Slouching Towards Wall Street… Notes for the Week Ending Friday 18 November 2011
Celebrated in the West for his doctrine of nonviolence, Gandhi was even more fervently devoted to cleanliness. Images of the Mahatma contemplatively turning the spinning wheel abound. In less iconic mode, the Great Soul said “sanitation is more important than independence” and led marches followed by his portable toilet, solemnly borne aloft in affirmation that cleanliness is indeed next to godliness. Gandhi was marked for life by his early encounter of Calcutta’s public latrines and championed sanitation in recognition that neglect of the poor leads to inferior education, inferior infrastructure, inferior social services — and necessarily, inferior health and life expectancy. This weekend — on 19 November — America observed National Toilet Day, promoted by Oscar-winning spokesman Matt Damon, the Hollywood star with a social conscience who also narrated the movie “Inside Job” about the financial crisis.
The World Health Organization estimates that 2.6 billion people worldwide lack access to proper sanitation — more than one-third of humanity — making this decidedly Everybody’s Problem. Poor sanitation on this scale perpetuates irreversible cycles of disease. It causes massive leaching of contaminants that poison water tables, making cities unlivable. It destroys coastal and freshwater ecosystems, dwarfing the impact of the Deepwater Horizon oil spill. The stupid thing about social neglect is that even the Bad Guys do not benefit: untreated waste produced by the poor poisons the drinking water of the rich and ultimately taints your bottled spring water. Unlike the debate over whether there “Is” or “Isn’t” global warming, it is incontrovertible that the stuff that flows downhill will flow back up, once the down is full. What goes down, must go up — if you catch our septic drift.
More people in the world have cell phones than have adequate sanitation, as Matt Damon observes on TV spots encouraging us to “Talk s**t this week.” We see the potential for massive surges in social unrest. India’s farmers have benefited dramatically from cell phones, receiving text messages about weather and market conditions that enable them to plant and haul far more efficiently. The central Indian state of Mahya Pradesh is the nation’s hungriest. The Global Hunger Index rates its situation “extremely alarming,” worse than Ethiopia. We could read this statistic yesterday because we have Google. Today the state’s 76 million residents can text it to each other, spreading awareness of their plight. This could touch off social upheaval that would make the Arab Spring look like a Lyndon Larouche rally.
Taking care of our own immediate needs while ignoring those of our neighbor turns out to be not only poor public policy, it’s poor selfishness. There are times when our neighbors’ needs surprisingly turn out to be more urgent than our own, what the Dalai Lama calls “enlightened self-interest.”
Because Occupy Wall Street has steadfastly refused to produce a list of specific demands, there has been much disdainful guffawing over “what do they really want?” This feeble dialogue-about-a-dialogue has failed to rise to the level of meta-dialogue, remaining largely a passel of one-line jokes or accusations. One group says “Wall Street doesn’t get it, and they won’t until the revolution stares them in the face.” Another sneers “This bunch of unwashed, uneducated and uncouth bozos should try working for a living.” We find ourselves generally agreeing with both statements.
At the core of OWS are a number of highly educated people, many with extensive experience in the traditional right-wing enclaves of corporatism, and allegedly cloaking the involvement of groups with a deeper agenda — the contradictory notion of “card-carrying Anarchist” former Yale professor David Graeber has been mooted, as has George Soros. But it is the Mixed Multitude that is grabbing all the media attention, allowing the problems that gave birth to the movement to be ignored.
Hedgeye’s Health Care team put up a posting this week (16 November, “Just Another Day” — contact sales@hedgeye.com for a copy) citing poll data that indicate Americans are overwhelmingly opposed to Business As Usual. When asked whether they would vote for a candidate who supports the goals of the Tea Party movement, 49% said they were either Likely, or Very Likely to vote for such a candidate. The corresponding stats for a candidate who supported the goals of Occupy Wall Street were a whopping 57%. It took us a moment to realize that the numbers add up to more than 100%. Any way you work the figures, Americans have had it Up To Here.
Another recent survey says 32% of Americans would blame the Democrats if the Super-Pooper-Scooper-Committee fails to come up with a compromise, while 42% would blame the Republicans. The first and obvious point is that it is clearly in the interest of the Democrats to torpedo the process at all costs. The second is that a new round of Republicans have already behaved badly in Congress, driving many who voted for them to feel Buyer’s Remorse. Clearly, the reason the hypothetical OWS candidate polls so much better is that there has not yet been one. For those itching to see Occupy Wall Street fail, we suggest you push for the non-movement to field political candidates. Winning an election is the first step on that slippery slope down into the cesspool.
OWS is enjoying popular success, while failing to connect with many who might embrace its message, and risks being a one-season hit show. Observers who say the OWS message dovetails with the Tea Party’s position may be right. It’s hard to say — OWS has not sent out a formal message. But the debate is flawed because it is being expressed and largely understood as a struggle over Fairness.
In America, arguments to Fairness are doomed. Even Mr. Obama will not say that an American who outworks, out-thinks and out-strategizes the competition is not entitled to out-earn them. Oaktree Capital Management founder Howard Marks, whose lapidary memoranda are eagerly awaited in the unofficial Samizdat of Wall Street, recently penned a piece on a pet peeve of taxation and fairness. According to figures he cites, while the top one per cent of Americans control a whopping 42% of the nation’s wealth, they pay an equally whopping 38% of all federal taxes. This makes the gap between wealth owned and taxes paid look like a mere statistical margin of error. In other words, the rich might be paying exactly their “fair” share.
President Obama’s peevish insistence that the rich pay “their fair share” is a defining failure of leadership. It is arithmetically demonstrable demagoguery. As Marks observes, there is no objective number that defines “fairness.” Washington’s unconscionable waste of the scarce resources of the American people — our time, our money and our patient good will — arguably do more to undermine the viability of this nation than the flaccid foreign policy that has failed to support legitimate forces for change in repressive and dangerous regimes, failed to protect our own commercial interests abroad, and failed to ensure accountability from our own corporate sector while disbursing sums that would make Tamerlane gasp.
Another way to view the argument would be from the perspective of Corruption. But this will not take root in the current discourse — it is too far a stretch for the media, accurate though it may be, to accuse the President, members of Congress and the Boards of Directors of America’s corporations of Corruption, even though crony capitalism is the very Thing Itself. What word do we use to open a debate on real terms, and not a jousting at straw men set up by the very folks we need to engage?
In the book of Genesis, Abraham dispatches his unnamed servant from their encampment in Hebron to the town of Haran where Abraham’s extended family lives, in search of a wife for his son, Isaac. The slave — depending on the strand of Rabbinic commentary you choose — is either deeply faithful, or profoundly lazy. Upon arrival, he sits down beside a well and prays that the first young woman who comes to the well and offered water to him and his camels should be the one destined to marry his master’s son.
Desert societies fall broadly into two groups: those who share water, and those who do not. The Biblical way of life still exists, as mirrored in the writings of the British explorers of the Near East who describe the interdependent society of the Empty Quarter, the vast sand desert of southern Arabia where nomadic groups lived what seems a rich, yet murderously sparse existence. This is perhaps most familiar from T.E. Lawrence’s Seven Pillars of Wisdom — though more richly detailed in the writings of Lawrence’s contemporary, the great traveler Sir Wilfred Thesiger. Thesiger recounts travels with groups of Bedouin who, because of unequal age and physical condition, cover the miles between oases at very different speeds. Yet, the first to arrive at a new watering hole always wait until the last ones arrive, allowing all to drink and feed together, sharing equally the water and dates. Thesiger recounts treks where men arrived at well and then sat stoically in the scorching sun for most of a day waiting for the stragglers to catch up before taking their first mouthful.
A subsistence landscape requires absolute cooperation if a society is to survive. The strong recognize that they must wait for the weak — should they live long enough, they shall one day themselves be the weak. The weak know the strong will wait for them but do not expect that, when they become incapacitated, the strong will disadvantage themselves to prolong their lives.
This behavior guarantees the survival of the group. It is what makes “Noble Savages” noble. It is inconceivable to the strongest member of a clan that he will drink before the last stragglers, or that a starving man should not divide his own meager handful of dates or flour equally with his companions.
We propose that what is missing from the dialogue is this raw Nobility. Perhaps because we have failed to recognize that we are now living in a precarious subsistence economy. It is not about Fairness — though there is much in our society that is unfair. Nor is it enough to blame Corruption — though crony capitalism is the essence of the thing. There is no sense of obligation to the society, no sense of something greater than oneself. There is no debating, no compromising, and no respect or compassion for The Other. And it occurs to no one that, when the sinkholes fill up, the backwash will drown every last one of us — the Good Guys as well as the Bad. We have become a society of very ignoble savages indeed.
The SEC has announced a record year for bagging bad guys. In fiscal 2011, ended in September, the Commission won sanctions in 735 cases — up from 677 successful cases in the previous year. The total take this year, $2.8 billion, was down from the $2.85 billion in 2010, making the average settlement this year $3.8 million, a nearly 10% decline from last year’s $4.2 million. Is crime paying better under the new Enforcement regime? Not according to Chairman Schapiro, who says “we continue to build an unmatched record of holding wrongdoers accountable and returning money to harmed investors.” Schapiro says the reorganization she oversaw — removing a management layer, creating special legal units and creating the Whistleblower program — enabled the Commission to bring more cases and handle them more efficiently.
The whistleblower program is being watched closely (WSJ, 16 November, “After Tip, The Claim For Reward”) as several high-profile cases seem to be nearing fruition, notably the BNY Mellon and State Street currency trading investigations which feature the redoubtably talented and socially inept Harry Markopolos who can probably claim to have single-handedly forced the creation of the program. Markopolos is sharp, and with the (even for them) unbelievable bollix the SEC made of his work in the Madoff case, he surely smells blood. If Markopolos is pushing the currency trading case, we’re betting there’s fire under all that smoke. Unfortunately, the SEC counts its “victories” in settlements. We look for a payoff from the banks and a fat payday for Markopolos et al, though no admission of wrongdoing. We agree with Judge Rakoff — until there is a naming of names and a specifying of crimes that would enable further civil penalties to really damage the offenders, the SEC looks like nothing more than a middlingly-compensated aiding and abetting scheme.
A story is sparking outrage among those with too much time on their hands: Jon Corzine was not required to retake securities licensing exams to become head of MF Global. We can just hear Mary Schapiro and Gary Gensler slapping themselves on the forehead — “Gosh! If we’d ‘a’ known that, he never woulda got his meathooks on all that dough!”
Investment News (8 November, “FINRA Granted Corzine A Waiver”) reports FINRA waived the Series 7 and 24 exams for Jon Corzine (the Registered Representative and General Securities Principal exams, required of stockbrokers and senior executives of brokerage firms) when he returned to Wall Street after an 11-year hiatus. (The licenses lapse after two years away, requiring returnees to re-test.) FINRA did, however, require him to take the futures exam, an area in which he had not been significantly active in the past.
Before you get all exercised over this horrifically irresponsible act on FINRA’s part, we think on the face of it FINRA acted exactly properly. Corzine was head of Goldman Sachs — he no longer needs to demonstrate that he understands how a margin account works. Indeed, his tenure at MF Global proves that he understands exactly how margin works.
We think FINRA’s failure was more fundamental (if you notice all those “F’s” that’s precisely the grade FINRA seems to have scored here.) Goldman Sachs has traditionally been dominated by a powerful compliance and risk management culture. Regardless of how much money a trader generates for the firm, or of who the trader’s powerful friends are, there was always a risk officer with the authority to require that trader to close out positions on the spot when they were deemed beyond the firm’s risk tolerance. During his time running Goldman, Corzine’s major failing appears to have been a consistent overriding of that mechanism. The public account has Hank Paulson staging his Putsch to rescue the firm from a trader who would not stay within the guidelines. Residents of the State of New Jersey know a thing or two about this as well.
The FINRA website says waivers are granted “based on the applicant’s experience in the securities industry.” In fact, FINRA needed look no further than Corzine’s public behavior to know the man posed a threat to his investors. The industry watchdog operated by the book. Here’s a case where they should have judged by its cover.
A Funny Thing Failed To Happen
Tens of thousands of Brazilians turned out earlier this year to demonstrate against a government culture of corruption. Many wore red clown noses, indicating what they thought of those in office, and a significant number expressed their support for President Dilma Rousseff who has swept from office scores of corrupt politicians, including a handful of cabinet ministers. The organizers of this week’s protests, called for the 15 November national holiday, expected a powerful turnout.
Perhaps they should have known the people’s day of rage was in trouble when a list of civil disobedience assembly points and timetables were posted in the nation’s leading newspapers. The anti-corruption protest at the Cinelandia site in Rio drew barely 150 people. Participants
at other thinly attended demonstrations explained they had wanted to celebrate Republic Day with their families, but the date was chosen for protests by a coordinated group of organizers nationwide. By contrast, September’s spontaneous occupation of Cinelandia drew five thousand. In Sao Paulo, a rainy day was blamed for only 200 protestesters showing up to march — the organizers had expected 6,000. Then the anti-corruption crowd had to share the avenue with a parade organized by the heads of several Afro-Brazilian religous cults. After some jockeying, the protestors ended up marching alongside priests of the ancient Yoruba cults of the Orishas, transplanted to the New World with the slave trade, protesting a proposed new law to ban the ritual slaughtering of animal sacrifices during religious ceremonies. Next stop: sprinkling chicken blood at Zuccotti Park?
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