Reputation? Who Cares? No Consequences For Criminal Behavior: Who Owns The World? Goldman Sach No Longer Cares To Converse (They Know)

Honestly, folks. If you think the era of accountability isn't long over (and are not outraged about it), you just haven't been paying attention. What this lack of consequences means is that these people didn't do anything wrong (for the people whose personal interests they serve), they just got caught. This is essentially the meaning of our time in history. (Emphasis marks and some editing changes were inserted - Ed.)

Wednesday, April 27, 2011 Goldman Sachs's Reputation No Longer Matters It does not matter whether Goldman Sachs has a good reputation or a bad reputation, even when GS pays lip service to improving its management techniques. Steven M. Davidoff - DealBook, has interesting things to say about reputations and big companies. When a man's reputation receives a pounding because of ill-conceived actions, he is merely put in charge of another large company! Technology has helped create ever larger institutions which have become inhumane, without compassion or pity, not concerned with the people who suffered greatly because of the actions of banks like Goldman Sachs that led to the financial meltdown. As Wall St. Firms Grow, Their Reputations Are Dying Reputation is dead on Wall Street. This is not to say that financiers and financial institutions still do not commit foolish misdeeds. Rather, so long as the authorities do not find law-breaking, the penalties are few. The list of examples is long. Former directors of Lehman Brothers and Bear Stearns still serve on the boards of public companies, and one, Jerry A. Grundhofer, a former director of Lehman, is on the Citigroup board. Traders responsible for disastrous mortgage bets have easily found lucrative jobs in finance. Or take Daniel H. Mudd, who not long after being ousted as chief executive of Fannie Mae was named chief executive of the Fortress Investment Group. At Fortress, Mr. Mudd has been paid a salary and stock options worth more than $30 million in the last two years. This was despite the failure of Fannie Mae while he was at the helm, an event that wiped out almost all shareholder value and has cost the federal government more than $90 billion. And Wall Street itself seems to be bearing little pain. Sure, the banks have been flogged in Congress and are subject to the Dodd-Frank Act, but it does not seem that their financial clients are avoiding doing business with them. This includes Goldman Sachs, which has been pilloried for ostensibly taking short positions against its own clients. It was not always the case. During the Great Depression, Goldman Sachs was caught up in a scandal involving the Goldman Sachs Trading Corporation. The taint of the scandal drove away business for more than a decade and made the firm extremely focused on reputation. Today, both people and institutions seem to bear no penalty for their actions. They are rewarded. Why does reputation no longer matter? The reason is unfortunate and partly attributable to why we got into the financial crisis. People simply don’t matter as much on Wall Street as they used to. Instead size and technology carry the day. Today’s Wall Street is not the Wall Street of 1907 when J.P. Morgan single-handedly used his reputation and wallet to stem a running financial panic. Until the 1980s, as William J. Wilhelm Jr. and Alan D. Morrison document in their excellent book, “Investment Banking: Institutions, Politics, and Law” (Oxford University Press; 2007), Wall Street was made up of traditional partnerships. These were small groups of investment bankers who represented companies in offering and selling securities and occasionally acquisitions. These bankers put their individual reputations on the line, because there were so few of them. Morgan Stanley, for example, had only 31 partners in 1970 and fewer than 1,000 employees. But this began to change in the 1980s. Trading markets became much more sophisticated, and trading and brokerage became the investment banks’ primary business. This is a technology game. The better the technology, the better the trading and brokerage operation. Individuals became less important. The growth of more complex capital markets and a global economy also created much larger financial institutions. Morgan Stanley now has more than 62,000 employees. These banks could use their assets and position to compete in the market for finance and trading. Again, individuals were less important as size dominated. A client now trades or does business with a bank based on its positions or ability to make a market or loan. The executive at the bank executing the transaction is unimportant. These trends have become omnipresent in corporate America generally as it too has exponentially grown. And when these companies failed or otherwise committed a wrongdoing, their size allowed their reputation to be ignored. After all, it wasn’t the executive’s fault that the bad event happened. It was just the economy or other external factors. No doubt this plays a part in the vibrant market for chief executives who have been terminated. Bob Nardelli, for example, who as chief executive of Home Depot presided over a stagnant stock price but collected more than $200 million in pay and severance, soon found gainful employment at Chrysler, which later went into bankruptcy. He still works for the private equity firm Cerberus Capital Management. The clubby nature of the executive suite also contributes to reputation’s decline. Directors and officers socialize together, work together and are much more willing to disregard individual failures because, after all, they are friends. Mark Hurd’s quick hiring at Oracle after his firing at Hewlett-Packard is perhaps an example. This is all exacerbated by a perverse consequence of financial institution bigness. While individuals generally matter less, the enormous size of these companies makes the few people at the top appear to be of outsize importance. Think of Jamie Dimon at JPMorgan Chase. And because they are so important, any failings must be overlooked. All of this means that reputation is not much of a factor in corporate America. This creates problems. In the absence of reputation, the government and regulators act as substitutes to ensure appropriate conduct. The government becomes the enforcer through civil and criminal actions for law-breaking. So what you get is more law to cover for lost reputation. Those who criticize the Dodd-Frank Act for its 2,000-plus pages should realize that this is partly a consequence of the death of reputation on Wall Street. There not only needs to be more law, but also a will to prosecute. As has been noted by many, financial crisis prosecutions are few. But there may be no financial prosecutions because there is no law-breaking. It is here where reputation is still needed. Reputation is an important enforcement mechanism. Reputational sanctions ensure people act appropriately and fill the gap between poor or unethical conduct and law-breaking. It ensures that people are penalized for their mistakes and inappropriate behavior. It is the most important of oils that ensures that the capital markets work. But in the wake of the financial crisis, cynicism rules. Reputation is ignored, and we have a much diminished financial system as a consequence.

(Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.)

Do these guys own the world? No, probably not, although they certainly act as if they do. The guys who own the world merely use them for fundraising (and money laundering). And they never get out of line. The guys who really own it (currently)? These guys have been in charge of an entirely new type of "modern" nation state for quite some time (since the early 80's) and will continue to own it if overwhelming military power and lack of insight by resident populations affects outcomes at all. Check it out. (Emphasis marks added - Ed.)

The U.S. and its Western allies are sure to do whatever they can to prevent authentic democracy in the Arab world. To understand why, it is only necessary to look at the studies of Arab opinion conducted by U.S. polling agencies. Though barely reported, they are certainly known to planners. They reveal that by overwhelming majorities, Arabs regard the U.S. and Israel as the major threats they face: the U.S. is so regarded by 90% of Egyptians, in the region generally by over 75%. Some Arabs regard Iran as a threat: 10%. Opposition to U.S. policy is so strong that a majority believes that security would be improved if Iran had nuclear weapons - in Egypt, 80%. Other figures are similar. If public opinion were to influence policy, the U.S. not only would not control the region, but would be expelled from it, along with its allies, undermining fundamental principles of global dominance.

Certainly some thoughts to entertain as we descend into the swamp.

Who Owns The World? The Contours of Global Order Noam Chomsky April 21, 2011 "Tom Dispatch" - The democracy uprising in the Arab world has been a spectacular display of courage, dedication, and commitment by popular forces - coinciding, fortuitously, with a remarkable uprising of tens of thousands in support of working people and democracy in Madison, Wisconsin, and other U.S. cities. If the trajectories of revolt in Cairo and Madison intersected, however, they were headed in opposite directions: in Cairo toward gaining elementary rights denied by the dictatorship, in Madison towards defending rights that had been won in long and hard struggles and are now under severe attack.

Each is a microcosm of tendencies in global society, following varied courses. There are sure to be far-reaching consequences of what is taking place both in the decaying industrial heartland of the richest and most powerful country in human history, and in what President Dwight Eisenhower called "the most strategically important area in the world" - "a stupendous source of strategic power" and "probably the richest economic prize in the world in the field of foreign investment," in the words of the State Department in the 1940s, a prize that the U.S. intended to keep for itself and its allies in the unfolding New World Order of that day. Despite all the changes since, there is every reason to suppose that today's policy-makers basically adhere to the judgment of President Franklin Delano Roosevelt’s influential advisor A.A. Berle that control of the incomparable energy reserves of the Middle East would yield "substantial control of the world." And correspondingly, that loss of control would threaten the project of global dominance that was clearly articulated during World War II, and that has been sustained in the face of major changes in world order since that day. From the outset of the war in 1939, Washington anticipated that it would end with the U.S. in a position of overwhelming power. High-level State Department officials and foreign policy specialists met through the wartime years to lay out plans for the postwar world. They delineated a "Grand Area" that the U.S. was to dominate, including the Western hemisphere, the Far East, and the former British empire, with its Middle East energy resources. As Russia began to grind down Nazi armies after Stalingrad, Grand Area goals extended to as much of Eurasia as possible, at least its economic core in Western Europe. Within the Grand Area, the U.S. would maintain "unquestioned power," with "military and economic supremacy," while ensuring the "limitation of any exercise of sovereignty" by states that might interfere with its global designs. The careful wartime plans were soon implemented.

It was always recognized that Europe might choose to follow an independent course. NATO was partially intended to counter this threat. As soon as the official pretext for NATO dissolved in 1989, NATO was expanded to the East in violation of verbal pledges to Soviet leader Mikhail Gorbachev. It has since become a U.S.-run intervention force, with far-ranging scope, spelled out by NATO Secretary-General Jaap de Hoop Scheffer, who informed a NATO conference that "NATO troops have to guard pipelines that transport oil and gas that is directed for the West," and more generally to protect sea routes used by tankers and other "crucial infrastructure" of the energy system.

Grand Area doctrines clearly license military intervention at will. That conclusion was articulated clearly by the Clinton administration, which declared that the U.S. has the right to use military force to ensure "uninhibited access to key markets, energy supplies, and strategic resources," and must maintain huge military forces "forward deployed" in Europe and Asia "in order to shape people's opinions about us" and "to shape events that will affect our livelihood and our security."

The same principles governed the invasion of Iraq. As the U.S. failure to impose its will in Iraq was becoming unmistakable, the actual goals of the invasion could no longer be concealed behind pretty rhetoric. In November 2007, the White House issued a Declaration of Principles demanding that U.S. forces must remain indefinitely in Iraq and committing Iraq to privilege American investors. Two months later, President Bush informed Congress that he would reject legislation that might limit the permanent stationing of U.S. Armed Forces in Iraq or "United States control of the oil resources of Iraq" - demands that the U.S. had to abandon shortly after in the face of Iraqi resistance.

In Tunisia and Egypt, the recent popular uprisings have won impressive victories, but as the Carnegie Endowment reported, while names have changed, the regimes remain: "A change in ruling elites and system of governance is still a distant goal." The report discusses internal barriers to democracy, but ignores the external ones, which as always are significant.

The U.S. and its Western allies are sure to do whatever they can to prevent authentic democracy in the Arab world. To understand why, it is only necessary to look at the studies of Arab opinion conducted by U.S. polling agencies. Though barely reported, they are certainly known to planners. They reveal that by overwhelming majorities, Arabs regard the U.S. and Israel as the major threats they face: the U.S. is so regarded by 90% of Egyptians, in the region generally by over 75%. Some Arabs regard Iran as a threat: 10%. Opposition to U.S. policy is so strong that a majority believes that security would be improved if Iran had nuclear weapons - in Egypt, 80%. Other figures are similar. If public opinion were to influence policy, the U.S. not only would not control the region, but would be expelled from it, along with its allies, undermining fundamental principles of global dominance.

The Invisible Hand of Power

Support for democracy is the province of ideologists and propagandists. In the real world, elite dislike of democracy is the norm. The evidence is overwhelming that democracy is supported insofar as it contributes to social and economic objectives, a conclusion reluctantly conceded by the more serious scholarship.

Elite contempt for democracy was revealed dramatically in the reaction to the WikiLeaks exposures. Those that received most attention, with euphoric commentary, were cables reporting that Arabs support the U.S. stand on Iran. The reference was to the ruling dictators. The attitudes of the public were unmentioned. The guiding principle was articulated clearly by Carnegie Endowment Middle East specialist Marwan Muasher, formerly a high official of the Jordanian government: "There is nothing wrong, everything is under control." In short, if the dictators support us, what else could matter?

The Muasher doctrine is rational and venerable. To mention just one case that is highly relevant today, in internal discussion in 1958, president Eisenhower expressed concern about "the campaign of hatred" against us in the Arab world, not by governments, but by the people. The National Security Council (NSC) explained that there is a perception in the Arab world that the U.S. supports dictatorships and blocks democracy and development so as to ensure control over the resources of the region. Furthermore, the perception is basically accurate, the NSC concluded, and that is what we should be doing, relying on the Muasher doctrine. Pentagon studies conducted after 9/11 confirmed that the same holds today.

It is normal for the victors to consign history to the trash can, and for victims to take it seriously. Perhaps a few brief observations on this important matter may be useful. Today is not the first occasion when Egypt and the U.S. are facing similar problems, and moving in opposite directions. That was also true in the early nineteenth century.

Economic historians have argued that Egypt was well-placed to undertake rapid economic development at the same time that the U.S. was. Both had rich agriculture, including cotton, the fuel of the early industrial revolution - though unlike Egypt, the U.S. had to develop cotton production and a work force by conquest, extermination, and slavery, with consequences that are evident right now in the reservations for the survivors and the prisons that have rapidly expanded since the Reagan years to house the superfluous population left by deindustrialization.

One fundamental difference was that the U.S. had gained independence and was therefore free to ignore the prescriptions of economic theory, delivered at the time by Adam Smith in terms rather like those preached to developing societies today. Smith urged the liberated colonies to produce primary products for export and to import superior British manufactures, and certainly not to attempt to monopolize crucial goods, particularly cotton. Any other path, Smith warned, "would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness."

Having gained their independence, the colonies were free to ignore his advice and to follow England's course of independent state-guided development, with high tariffs to protect industry from British exports, first textiles, later steel and others, and to adopt numerous other devices to accelerate industrial development. The independent Republic also sought to gain a monopoly of cotton so as to "place all other nations at our feet," particularly the British enemy, as the Jacksonian presidents announced when conquering Texas and half of Mexico.

For Egypt, a comparable course was barred by British power. Lord Palmerston declared that "no ideas of fairness [toward Egypt] ought to stand in the way of such great and paramount interests" of Britain as preserving its economic and political hegemony, expressing his "hate" for the "ignorant barbarian" Muhammed Ali who dared to seek an independent course, and deploying Britain's fleet and financial power to terminate Egypt's quest for independence and economic development.

After World War II, when the U.S. displaced Britain as global hegemon, Washington adopted the same stand, making it clear that the U.S. would provide no aid to Egypt unless it adhered to the standard rules for the weak - which the U.S. continued to violate, imposing high tariffs to bar Egyptian cotton and causing a debilitating dollar shortage. The usual interpretation of market principles.

It is small wonder that the "campaign of hatred" against the U.S. that concerned Eisenhower was based on the recognition that the U.S. supports dictators and blocks democracy and development, as do its allies.

In Adam Smith's defense, it should be added that he recognized what would happen if Britain followed the rules of sound economics, now called "neoliberalism." He warned that if British manufacturers, merchants, and investors turned abroad, they might profit but England would suffer. But he felt that they would be guided by a home bias, so as if by an invisible hand England would be spared the ravages of economic rationality.

The passage is hard to miss. It is the one occurrence of the famous phrase "invisible hand" in The Wealth of Nations. The other leading founder of classical economics, David Ricardo, drew similar conclusions, hoping that home bias would lead men of property to "be satisfied with the low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations," feelings that, he added, "I should be sorry to see weakened." Their predictions aside, the instincts of the classical economists were sound.

. . . Grand Area doctrines continue to apply to contemporary crises and confrontations. In Western policy-making circles and political commentary the Iranian threat is considered to pose the greatest danger to world order and hence must be the primary focus of U.S. foreign policy, with Europe trailing along politely.

What exactly is the Iranian threat? An authoritative answer is provided by the Pentagon and U.S. intelligence. Reporting on global security last year, they make it clear that the threat is not military. Iran's military spending is "relatively low compared to the rest of the region," they conclude. Its military doctrine is strictly "defensive, designed to slow an invasion and force a diplomatic solution to hostilities." Iran has only "a limited capability to project force beyond its borders." With regard to the nuclear option, "Iran's nuclear program and its willingness to keep open the possibility of developing nuclear weapons is a central part of its deterrent strategy." All quotes.

The brutal clerical regime is doubtless a threat to its own people, though it hardly outranks U.S. allies in that regard. But the threat lies elsewhere, and is ominous indeed. One element is Iran's potential deterrent capacity, an illegitimate exercise of sovereignty that might interfere with U.S. freedom of action in the region. It is glaringly obvious why Iran would seek a deterrent capacity; a look at the military bases and nuclear forces in the region suffices to explain.

Seven years ago, Israeli military historian Martin van Creveld wrote that "The world has witnessed how the United States attacked Iraq for, as it turned out, no reason at all. Had the Iranians not tried to build nuclear weapons, they would be crazy," particularly when they are under constant threat of attack in violation of the UN Charter. Whether they are doing so remains an open question, but perhaps so.

But Iran's threat goes beyond deterrence. It is also seeking to expand its influence in neighboring countries, the Pentagon and U.S. intelligence emphasize, and in this way to "destabilize" the region (in the technical terms of foreign policy discourse). The U.S. invasion and military occupation of Iran's neighbors is "stabilization." Iran's efforts to extend its influence to them are "destabilization," hence plainly illegitimate.

Such usage is routine. Thus the prominent foreign policy analyst James Chace was properly using the term "stability" in its technical sense when he explained that in order to achieve "stability" in Chile it was necessary to "destabilize" the country (by overthrowing the elected government of Salvador Allende and installing the dictatorship of General Augusto Pinochet). Other concerns about Iran are equally interesting to explore, but perhaps this is enough to reveal the guiding principles and their status in imperial culture. As Franklin Delano Roosevelt’s planners emphasized at the dawn of the contemporary world system, the U.S. cannot tolerate "any exercise of sovereignty" that interferes with its global designs.

(Noam Chomsky is Institute Professor emeritus in the MIT Department of Linguistics and Philosophy. He is the author of numerous best-selling political works. His latest books are a new edition of Power and Terror, The Essential Chomsky (edited by Anthony Arnove), a collection of his writings on politics and on language from the 1950s to the present, Gaza in Crisis, with Ilan Pappé, and Hopes and Prospects, also available as an audiobook. This piece is adapted from a talk given in Amsterdam in March.)

Please read on for the rest of the story. What's for brunch? How about Ashley's Italian Torte?

I'm hungry!

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