The Lessons of Philanthropy Leverage: Bloomberg, GiveWell, and Walmart

Source: givewell.org
Source: givewell.org

New Orleans  There were three pieces about philanthropy oddly found together in the New York Times recently, that though they came from surprising sources, in some instances made very interesting, and amazingly accurate, even if sometimes depressing, points.

            One was an interview with billionaire, former New York City Mayor, Michael Bloomberg, about his notions of philanthropy having given out over $3 billion already with plenty of more where that comes from.  Ironically, of all people, he was quoted telling a story about the arrogance and ignorance of wealth.  Seems a hedge fund guy cornered him behind a cactus plant a couple of years ago when he was Mayor and with a mixture of enthusiasm and intrigue told him he and his buddies would raise a billion to totally change the city’s school system over the coming couple of years, so “How about that, Mr. Mayor?”  Bloomberg seems to have said, “Great,” but also mentioned to him that the school system spent $22 billion per year in New York City.  He says he never heard from the guy again.  These guys know numbers, so the cactus schools’ conspirator could easily tell that Bloomberg was math shaming him that essentially one penny on a dollar, $220 million per year on $22 billion, was not going to be enough to leverage change.  The morale of his story:  the people through their collective contributions, otherwise known as taxes, have way more money than the richest billionaires combined.  The reminder for the rest of us, is that this is why they try so hard to use their little to leverage our lot in the direction they want to go.

            Unfortunately, that morale and lesson was presented elsewhere as a case study for how the Walmart Family Foundation has spent $1 billion over recent years to try to twist public schools in their more conservative, ideological direction.  Their spokesperson was less self-aware than Bloomberg, simply spouting a sophomoric rationality about it being better to help somebody, even if you couldn’t help everyone, rather than dealing with an honest analysis of their impact and investment.  The irony that a family that has made billions from its low price appeal to low-and-moderate income families, spends money to attempt to create elite alternatives to mass education, often in the name of minorities and the poor, was lost on him, the family, and the foundation.

            The third, and most refreshingly honest, appraisal was a piece on something called GiveWell, that had promoted a pristine kind of view of philanthropy on the premise that if they collected sufficient data on charitable organizations and their efforts, they could create trust from donors and make a difference.  Unsaid was that the premise that drives such an outfit is in equal measure a profound distrust of charities rooted in a belief that they are mismanaged and handled money and operations poorly, and a belief that data is pure and objective.  After pursuing this data-driven strategy for some years, GiveWell seems to have stepped back from its claim in making recommendations that its chosen charities are “proven, cost-effective and underfunded,” to now simply saying they are “evidence-backed, thoroughly vetted and underfunded,” recognizing that the only true reality in the work may not have been GiveWell’s initial prejudices, but the fact that the charities were underfunded.  In a refreshing piece of honesty, they seem to have even concluded that “the cost to seek the data may outweigh the benefits and that the data might not be all that reliable anyway.”  Actually organizing in more than a dozen countries, I won’t bore you with how hard it is for me to get monthly reports, much less something that would look like something to the data crunchers!

            The lessons the GiveWell boss has learned though only go so far.  He still believes that somehow more “transparency…will unlock an unbelievable amount of money if only people have trust in where it is going,” proving mainly that either his initial prejudices remain profound or that his naiveté about how much philanthropy is driven simply by tax policy rather than the desire to do good remains unblemished, even while the percentage of charitable giving by the rich continues to drop while their wealth soars to unbelievable heights.           

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Lessons from Wall Street Crash: Greed is not Good, but it is Pervasive!

New Orleans   In the small shelf of books I have on the ways and means of the Great Recession, how the crash came to occur, and what it means for the future, there is a 360 degree circle of finger pointing, blame, and shame.  As William Cowan astutely argues in How We Got the Crash Wrong in the June issue of The Atlantic, there were many more engineers on this train wreck than leverage, subprimes, and credit derivative swaps.  First on the list at the black heart of the entire system was pure and simple greed.

Cowan, a columnist for Bloomberg, spends so much space saying “I told you so” and citing friends and associates that agree with him that the story of Wall Street and banks being overleveraged was inaccurate, largely because being overleveraged is commonplace that he almost swallows what arguably is his main point about incentives.  The fact that being overleveraged was standard operating procedure year after year, decade after decade, said to me that these are very lucky gamblers playing high stakes with a dumb as a post house where they are creating the odds.  Certainly it does not seem like the way to roll.

Cowan’s best point on the real trigger for the recession is essentially that the system of individual incentives and rewards with little personal, individual risk, was so pervasive that people in the financial system were encouraged to take crazy risks regardless of the consequences since there was no real accountability for the consequences and huge rewards for the bettors.  Greed might have been good for the gamblers, as the hyper capitalists, Ayn Rand-ers assert, but once it permeated the entire system, then the prison was being run by the inmates!

At ACORN in the middle years of the first decade of the 21st century we saw this negotiating with subprime companies who relied on broker networks where people were paid based on production, giving them an incentive to fabricate loans for the quick buck, and further poisoning their cherished “risk” algorithms by creating a managerial class whose pay was also based on the production underneath them which effectively eliminated any real supervision or incentive NOT to move the good and the garbage through the so-called system.  Cowan makes the same case for Wall Street and its fund managers who no longer had their own skin in the game and every financial reason to put our skins on their wall.

Protestors hold signs and pictures of CEO Jamie Dimon as JP Morgan Chase & Co convenes its annual shareholders meeting at the bank's back-office complex in Tampa, Florida, May 15, 2012. Credit: Reuters/Brian Blanco

The story of Boaz Weinstein and his Saba hedge fund leading the charge to take down the JP Morgan “whale” and inflict $3 billion and rising in losses to the bank and its arrogant management that ran in the Times was like reading a case study from Gamblers Anonymous.  Having lost billions for Deutsche Bank, crawled back on his horse, he is on a winning streak now, but it is clear that “winter is coming.”  Greed may be a business model, but there is no credibility anywhere in Wall Street that they can regulate their own industry or that they have incentives to not make the same mistakes.

As long as compensation skyrockets, the 1% becomes more refined, and it’s all about the money, and politicians of both parties given the cost of campaigns are patsies at the feet of financiers, we have to have real government regulation, because this whole system is totally out of whack and still heading for more crashes into the wall.

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