How did they know?
March 4, 2009, 8:25 am
Posted by Margaret O'Brien Steinfels
Some guys can spot a deal when they see it.
Ex-Leaders of Countrywide Profit From Bad Loans
“CALABASAS, Calif. — Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis. After all, the banking behemoth made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering.
“So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.”
http://www.nytimes.com/2009/03/04/business/04penny.html?_r=1&hp
“It is tragic and ironic. But then again, greed is a growth industry.”
Hopefully, public outrage will bring justice to these opportunists who now profit from the disaster they created. Does talent obviate morality. It is like appointing, you know who, for loyalty rather than goodness.
Sickening.
I am waiting for someone to post: “But that’s how the market works!”
Not that I understand the real estate market, but didn’t Countrywide promptly sell off their loans and the attendant risk to Fannie and Freddie? Who then smashed them on the sidewalk into a million pieces like so many Coke bottles, swept up and wrapped the debris into bundles called mortgage backed securities, and sold the securities to Lehman Brothers, Bear Stearns, et al, who in turn offset the risk by purchasing credit default swaps from AIG?
I’m not trying to absolve the Countrywide execs from blame. But they were one link in a dysfunctional chain – another crucial link of which are the imprudent home buyers.
The part of the whole scenario I have a problem with is that PennyMac can now foreclose on the mortgages they’ve bought from the government. Not that foreclosure is a problem in each and every case. But nobody wants to see a family evicted from its home.
Foreclose and sell for a second or third time? It’s a gold mine!
But that’s how the market works!
(Couldn’t resist.)
Seriously though, that’s how the market works. The idea that the market is somehow innately ethical is a post hoc idea laid in by people who want to separate those things they do as “basically good people” from those things that they “have to do” because “their hands are tied by the market”.
I had the same reaction as unagidon. We keep waiting for virtue to be rewarded and vice to be penalized as if it were part of the natural order of things under capitalism, and it’s not. Hard work and ingenuity are rewarded (or not) whether they are motivated for good or evil. Plus, who did you think would have the money and know how to do this? If the “this” is wrong, that’s one thing, but if it’s only wrong because of “who” is doing it, then I don’t think you will get very far with your outrage.
Of course, the market is only a construct, or maybe it’s only a concept. But after eight years of its virtues being extolled, we now see that its vices are being rewarded. I guess that makes sense!
Thomas Friedman had a depressing, but possibly prescient, op-ed in yesterday’s NYT about how the banking/lending crisis could be Obama’s “ball and chain” throughout this term of his presidency. Not uplifting reading.
An excerpt:
“This problem is more complicated than anything you can imagine. We are coming off a 20-year credit binge. As a country, too many of us stopped making money by making “stuff” and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game.
When this huge bubble exploded, it created a crater so deep that we can’t see the bottom — because that hole is the product of two inter-related excesses. Some banks are in trouble because of the subprime mortgage securities they have on their books that are now worth only 20 cents on the dollar because of widespread defaults.
And many other banks — the ones that took on the most leverage like Citigroup and Bank of America — are in trouble because of all the loans on their books that can’t now be repaid, such as auto loans, commercial real estate loans, credit card loans, corporate loans. Most of the big banks have not marked down these loans yet because if they did, they would be insolvent. The subprime toxic securities will take billions to bail out; the loans could take trillions.”
http://www.nytimes.com/2009/03/04/opinion/04friedman.html?em
“Foreclose and sell for a second or third time? It’s a gold mine!”
If housing prices were going up – probably. As things are now – maybe :-). If the house originally sold for $400,000, then First National Bank of Nevada is out some portion of the $400K, so it wasn’t a gold mine for their owners.
Now PennyMac (not the same company as Countrywide – different owners) buys the receivable for the same property from the federal government for $152,000 (i.e. $.38 on the dollar). If the resident defaults, then PennyMac is out some portion of $152,000 plus whatever expenses they incurred in collecting and foreclosing, and it isn’t a gold mine yet. Presumably they would then sell the property themselves (although, if the housing market is as slow elsewhere as it is in Chicago, it could take a very long time), and depending on the selling price, it either is or isn’t a gold mine in the end.
On the other hand, if the resident makes its monthly payments and PennyMac holds on to the receivable, then PennyMac becomes whole over time and it does become a gold mine in the long run.
On the third hand, if PennyMac quickly resells the receivable to someone else, then it is or isn’t a gold mine, depending on the selling price of the receivable.
It’s all too risky for my blood.
“Hard work and ingenuity are rewarded (or not) whether they are motivated for good or evil. ”
Sure – the essence of capitalism isn’t hard work and ingenuity – it’s risk. Reward comes to (some of) those who take finanical risks. The great value of hard work and ingenuity in that scheme is that they mitigate risk.
Reward comes to (some of) those who take finanical risks.
Yes, but the really big rewards go to those who are adept at persuading others to risk their money. Just ask Bill Gates.
In that regard, “The Managerial Revolution” by James Burnham (reformed Trotskyite, Catholic convert and National Review writer) makes interesting reading.
“Yes, but the really big rewards go to those who are adept at persuading others to risk their money. Just ask Bill Gates.”
This is true. These bankers are employees, not owners in any entrepreneurial sense. The kind of risk taking that Adam Smith wrote about that animates the “invisible hand” does not really apply to them.
Jim P: “Now PennyMac (not the same company as Countrywide – different owners).” As I read it the point of the Times story is that they are the same guy(s):
“Mr. Kurland has raised hundreds of millions of dollars from big players like BlackRock, the investment manager, to finance his start-up. Having sold off close to $200 million in stock before leaving Countrywide, he has also put up some of his own cash.”
Didn’t Calvin pander to the burghers of Geneva by claiming that financial success was a blessing bestowed by God because of one’s superior morality? The bible has a number of examples of this sort, among which are the stories of Abraham and Job.
At any rate, there seems to be a culture-wide mystique around the belief that the achievement or possession of wealth is a sign of virtue rewarded. Thus, the cognitive dissonance that ignores the unpleasant reality of how the market really works.
“Jim P: “Now PennyMac (not the same company as Countrywide – different owners).” As I read it the point of the Times story is that they are the same guy(s):”
Hi, Margaret, according the article, it seems to be Kurland and a dozen or so former executives from Countrywide. He is not one of the founders of Countrywide, and seems to have left before everything blew up – which is why he was able to cash out so handsomely, I assume. Kurland is one of the investors in PennyMac. What if anything his ownership stake was in Countrywide, I haven’t been able to ascertain.
What did you think about the anecdotes about families that they have helped? The article presents a positive model.
His $200 million was from Countrywide Stock. Not a founder according to the story, but an enabler, it appears.
Very good for the families–that’s for sure. We’ll see if the story turns up some who couldn’t quite cut a deal. Do they get foreclosed?
“This is true. These bankers are employees, not owners in any entrepreneurial sense. The kind of risk taking that Adam Smith wrote about that animates the “invisible hand” does not really apply to them.”
Ultimately, the owners are the ones bearing the risk. For publicly traded companies (as Countrywide was), stockholders are the owners. Part of the risk of ownership is the uncertainty that professional managers they’ve hired will perform well.
If you have a retirement account that includes a stake in mutual funds or similar stock investment funds, then you are a stockholder – you own parts of these companies. That means you are sharing in the risk. (FWIW, this is why I never liked Bush’s plan to turn our social security money over to private investment.)
In a publicly traded company, the board of directors is the link between the owners and the managers. The board is supposed to ensure that the interests of the two groups are running in tandem.
Also, in many/most cases, senior managers are also stockholders, so they have the same interests, and risk, as the rest of ownership.
“Also, in many/most cases, senior managers are also stockholders, so they have the same interests, and risk, as the rest of ownership.”
Speaking as a senior manager I’ll tell you that this is what we like people to think. But a senior manager has control and to put it bluntly, can pay himself off before the bloated corpse of the company starts stinking enough to be presented to the stock holders. They may have the same general interest (to make money) but they hardly have the same risks.
If the cliff is coming, would you rather be driving the stage coach or sleeping in the back?
Also, in many/most cases, senior managers are also stockholders, so they have the same interests, and risk, as the rest of ownership.
Ahh…no, see, they don’t and that’s the problem. There’s this golden parachute thing. The perversity of the current incentive system is that the market for top management is distorted that way. Unlike, say aircraft pilots, upper level management has the bargaining power to structure their compensation to avoid the consequences of their bad decisions.
If you know of any top level manager who’s exposed to the level of financial exposure and risk anywhere close to that of the average stockholder, please let us know. And by that, I don’t mean someone whose billion dollar net worth may declined to a mere 500 million or so.
“If you know of any top level manager who’s exposed to the level of financial exposure and risk anywhere close to that of the average stockholder”
The “average stockholder” is some sort of stock fund, or employee union retirement account, or insurance company, or some other form of institutional investor. So actually the “average stockholder” probably is bearing much less risk than the senior manager whose primary source of income – her job – is on the line.
“Speaking as a senior manager I’ll tell you that this is what we like people to think. But a senior manager has control and to put it bluntly, can pay himself off before the bloated corpse of the company starts stinking enough to be presented to the stock holders. ”
If you’re a stockholder, then you’re bearing precisely the same risk as every other stockholder.
If you’re able to pay yourself off after running your company into the ground, then your board stinks. I hope you have a good lawyer because your fellow stockholders will certainly sue you, and rightly so.
FWIW – far be it for me to defend Kurland. But at the time he cashed out at Countrywide, their stock price was up something like 13,000% from its IPO. Whether he got paid the right amount of money, I couldn’t say. But he wasn’t jumping off a sinking ship with the other rats. They were flying high at the time.
“If you’re able to pay yourself off after running your company into the ground, then your board stinks. I hope you have a good lawyer because your fellow stockholders will certainly sue you, and rightly so.”
Well, simply, no.
First, Boards are mostly chosen by the Director and if the Director is not himself a senior manager, he probably pretty close to him. The millions of individual stock holders in any company (if in fact they know they are investors to begin with and not just some piece of a 401K) seem to have a lot of difficulty putting their own representatives on the Board.
Second, managers pay themselves off (usually) before they run the company into the ground. As Antonio points out, what do you think a golden parachute is. In fact, if you read the stockholders reports for big companies in the last 20 years you’ll find all sorts of interesting things that the company is doing for the managers. There is nothing illegal about it and further, the common defense is that the stockholders, by not kicking out the board and by continuing to buy the stock are actively sanctioning this stuff. This is, after all, a free market, right? Now, stock is tanking, but I’m afraid that we are at the point where people want to close the barn door after the horses have escaped.
Third, you think that stockholders are going to sue just for a collapse in the stock price? Not in America.
BTW, I am not saying that I am doing any of this stuff. But I am saying that this is the way the companies in the “commanding heights” are structured. This picture is also in any general Management Accounting book as well. Management simply does NOT have the same risks as the owners (stock holders). You are correct that their stock risk is the same. But who is going to do better; someone with 500,000 shares of UBS stock or someone with 1,000 shares and the presidency of one of their divisions?
“Third, you think that stockholders are going to sue just for a collapse in the stock price? Not in America.”
Google “securities litigation”.
They can sue pursuant to derivative shareholder litigation, but only if they can prove securities violations. Remedies are quite limited for falling stock price. It’s only a litigation cottage industry because plaintiffs’ lawyers know management would rather settle than litigate (when, you know, they will not be using their own money to settle).
They can’t sue brokers and investment bankers unless they meet a very high level of proof demonstrating that they relied on misrepresentations of the broker. Unlike craven management, investment banks don’t roll over and play dead when they are sued (well, not usually) and the law has developed quite favorably for them over time.
“Hard work and ingenuity are rewarded (or not) whether they are motivated for good or evil. ” — but only if they produce results. This was an ongoing fight at bonus time when I was in business, irrespective of the conditions under which a bonus plan was to pay out.
I am sure the academics in this crowd have had more than one student moan that (s)he worked SO HARD and tried SO HARD … and, therefore, they should get an A.
Right? Wrong, sez you (I hope).
Jim, my point is that management calls the shots, sets the rewards, and mitigates their own personal risks first. We in management know this. People outside of business look at stockholders as “owners”. They are not owners in the sense that someone with a tiny business both owns and controls the business. What stockholders have is a claim on the assets of a company if a company goes belly up. They can also claim a dividend, but another thing that most people forget is that people rarely buy stock in order to collect the dividend. They buy it hoping that the price of the stock itself will go up.
The fact is, no one, on the basis of their “ownership” of the company based on the stock they hold could make it past the security desk of “their” company. The idea that stock holders own the company in the sense that Adam Smith spoke of or that managers and stock holders share identical risks are both myths of modern monopoly capitalism. We can see it now. The people who brought down the system are not the ones doing the most real suffering. Some disgruntled people may attempt to sue, but they won’t get anywhere unless there was some kind of real fraud. But that’s the point. There’s no need for managers to commit fraud in our system.
First, Boards are mostly chosen by the Director and if the Director is not himself a senior manager, he probably pretty close to him. The millions of individual stock holders in any company (if in fact they know they are investors to begin with and not just some piece of a 401K) seem to have a lot of difficulty putting their own representatives on the Board.
That’s true. The big funds aren’t structured to deal with the management issues and responsibilities that come with board memberships. As I found out when working at a startup, they want to manage money, not companies. If anything, this disconnect between ownership and management is at the heart of the problem with modern captialism.
I must say I am miffed as to how Unagidon and Barbara are taking this lightly or justifying it. The point is that they took the money knowing the place was collapsing. People trusted them to drive the stagecoach not to kill them because they are sleeping in the back. Secondly, the government is subsidizing the new plan. Are they justified in how they can manipulate the market? Surely, there are equally competent honest people to take that job. Especially when the government is bailing out: to repeat the point.
Unagidon –
Thanks for your observation that managers these days want to manage money, not companies. That seems to illuminate a lot o the basic problems for me.
I think of the owner/manager of an Adam Smith company as someone who at least potentially takes some pride in his product and realizes that the better the product the more units he will sell in the long run. Being closer to the workers he will realize that happy employees are more productive ones, and better paid ones are happier. How to return such realizations to our mamoth corporations, I have no idea. But Steven Jobs has shown that such management can be successful these days.
Still I can’t help viewing the whole capitalist system as a machine. This does not mean that morality is irrelevant to thesuccesss of the system. Like all machines, its moral goodness or evil of a capitalist system will ultimately be determined by what the managers do with the machine. Just look at the headlines of the last 6 months or so.
There’s no need for managers to commit fraud in our system
Well, strictly speaking, the fraud and looting of corporate assets simply happens on a grander scale. One could generate a rather long and depressing list of senior management that is now, has been or will be spending time behind bars. Such spectacles are fodder for many a New Yorker cartoon.
Bill said: I must say I am miffed as to how Unagidon and Barbara are taking this lightly or justifying it. The point is that they took the money knowing the place was collapsing. People trusted them to drive the stagecoach not to kill them because they are sleeping in the back. Secondly, the government is subsidizing the new plan. Are they justified in how they can manipulate the market? Surely, there are equally competent honest people to take that job. Especially when the government is bailing out: to repeat the point.
Bill, I’m not taking this lightly at all. I have posted this sort of stuff many many times on this blog and what I have been saying is that the system is structured to reward this behavior and we all collude in it because we don’t really understand what is going on. We have an economic system that claims to operate under impersonal and amoral market forces. The system utterly dominates the lives of most of us. We think that the system rewards hard work and punishes laziness. We think that the things we have to do to our workers is just an outcrop of free market forces. The system itself washes away the sins of production, of exploited third world workers, the rape of the planet, the destruction of small communities and families, the displacement of populations, the wars over resources, the creation of phantom wealth, and the domination of everyone by people that really know how the system works; washes this away and drops onto the shelf of the local bookstore, clothing store, food store or appliance store a pristine commodity that bears the “right market price”. I won’t deny that the system is far more productive than any that existed before. But from a purely Christian point of view, it is a system that values objects and far far worse, it establishes a mediocrity of consumers who blind themselves to the affect of their actions on the world.
You want bad guys to be punished for the melt down? Punish yourself. It was the SYSTEM that failed. The competent people you want to bring in to replace what you consider to be the disgraced managers are people who a year ago wanted to be those managers in order to do precisely the same things that the managers did. I mean no offense here, but you sound to me like what you really want is to be lulled back to sleep, to be assured that the system works and that a few bad eggs are put away. You have a rare opportunity here. The skin has been stripped off the world for a time. Look at it.
Ann said: Thanks for your observation that managers these days want to manage money, not companies. That seems to illuminate a lot o the basic problems for me.
Thank you, but this is Antonio’s observation, not mine. But I have a feeling that Antonio knows that this was already pointed out by Marx in the first volume of Capital. It is not a new thing by any means.
Before people start piling on the idea that since this comes from Marx it simply has to be wrong, all Marx was saying in this case is that commodities are produced for their “exchange value” and that it is always about the money. Anyone with an MBA knows that managers change, and I mean radically change their businesses all the time. The former CEO of the company that I work for (health insurance) came from mining as his last job. The reason that people can do this is that in many ways, the actual thing that is being produced is beside the point.
Antonio said: Well, strictly speaking, the fraud and looting of corporate assets simply happens on a grander scale. One could generate a rather long and depressing list of senior management that is now, has been or will be spending time behind bars. Such spectacles are fodder for many a New Yorker cartoon.
It is true that greed sometimes makes people stupid. But there are those who believe that when someone gets sent to the minimum security country club in Connecticut, it is proof that the system actually works and that we can all sleep securely in our stage coach.
Thank you for bringing up Marx! After the passing of the system that misused his analysis (the USSR) he disappeared from history. And I’ve thought from time to time, “where is Marx now when we need him,” e.g., to explain the commodification of everything.
And on a lighter note, Gail Collins this morning captures a bit of Marx and a bit of the perplexity of Countrywide, PennyMac, and the former and current executives of both.
She writes:
“I am having a tough time dealing with news that the former president of Countrywide Financial, the mortgage company that did so much to dig the hole in which we all now reside, is making a killing buying up delinquent mortgage loans from the government at bargain basement rates.
“It’s like Jeffrey Dahmer selling body parts to a clinic.”
It is a bit like that, isn’t it.
Jim, here is an example of how management tries to justify always getting its own first:
http://employment.law360.com/articles/88118
If you can’t get the link, I’m sorry, but it discusses how many companies are thinking about options repricing now that their share price has tanked. They are anticipating shareholder opposition. At least now they have to do it out in the open.
Bill, anybody who knows me or has read my posts knows that I believe in regulation, not demonization. Demonization after the fact is useless handwringing that all too often is viewed as a substitute for actually gathering up one’s energy and doing the right thing going forward.
Exhibit A: Enron. Lots of people are in jail and companies went bankrupt and the system only found new ways to bamboozle the ratings agency. I’m in favor of jail terms for wrongdoers, by the way, but I think it’s quite salutary for all of us sitting on the sidelines to have it hammered home that our regulatory attituded enabled a lot wrongdoing and harmful economic activity that was PERFECTLY LEGAL
If the guy at this new company can’t be convicted of whatever he did in the past, all the tut tutting in the world won’t help. If you have a problem with his new business venture, have at it.
Unagidon and Antonio ==
I apologize for giving credit to Unagidon when it belonged to Antonio. There have been so many insightful post on this thread I”m having trouble keeping the wisemen straight. (And Barbara certainly belongs in the wiseman category too!)
I too am glad to see Marx brought up. It’s one encouraging sign of the times. When I was young it was worth a person’s academic career to say any of the complimentary things about him that are being said here now. Granted, he was a very naive historian/philosopher, but the economists tell us now that he was one of the greatest among them.
He thought that capitalist system are bound to implode, but) Keynes thought that regulation could avoid the implosion Biut was Marx right? And is the meltdown a matter of Plato’s problem, that guardians (regulators) need to be guarded? But that seems to equirs meta-guardians to guard the guardians of the guardians, . . . ad infinitum.
In other words, how do we keep the first guardians honest?
Hi, everyone, I think I’ve more or less lost track of the discussions swirling around here (including the ones I’m involved in!).
My original point is that the owners of the company – which for a publicly traded company is the stockholders – bear the financial risk. Ownership in large publicly traded corporations usually is extremely diluted, and even ibg institutional investors who own large blocks of a company’s stock have many other investments that provide some diversification to protect theselves unduly from the risk of decline in a particular stock’s price. So I agree that in many respects it’s not the same as the risks born by a single proprietor, for whom the failure of the business represents personal financial ruin. Inasmuch as none of us wants to face the prospects of insolvency, many of these developments are good, and in fact I’m assuming that a good number of the folks reading this are personally benefitting from these arrangements.
Istm that the many imprecations and revilements hulred at managers with golden parachutes illustrate the original point. The managers in these cases aren’t bearing the risk – they make a salary and bonus if the company does well, and if they fail, their parachute opens. So maybe we’re having a violent agreement. It’s the stockholders who suffer the loss when the stock price goes down. Speaking as a parent trying to save for college tuition for multiple children, it’s real and it’s painful.
In theory, the stockholders could and should be able to pass some of that pain along to the managers. It does happen on occasion. A Buffett or Kerkorian has the capital to acquire 10% or 20% of a large company’s stock – which given the diluted ownership in most publicly traded companies would amount to controlling interest. And then they do engage in proxy fights and put dissident directors on the board. But such things are far beyond the ability of an average dope like me. I’d be the last to argue that the overall system doesn’t break down – of course there are CEOs that dominatel their own boards, some boards are pusillanimous, dysfunctional and complicit, etc.
As for the original topic – I’m open to some evidence that Kurland is a shyster or a crook. I haven’t seen anything that demonstrates it, and apparently no criminal charges are pending against him, nor is he being investigated by any regulatory agency. He is the defendant in some lawsuits, of which none of us are able to judge the merits. He’s a guy who understands the industry and who has the capital to be a player in it. As presented in the NY Times article, he’s found a profitable way to help some people stay in their houses. At worst, it’s a rather ambiguous picture. And it’s possible he’s one of the good guys.
“Well, strictly speaking, the fraud and looting of corporate assets simply happens on a grander scale. One could generate a rather long and depressing list of senior management that is now, has been or will be spending time behind bars.”
Yes, there are bad apples. There are also honest and honorable people in positions of high responsitiliby throughout corporate America.
I must say I am miffed as to how Unagidon and Barbara are taking this lightly or justifying it.
Accurately diagnosing a malignancy does not mean one advocates catching the disease. It’s a necessary step in affecting a treatment.
But I have a feeling that Antonio knows that this was already pointed out by Marx in the first volume of Capital. It is not a new thing by any means.
Yes — it is not new. I took the idea to be part of the common currency(so to speak). Thus my failure to credit Marx was out of simple (or profound) ignorance. That aside, as soon as “Marx” appears in any sentence, the thought of the man as evil incarnate seems undermine whatever legitimate point one is trying to make.
Yes, there are bad apples. There are also honest and honorable people in positions of high responsitiliby throughout corporate America.
Yes, that’s true, as we are constantly told by the magazines, newpapers and cable channels devoted to aggrandizing and glorifiying the mystique of the CEO and worshiping the power they wield. Thus, any suggestion of rampant venality evokes a response of cognitive dissonance.
“Yes, that’s true, as we are constantly told by the magazines, newpapers and cable channels devoted to aggrandizing and glorifiying the mystique of the CEO and worshiping the power they wield. Thus, any suggestion of rampant venality evokes a response of cognitive dissonance.”
We also know it’s true, irrespective of what the media – or Marx – portrays, because we know some of them and can vouch from personal experience.
They do a tremendous amount of good in the world, including endowing colleges and universities that allow 19 year olds from nice suburban families to read Das Kapital.
Well, that’s one ideal of a model society: Letting the little people eagerly fight for the crumbs dropped by the benevolent masters of the universe (who, of course, will never give SO MUCH that they would have to give up their private jets or second or third or fourth homes). Honestly, I’d rather that 19 year old have assured access to health care, good local public high schools and libraries that could introduce him to Marx at a lower price, and, moreover that his parents can shoulder more of the burden of paying for his education out of their own well-compensated hard efforts. Yes, that appeals to me much more than knowing that Harvard or wherever just got another hefty donation from some munificent CEO.
Nobless oblige is too paltry a form of compensation for living in an unjust and inegalitarian society.
And what makes you think, Jim P, that 19 year olds are reading Marx, or could read Marx. Personal experience?
They do a tremendous amount of good in the world, including endowing colleges and universities that allow 19 year olds from nice suburban families to read Das Kapital.
In a scholarly analysis of what motivates charitable giving, the authors concluded with marvelous understatement that:
“Recent research reveals…that the ‘pure altruism’ model lacks predictive power.”
Good question, Margaret. I read it when I was 19, at Loyola Univ of Chicago. I guess that’s what made me think that. In some ways, not so long ago, in other ways – eons.
My alma mater as well. Think we read a short patch in history of philosophy with John Bannan.
“Well, that’s one ideal of a model society: Letting the little people eagerly fight for the crumbs dropped by the benevolent masters of the universe (who, of course, will never give SO MUCH that they would have to give up their private jets or second or third or fourth homes). Honestly, I’d rather that 19 year old have assured access to health care, good local public high schools and libraries that could introduce him to Marx at a lower price, and, moreover that his parents can shoulder more of the burden of paying for his education out of their own well-compensated hard efforts. Yes, that appeals to me much more than knowing that Harvard or wherever just got another hefty donation from some munificent CEO. ”
Nobody touts it as the perfect society, Barbara (at least, not around here). Speaking as a parent facing an onslaught of college tuition, I like your vision – go for it. But while we’re waiting for the economy, the educational system and our social class structure to be put through the food processor, this model is the one we’ve got. And it isn’t all bad. Barack Obama was able to attend Harvard. I’m guessing that there are Ivy Leaguers in this forum who didn’t come from the yachting and polo pony set.
Personally, I’m not in favor of taking a road grader to social and economic class. I am very much in favor of those with surplus wealth sharing it with the poor. Endowments are wonderful things. I’m more apt to give thanks for the generosity of those who give so much, rather than shake my fist at them for leaving crumbs on the floor.
Jim, the tilt in the average income of the families of students attending “elite” institutions over the last 20 years has been overwhelmingly upward. So much so that they are starting to look like wealth perpetuation machines: Give lots of bucks (tax deductible) to Harvard, ensuring entry of your offspring, along with matching connections to stay in the upper income strata in their own right, rinse, repeat.
Some institutions have seen this pattern and have taken steps to try to address it, at least somewhat. But you are deluded if you think the average CEO donation to Harvard inevitably trickles down to benefit the rest of us. It is not inevitable — it has to be pulled out of the institution by tax and education policy. Education has become less, not more, affordable, with the model we are using to fund it.
FYI — this isn’t JUST the fault of the tax deduction policy, and many institutions may feel that with reductions in public funding they have no choice but to pursue this model. It’s also the fault of student lending that basically leaves colleges totally unaccountable for the cost of the services they provide. Most just raise tuition to swallow up increasingly available loans for education, leaving students completely at risk for the effects of an inefficient university and a poor education.
“FYI — this isn’t JUST the fault of the tax deduction policy, and many institutions may feel that with reductions in public funding they have no choice but to pursue this model. It’s also the fault of student lending that basically leaves colleges totally unaccountable for the cost of the services they provide. Most just raise tuition to swallow up increasingly available loans for education, leaving students completely at risk for the effects of an inefficient university and a poor education.”
This would be a great thread if anyone feels inclined to start one :-)
At some point as a parent, intellect steps aside and emotion takes over, so here is where I am on this: the friggin’ LAND GRANT UNIVERSITY in my state is going to cost at least twice what my parents and I mutually sweat to pay to the private Jesuit college I was extremely fortunate to attend.
We’re really off topic now! But Jim check in with your alma mater and find out how much they’re charging for tuition now. We got a real bargain back in the last century.
To return to the core question, the reality is that generated wealth goes disproportionately to fewer and fewer. The fact that some, perhaps many of the wealthy, give some of that away does not mitigate the injustice in the least. As someone on the Mirror of Justice blog pointed out, the virtues of charity and justice are not interchangeable, thus one will be held to account for a deficit of either virtue.
Antonio –
What you say is no doubt true. But how do you determine what a just wage/salary/fee is? I don’t think I”ve ever seen the question covered in ethics. Yes, there is such a thing as “a living wage”, but it seems to me that in a prosperous economy workers are entitled to more than the bare necessities to prolong life.
John A. Ryan of the NCWC way back in the twenties and thirties did work out charts for a “living wage,” that was more than the bare necessities. I’ve seen those charts but never calculated given the values of money at the time whether they were truly “living.” I expect that given the standard of living then, they were more than the bare necessities. But, of course, Ryan, the church, and the clergy generally favored policies that were focued on one-wage earner families and not two, which today though not universal is almost so–that is, for families with two adults capable of earning a wage. That has changed a good many things about our society. Many families have traded money for time and more than the bare necessities. That means that one-wage earner families, generally woman-headed, are at a great disadvantage in this economy.
I have no idea what a just wage is.
What I do have is a sense that we have become resigned if not inured to the existence of economic injustice. And with that, there seems to be a sense that the few who win the lottery (for that’s what it really is), are somehow more worthy than the rest (as we’re constantly told); that the very society that made their prosperity possible and protects their disproportionate wealth has no right to demand a concommittent obligation on them or their class.
I recall reading something about the Social Security act asserting that the first demand on capitol was not the replacement of machines that were to be scrapped when no longer productive but the welfare of the human workers that tended them. That’s a sentiment I haven’t heard in a while.
Antonio, I think a “just wage” is a concept meant to address the wage required to house and feed a family, and to raise children in a decent and wholesome atmosphere, including educating and forming them. I think it was and is a “Catholic” idea. I don’t think it was ever meant to address inequalities of wealth and inequities in resources or opportunities. I don’t think until recent years that was an issue that Catholic social teaching pressed very heard–maybe because it seemed like socialism. In recent decades, Liberation Theology has raised the issue but my impression is that that was one of the objections in Cardinal Ratzinger’s criticism of the Latin American version of LT.
It is amazing, even shocking, to hear Republicans go on about upping the tax rate for higher income people as if these rates were confiscatory and as if they had a right to their wealth without a commensurate obligation to society. Here Catholic Social Teaching has advanced the idea of wealth and resources being Social rather than only Individual. It’s a notion that needs more discussion especially now when there is a growing sense that we are all (or better said many are) in the economic meltdown together.
Every power relationship contains its own characteristic potential for corruption. The thing about capitalism is that much of this is hidden.
It is true that stockholders “own” a company.
It is false that they have the same rights of ownership of a company that a car owner has over a car.
It is true that senior managers share the same risks as the stockholders.
It is false that senior manager’s risks are identical to the stockholders; managers have ownership and control and stockholders only have ownership.
It is true that if the stockholders or market seriously disagreed with something that management was doing it would stop buying their stock.
It is false that when someone buys stock they are explicitly agreeing with what management is doing in all of its details.
It is true that employment is a free agreement between labor and management.
It is false that the worker in entering this free agreement is entering it freely.
It is true that in a free enterprise system one can gain wealth through hard work and perseverance.
It is false that if one gains wealth in a free enterprise system one has gained it through hard work and perseverance.
It is also false that if one fails it is because they didn’t work or persevere hard enough.
It is true that capitalism is the best system that has ever existed for fulfilling people’s needs.
It is false that people present their needs to capitalism for capitalism to fulfill; capitalism both fulfills and creates needs.
This last thing shows the interesting moral knot that capitalism contains for us as Catholics. It is true that as a pure mechanism for fulfilling needs capitalism could claim that it is amoral. But because it also creates needs it is actually a moral system itself. A moral system does not simply ask “what should I do?” What it actually asks is “given what I need, what should I do?”
Capitalism is an economic system centered around the individual consumer. Unlike a dictatorship or a theocracy it does not mandate anything. It is true that since it does not mandate anything, it is more “democratic” than other systems. It is false that because it does not mandate things like other systems it is democratic. Rather, it rewards those who adjust their needs to conform to its needs. Capitalism, for example, rewards what it calls a “flexible” labor force. Flexible means a labor force that will stop valuing anything in their social organization that does not conform to the needs of the market. So people who value extraneous things (in the sense that they are values created outside of the market) that impede “flexibility”, like family, community, a life structured around religion, or a commitment to certain kinds of production quality not set by the market will find themselves disadvantaged and resources will move away from them. People who will leave their families, communities, adjust their lives around the needs of the workplace or adjust their ideas of what constitutes excellent work will find material resources moving towards them.
For us Catholic Americans, this is especially masked by a set of half truths like the ones I outlined above.
It is true that moral commitment always begins with a personal commitment. It is false that society is nothing more than a group of atoms with their personal commitments.
It is true that if a society were Christian, the atoms will have made a personal commitment to Christianity. It is false that if the atoms made a personal commitment to Christianity the society would be a Christian one.
It is true that if we lived in a Christian society, our laws would reflect Christian values. It is false that if our laws reflect Christian values we can create a Christian society.
Let me be clear. It is true that there are good business people and bad business people and bad business people intensify a general economic crisis. It is false that our current situation comes from a bunch of bad business people. Our economic system values the generation of capital in the present only. There were many, many people that predicted our economic collapse. But before the collapse their advice had no “current value” in the economy so it was systematically ignored. Now, of course, this advice does have current value. Still, “Values” in the sense that we think of them as Catholics (or used to think about them as Catholics until we were radically individualized) are impediments to flexibility and we have to pay a market price for holding them. Values that are irrelevant to the market are really nothing more than attitudes (and our enemies are precisely correct about this). The pernicious thing that happened to us, the thing that makes all of us specifically American Catholics whether we think we are on the left or the right, is that we have taken what used to be values defined externally (as in Aquinas asking “given what I need, what should I do?” in terms of revelation) and we have redefined them in terms of the needs of a market that needs to turn us all into consumers. We talk about “communities”, but a community is not a community if we can get up and leave because our boss says we need to.
The movement of wealth towards the wealthy, the stagnation of wealth for the middle class, the creation of an ever larger impoverished world proletariat, the continuing destruction of the environment, the transformation of all values to the needs of the market; all of these things can be mitigated through political action and this action should be pursued. But capitalism is a moral order that is competing with the Catholic moral order. It is not some natural thing that Catholics can simply insert themselves into.
The invisible hand is being made visible.
Unagidon –
Thanks for your summary of all those half-truths. You have a gift for expressing complex matters clearly. I wish you’d do a book about these half-truths for the people who have never had the opportunity to study economics but desperately need to do some solid economic thinking. When the meltdown started last year I saw a fellow on TV, a mechanic or some other trade, who vociferously defended the need to avoid regulation of the market even in the face of the meltdown. Sounded like Friedman. The poor guy was living in the 18th century, and I think it’s the emphasis on “freedom” by the laissez-faire folk that convinced this poor guy that every real American will defend a so-called “free” market to the death. ‘
(I also am convinced that with enough motivation ordinary people are quite capable of understanding some very abstract ideas if they’re presented clearly. This is where your book comes in :-) Give it a catchy title with the words “freedom”, “meltdown” and “Christian” in it. I’m serious. Several people at the New York Times (Krugman, Friedmane, and now Nocera) do a fine job of explaining basic economic mechanisms, but they don’t get much into the moral principles beyond saying that moral principles should sometimes be involved.
Unagidon:
Very well put and quite helpful.
Ann:
I suspect a lot of folks like the idea of the free market for the same reasons they buy lottery tickets. It’s seen as a game in which everyone sees themselves coming out ahead in spite of all evidence to the contrary.
No doubt you’re right, Antonio.
It would be interesting to examine the role different concepts of “freedom” play in American life. “Freedom” seems to have absolute value to many folks. See, for instance, “the right to choose”. What an inane slogan.