Adair Turner, Equity, Growth, LIBOR, and British Bank Regulation

Adair Turner

New Orleans     In one of those serendipitous moments a friend in San Francisco had passed on a book for my reaction and the daily papers have been full of pictures and quotes of the author, so the first part of my flight home was easily occupied reading Adair Tuner’s Economics After the Crisis:  Objectives and Means an MIT Press publication of a series of lectures Turner did before he emerged front and center of the huge Barclays and LIBOR rate fixing scandals.  Turner of course is the chairman of the Financial Services Authority in Britain which investigated and imposed the nearly $500 Million fine on Barclays which brought the quickly spreading scandal to everyone’s attention.  Turner and his own agency are now in the crosshairs based on what they and other bank regulators knew, when they knew it, and why they didn’t do enough to stop it both in the UK and elsewhere around the world.

Reading Turner’s book, one finds him almost a welcome middle-of-the-road voice about financial markets and some of the major issues of our day, especially from the US perspective where the voices have become so shrill that there seems no compromise in sight.  Turner is for growth, but doesn’t pretend that growth is the be all and end all for our public economies.  He is dismissive of arguments that there are “free markets” or that they are capable of self-regulation.  Interestingly as a financial regulator he is skeptical about whether the financial services industry itself produces real value or is simply “distributive” and therefore increasing inequity.  In fact I looked hard at his arguments about both relative happiness and the need for more equity because from his position they could have not simply appeal but power.  Unfortunately Turner’s very middle-of-the-road stance leaves him unable to come to conclusions about some of the questions he raises, other than to clearly state in the classic two hat position of being an economist and a regulator that these are “political” and “policy” questions that society has to resolve.  He just wants the fight to be conducted on solid ground, and that’s the main contribution of his book which is less advocacy of any position in particular, but a reasoned “corrective” pushing back at more outlandish claims.

He also has a tendency to buy some pigs in a poke when they are outside his area of expertise, which is a tad dangerous as well and courts bigger trouble.  In talking about the real estate crisis in the US, which is obviously far afield of his study and research, he approvingly agrees with Raghuram Rajan’s Fault Lines and argues that the concern about

…increasing inequality in the United States, which in the American political culture could not be offset by a distributional response, led instead to the deliberately encouraged palliative of risky credit extension to lower income groups.  This explosion of sub-prime lending was a substantial contributor to the financial crisis.  Increasing inequality at the lower end of the income distribution as severe as that experienced in the United States in the last 30 years must matter a lot.

Amazingly, Turner is simply echoing the worst of the discredited right wing canards which seeks to blame the real estate collapse on community reinvestment programs and weirdly dresses up what are well documented fraudulent, unsupervised brokers at sub-prime shops where the inmates were running the financial prisons, regulators were out to lunch, good and bad loans were mashed into even riskier defaults, and so forth, almost none of which had to do with loans to lower income families, since they were broadly based in specific markets (NV, FL, CA, AZ, etc), and absolutely none of it had to do with either financial markets, governments, or anyone else using the real estate market to address inequality.  I wish!

Nonetheless from Turner’s book it was easy to see how he could have found himself in the pickle where he now sits as he faces Parliamentary questioning this week.  His inability to see the course of action from his analysis and move firmly to convert his analysis or at least sentiment into decision as head of the Financial Services Authority has put him in the meat grinder, probably deservedly.  His Agency has had a reputation for going soft on the financial institutions and handing down wrist slaps more often than real punishments, particularly when others are now looking at real criminal charges for these rouge traders who made lies of LIBOR.  The British have moved to overhaul their regulatory system and part of their fix is in fact to eliminate Turner’s Financial Services Authority completely.  Other political voices like former Exchequer chancellor George Osborne quoted in today’s Times say the regulatory system “failed spectacularly in its mission to maintain stability.”

None of this is pretty and Turner certainly was not alone in fully recognizing that banking and finance have become virtually criminal enterprises without strong and effective regulation.  Unfortunately despite his critique and his interest in great equity and fair distributions, the real story and lessons of “economics after the crisis” is that the crisis is not over until it is fixed, and there the job has hardly started and financial institutions have learned so little that Turner and others who believe that they understand the situation still seem so trapped in the overall system that they have not broken loose enough to rebuild something that truly protects national economies and all citizens.

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Jordan Flaherty’s Perspective on Contemporary Movements and Media

Jordan Flaherty

New Orleans   Jordan Flaherty in recent years has been based in New Orleans and has developed a singular, progressive voice and wide ranging critique of public affairs.  Jordan was the driving force behind “Left Turn” for some years until it ceased regular distribution.  He was the author of Floodlines which looked at post-Katrina New Orleans and events like the Jena-6 controversy in Louisiana, and more recently he acted as a producer of some shows on Al Jazeera television’s respected documentary “Fault Lines.”  As a self-described author and community organizer, Jordan was a perfect fit for the Fair Grinds Coffeehouse Dialogue series.  Jordan was offering his perspective on contemporary movements and their meaning as well as developments in the media far and wide, and many are worth sharing.

Interestingly, Jordan began his remarks with several observations about the “nonprofit industrial complex” and the debilitating and destructive impact of foundation funding in trying to use their support to direct the programs of groups on the ground and having succeeded in shaping programs of so many nonprofits who saw funders as their ultimate source of accountability.  Quoting everyone from Marcus Garvey to Ella Baker, he was making the argument essentially that too many nonprofits were allowing donors to de facto direct strategy and determine direction of their organizations and their programs.  As an example, he cited the unique storm of money into the New Orleans and Gulf Coast area in the wake of Hurricane Katrina and the paradox that virtually none of the top 25 recipients of such funds were actually located in Louisiana, so unmoored in the area even as they presented themselves as vehicles for recovery and change.    He quoted Jay-Z that “charity was a racket” binding the poor to the rich and a disaster survivor’s comment on too many nonprofits that “our misery is their job” and the disconnection and alienation that produces.  Many of these points though were preamble to Jordan’s core observation that the defining movements of the last year in Occupy or the Arab Spring were both prime examples that the “end of history” has not arrived and that change is not driven on the ground by philanthropy and the “nonprofit complex.”  No argument there.

The other major discussion in the dialogue was the state of the media.  Much moaning here in the wake of local events with the Times-Picayune as well as the problems of “aggregator” models like Huffington Post and other on-line options.  Jordan offered that Al Jazeera and several other television and web operations were offering interesting perspectives on world and US issues and the opinion that “state” funding because it was public was preferable to corporate or foundation funding in the media, but he had little enthusiasm or commitment to his own position, so no one bogged down there.

The problem was that no one could see where future support was going to come for long form, deep investigative pieces that had marked the best of journalism.  The Times-Picayune claimed that it had assigned a reporter and support for their series on incarceration recently.  The diminished capacity and interest for such efforts by papers seemed obvious yet there was no belief that a substitute or business model was available that might change the bleak picture ahead.  Correctly, Jordan argued that many of the web-based and foundation funded efforts were neither replicable, sustainable, nor distinct than what they were replacing, since many seemed to be retreading the same people, journalism models, and conventions gained from the papers they had formally served.

This part of the conversation was somewhat bleak.  Jordan and others had an analysis but no antidote and were frank about it.  There was some nostalgia and almost some wistful, unspoken romantic wish that there were sugar daddies, private or public, that might be able to solve the problem, but that fit no one’s view of what was realistic.

Conversations like these and forceful critique’s like Jordan’s are important as they keep hacking away at the hard rock of these issues, but clearly we will be digging for awhile before we find gold.

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