Hat tip to Felix Salmon for invoking this old fable of Aesop’s:
The story is about a scorpion asking a frog to carry him across a river. The frog is afraid of being stung, but the scorpion reassures him that if it stung the frog, the frog would sink and the scorpion would drown as well. The frog then agrees; nevertheless, in mid-river, the scorpion stings him, dooming the two of them. When asked why, the scorpion explains, “I’m a scorpion; it’s my nature.” [Wikipedia]
So what do you guess the big U.S. banks are going to do with all that money they got to ‘stay afloat’? The Washington Post’s Steven Pearlstein doesn’t give us much hope (via Kedrosky):
After getting their closed-door briefing yesterday from Paulson on the government’s latest initiatives, Wall Street’s finest literally ran from the Treasury to their waiting limousines, bypassing a media scrum eager to convey any scrap of wisdom or insight.
Court reporters will tell you they can always tell the innocent from the guilty on these kinds of perp walks, and the Wall Street crowd yesterday looked particularly guilty… Their silence and invisibility throughout this crisis attests to the moral and political bankruptcy of a financial elite that is the perfect match for the financial bankruptcy they have now visited upon their investors, their creditors and their customers.
But what could they have said?
If Wall Street were truly serious about convincing Main Street that we’re all in this together, its top executives would have stepped before the cameras yesterday and promised not to cut lines of credits to long-standing business customers who have never missed a payment.
They would have committed themselves not to foreclose on any homeowner who is willing and able to refinance into a new, government-guaranteed, fixed-rate mortgage set at 85 percent of the current value of the property.
They would have offered to suspend dividend payments until capital levels had been restored to pre-crisis levels.
They would have given us their solemn promise not to advise clients to hold on to their own investments while quietly dumping whatever they can from their own portfolios and shorting every security in sight.
With the Treasury now desperate for help in managing its new rescue efforts, they would have volunteered, at no cost to taxpayers, the services of some of those investment bankers and financial wizards who now don’t have much else to do.
And the maharajas of finance could have set a wonderful example if they had all gotten together and agreed to work for a dollar a year until the crisis has passed.
But that, I am afraid, is “not in their nature.” Some might look at Pearlstein’s column and conclude that he has gone mad with a kind of socialist fever that’s starting to take over Washington, Main Street, Downing Street, etc.. I have the best of intentions but I wouldn’t trust anyone in this — least of all, anyone from the world of finance.
As James Surowiecki points out in his lates New Yorker column, The Trust Crunch, the system has become so model-driven and impersonal that “judgments aren’t part of their typical decision-making process. Instead, they’ve adopted a deep-seated distrust…”
He’s specifically talking about lending decisions, but the business in general is suspended in an office-holder culture (read Richard Sennett’s Culture of the New Capitalism and The Corrosion of Character) in which CEO’s responsibilities to shareholders interfere with their capacity to take more personal responsibility outside of their officially designated functions (Milton Friedman isn’t obsolete yet!).
And then there’s the prisoner’s dilemma…
Instead of griping about selfishness we need to work on reframing circumstances objectively in a way that everyone can cooperate without having to make a giant leap of faith, rely on basic trust and personal judgement. It isn’t the most romantic idea, but we don’t live in a fairy tale world.
I’d write more but I’m already late for my own job… I’ve got my own objective responsibilities interfering with my good intentions. We all do. We just have to deal with it.
