Financial Reform

  • Broken Trust

    January 27th, 2017 by ewalsh

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    At this year’s World Economic Forum gathering in Davos, Switzerland, PR firm Edelman shared its comprehensive annual Trust Barometer, confirming what we all know: global trust in institutions and leaders is at an all-time low.  Fully two-thirds of countries are now considered “distrusters” (under 50% trust in the mainstream institutions of business, government, media and NGOs to do what is right), compared to about half a year ago.  This is a stunning collapse in trust, even from last year’s low base.

    Trust in leadership is equally low. Only 37 percent of the general population believe CEOs are credible, even worse for government officials – 29 percent credible.  A paltry 15 percent believe the system is working.  Ironically, it was Chinese Premier Xi, in his first address at Davos, who stood in defense of globalization (quoting Abraham Lincoln, it should be said), arguing that the system is sound, but it is (Western democratic) governance that has failed.  Note China ranked second on the trust index, second only to India.

    Talk about a humbling moment (if that’s possible) at the annual gathering of the global economic and political elite.

    There was lots of talk this year at Davos about “inclusive capitalism” (Jack Ma actually puts substance behind the slogan in his must-watch interview — a great example of Alibaba’s seemingly regenerative business model in service to its network partners rather than extracting from them, and a sharp contrast to Amazon’s model, as Ma explains).  But the “inclusive capitalism” talk included little honest analysis of the root cause of this stunning collapse in trust, why it is so dangerous (the rise in extreme forms of authoritarian populism rooted in emotion more than evidence and its unpredictable path), and what if anything can be done about it at this late date.  Nobel Economist Joseph Stiglitz wrote a prescient piece on this topic in 2013, and called for strong regulation and bold regulators to enforce the laws.  Clearly, we have failed.  And without a culture that not only values trust but demands it, I am not optimistic about better regulation and stricter enforcement.

    The decline in trust pervades all four institutions studied in the Edelman survey. Unfortunately, Edelman did not single out finance and report on it separately from business.  Surely few would doubt that the finance sector (Wall Street mega banks, in particular) would rank at the bottom of the trust barometer within the business category.  In fact, research confirms that bankers are more likely to cheat than the rest of us. (As a former banker, this is upsetting to me!)

    Nothing defines banking’s breach of public trust better than the 2008 financial collapse.  Being told to move on, It is easy to forget how much of the world’s current social and economic woes can be traced to the financial bubble and subsequent 2008 systemic collapse, either directly or indirectly.

    Recall that the financial collapse destroyed $19 trillion of economic value in the U.S. alone, permanently destroying the economic security of millions of families across America.  An estimated 34 million jobs were destroyed globally in the process.

    The rise of today’s dangerous brand of authoritarian populism—manifesting first in Brexit and now Trump—is directly connected to Wall Street’s breach of trust.  It’s not just because of “globalization” or “technology” taking our jobs as if it were all inevitable.  We cannot forget that compounding and exacerbating these legitimate and complex challenges, and more (climate change-induced drought driving immigration, linked to the Syrian carnage comes to mind) was the willful act of dropping a bomb into an already vulnerable society.  The Goldman Sachs/John Paulson Abacus trade was the Hiroshima of modern financial history.

    The mortgage fiasco was a massive, reckless act of violence, perpetrated upon global society by an industry failing in its critical purpose while instead proving itself willing to do just about anything to make grotesque profits through fraud and egregious deceit.  The efficient market narrative of bringing home ownership to the masses was all a cynical cover.  And the industry’s ongoing fraudulent activities post the crisis, from the LIBOR scandal to FX price rigging, to wrongful foreclosure with robo-signers to Wells Fargo’s opening millions of fake accounts out of its “community banking” division of all places (where the do-gooders are supposed to work), sealed the fate of the industry as devoid of trust for some time to come, unfair as that may be for the many honest bankers out there.

    Blaming populism on bankers’ unparalleled breach of trust is a strong claim.  But think about it:

    Less speculative finance, less speculative real estate lending.  Less boom created from unsustainable misallocation of human, physical, and financial capital to speculative real estate. Less wasted carbon in the atmosphere and less farmland destroyed, exacerbating the drought-driven migrations.  Less unearned wealth for bankers and less resulting inequality, and less power for the sector to rig the rules, buy off and brainwash the politicians and even regulators, resulting in asymmetric risks only the opportunist bankers truly understood.  (Trump once referred to the bankers—now his advisors—as “killers” on the campaign trail, and he’s had to cross them more than once, so he knows).   Less demand on the public sector to socialize the losses to “save the system” and therefore less public debt and no need for the misguided austerity driving society further into despair.  That means more resources available to address the consequences of globalization and automation, and greater acceleration of investment into the transition to renewable energy and into rebuilding our aging yet vital infrastructure.  More assets channeled into education, perhaps even into the revival of civics classes!  We know how this narrative continues.  We know it does not end with the election of a fraud to the most powerful office in the land.

    Donald Trump, whose ethics seem guided by the probability of winning lawsuits, is about as unlikely a remedy for broken societal trust as one can imagine, as his hopeful supporters are sadly about to learn.  Coal is not coming back, sorry.  So the consequences of lost trust will only amplify in dangerous and unpredictable ways that now stunningly include the Orwellian introduction of “alternative facts” into the Trump Administration’s everyday narrative.

    The so-called “activist investor” Carl Icahn is Trump’s fellow bully buddy and now Special Advisor on Regulatory Reform.  He has defended the need for Dodd-Frank banking reform in the past and held the banks responsible for the financial crisis in public statements.  That is a testament to his common sense and refreshing objectivity as a Wall Street insider.  Time will tell whether a man who has spent half a century as an opportunist (bully) stock speculator can come to see that an ideology that conflates speculation with investment and means (finance and the stock market) with ends (a healthy economy) can guide us to a more enlightened and still desperately needed financial system reform and begin the long process of rebuilding trust in Wall Street, and in the process within society.

    Not holding my breath.

  • Capital Institute’s “Dog Days of Summer” Reading List

    August 15th, 2014 by designburd

     

    Summer Reading List

     

     

     

     

     

     

    Are you looking for summer reading recommendations? We humbly suggest looking back on these recent posts from John Fullerton’s Future of Finance blog – we’re calling them our “greatest hits” based on how many visits, comments and syndications they received. They are all rooted in our core belief that finance is inextricably linked to the environmental and social crises we face.

    Posts on Carbon & Climate’s Connection to Capital:

    1. Harvard and Brown Fail Moral Leadership Exam
    2. The Big Choice
    3. Beyond Divestment

    Posts on the Unfinished Business of Financial Reform:

    1. The Six Root Causes of the Financial Crisis
    2. What JPMorgan’s Recently Released Internal Reports Unintentionally Say
    3. Why We Need a Financial Transactions Tax

  • High-Frequency Trading is a Blight on Markets. Tobin Tax Can Help.

    April 4th, 2014 by John Fullerton

    This blog post previously ran in The Guardian’s Business section.

    A tax on financial transactions can calm the frenzy of speculation fuelled by computer-driven >> Read more

  • Can We Escape Bank Regulation by Lawsuit?

    February 10th, 2014 by John Fullerton

    When I worked at JPMorgan in the 80s and 90s, even in the context of deregulation, the concept of “self-regulation” in the financial industry was discussed with a straight face.

    Last week, Better Markets, a sophisticated civil society non-profit organization, run by former Skadden attorney Dennis Kelleher and committed to protecting the public interest in the >> Read more

  • 6 Reasons Why Stock Markets Are No Longer Fit For Purpose

    October 21st, 2013 by John Fullerton

    Another version of this post ran earlier today on The Guardian’s Sustainable Business Blog.

    6 Reasons Why Stock Markets Are No Longer Fit For Purpose: >> Read more

  • Are We Not All Jasmines Now?

    August 20th, 2013 by John Fullerton

    What is it about a Woody Allen film that leaves us always with a discomforting feeling of identification with its most abysmal character? This is certainly true with his latest film “Blue Jasmine,” which initially disappointed me, Kate Blanchett’s hauntingly brilliant performance notwithstanding. But given a little more time and reflection, its deeply disquieting meaning >> Read more

  • What JPMorgan’s Recently Released Internal Reports Unintentionally Say

    February 4th, 2013 by John Fullerton

    After apologizing at Davos – but only to his shareholders – according to William Cohan on the Bloomberg View, the JPMorgan Chairman and CEO hastened to add about 2012, “We did have record profits. Life goes on.”

    It is true; JPMorgan reported a strong financial performance in 2012, “London Whale” trading fiasco notwithstanding. I must admit that despite my 18 >> Read more

  • Of Guns, Whales, Freedom, and Justice

    January 14th, 2013 by John Fullerton

    After visiting an awe-inspiring women’s empowerment program at work in several rural villages north of Delhi, our host at the Ashram, scanning his Blackberry, related the news: a horrific shooting…assault rifle…children slaughtered…in a school…in Connecticut (my son’s school is in the state)…and then after what seemed like an endless pause as I >> Read more

  • Of Ina and Ahab

    October 10th, 2012 by John Fullerton

    In her New York Times Magazine cover story on the fall of the well-regarded Ina Drew titled “Swallowed by the London Whale,” Susan Dominus ends the article quoting Drew’s former colleague who recently lamented with Drew: “You know, Ina, sometimes I think I’d give my right arm to return to those (good ol’) days at Chemical (Bank), you know? >> Read more

  • Global Financial Crisis: How Many Wake-Up Calls Do We Need?

    June 25th, 2012 by Raj Thamotheram

    This post was cross-posted from Responsible-Investor.com.

    There is an old Arab saying which goes something like this: if your tent in the middle of the desert is hit by lightning, don’t worry, it will never happen again. If your tent is hit twice, then move it! Four years on since the >> Read more

  • Is Jamie Dimon’s Business First Class?

    June 18th, 2012 by John Fullerton

    JPMorgan CEO Jamie Dimon will today, once again, stand before the authors of Dodd-Frank and attempt to make the case for why a $2 billion trading loss was a stupid mistake, not a willful breach of at least the intent of the law. Our representatives who wrote the law should hold him to the standards set by JPMorgan’s own Code of Conduct: following the spirit and intent, not just the >> Read more

  • Is There a Case for Public Banking in America?

    April 30th, 2012 by John Fullerton

    Last week I participated in the inaugural Public Banking Institute conference in Philadelphia – not a coincidence, freedom from tyranny of the banks underscored the program. When I first learned of this idea of state-owned banks as a solution to our economic challenges, I was a real skeptic. Just what we need, our government >> Read more