the first place only because “he didn't want to come off in the book sounding like a stereotypical Marxist agitator stuck-in-the-thirties.”

The ruse-- if you could call it that-- worked. Michael Harrington wasn’t red-baited into obscurity.  In fact, his book became a bestseller and an inspiration for President Lyndon Johnson’s War on Poverty. But he had fatally botched the “discovery” of poverty. What affluent Americans found in his book, and in all the crude conservative diatribes that followed it, was not the poor, but a flattering new way to think about themselves-- disciplined, law-abiding, sober, and focused. In other words, not poor.

Fifty years later, a new discovery of poverty is long overdue. This time, we’ll have to take account not only of stereotypical Skid Row residents and Appalachians, but of foreclosed-upon suburbanites, laid-off tech workers, and America’s ever-growing army of the “working poor.” And if we look closely enough, we’ll have to conclude that poverty is not, after all, a cultural aberration or a character flaw. Poverty is a shortage of money.