Moral hazards
Have you ever wondered how it is that, in cartoons, mice are always cute and cuddly and sweet and natural recipients of our sympathy and cats are mean and vicious and dastardly? And this while in real life mice are dirty pests that cause us anxiety when we find them in our own homes and invariably lead to measures aimed at killing them, while many of us welcome cats into our homes and shower affection and love on them?
Personally, I blame Disney for this wild disconnect.
I don’t know if this is still true (it doesn’t seem to be, as far as I can see anyway), but it used to be back in the 1960s and 1970s right-thinking, progressively minded young student types (like myself) considered Disney, well, evil. Exhibit A in the indictment was the fact that it was a corporation. Exhibit B was that it was large. Case closed. Moreover, it was seen to be pushing tradition (read conservative, no make that reactionary) values in its family-oriented entertainment. Moreover, it was seen as inauthentic and anti-environment because everything it built seemed to be built out of (cue the soundtrack of The Graduate) plastic. Moreover, it was easy to cite apparent examples of perpetuating sexist (Cinderella) and racial (Song of the South) stereotypes in Disney movies. The nail in its political coffin was the fact that, back in those days, Disney was trying to develop a pristine bit of the Sierra Nevada into a major ski holiday destination. Yep, Disney was evil.
Given that backstory, it seems a bit ironic to look back now and realize that Disney and other similar studios may have done more than any other institutions to nurture and grow leftism in American politics. But they did not do this by spurring outrage to their right-wing ways. For years they have been indoctrinating children with the very values that are supposedly anathema to large corporations.
Think about it. Think about all the Disney movies you have seen over the years. Did you ever see one where, say, a deer was anything but sentient and noble and completely deserving of our empathy and affection? (I’ll help you out here: Bambi.) And did you ever see a Disney movie where hunters were anything but evil? Hello? Gun control anybody? Indeed, from animated epics to those old nature films that used to be shown in classrooms, did you ever see a Disney flick that did not make animals seem as our equals or superiors? Hello? PETA membership anyone?
And I’m not just talking about the animal world. When a screenwriter needs to cast a human being as an evil villain, what profession do they go for? Besides hunters, I mean. Usually, it’s a developer. Or else it’s a businessman, like the character played by Robert Downey Jr. in the 2006 remake of The Shaggy Dog. His Dr. Kozak can best be described as an entrepreneur. He was trying to cash in by developing a youth serum from his macabre genetic experiments on poor, innocent animals of all stripes. And, if you need a character to be a cold fish and bad father, well, the obvious choice is a banker. Case in point: the classic Mary Poppins, in which bankers in general are shown to be stuffy old codgers in high-backed chairs in dark boardrooms with no sense of value for anything other than money and more money. If Disney wonders what happened after it has been nationalized by a future socialist government supported by generations of former children weaned on Disney movies, it will have only itself to blame.
Now, we all know that the stories in these movies are fantasies, and the villains are generally caricatures. And yet these stereotypes do stick in our minds. The bottom line is that our popular TV and movie entertainments have probably done more to undermine our respect for people in business and finance than any other factor in our daily lives. But are these screen stereotypes unfair to people who rise to positions of influence in the financial world? Or is there some truth in them? People who think financial titans deserve to be caricatured certainly must feel vindicated after the events of the past week, during which the whole U.S. financial system seems to have gone ka-blooey as a result of incredibly idiotic behavior on the part of executives, investors and bankers. But are they right or has the recent news coverage been simply one more example of the media (and politicians) seeing complex matters through the prism of well worn movie stereotypes? (These stereotypes are something I discussed here four and a half years ago.)
The first clue in answering this question is to look at the catch phrases that keep getting repeated by politicians, analysts and pundits. Phrases like “Wall Street versus Main Street” and “unbridle greed.” Politicians on both sides make sweeping moral judgments impugning the moral character of vast numbers of people who work in the lending and financial industries. But the problem with that is this. When you have a fixed number of identified individuals doing something illegal (e.g. Enron), then you can call those people “bad.” When you are talking about behavior engaged in by thousands, if not millions of people, then you have an anthropological phenomenon and you need to understand it, so that it can be corrected.
The causes of the current crisis seem easy enough (at least for me) to discern: Too much cheap money over too much time (so much for your vaunted infallibility, Alan Greenspan) and two giant government-created mortgage companies that had too little accountability (thanks again, Congress). So what’s the solution? The shrill voices decrying the climate of deregulation conveniently overlook one major salient fact. A major piece of legislation (called the Sarbanes-Oxley Act) was enacted just six years ago in response to a number of financial scandals, including the Enron one. Not only has it now been shown to have done nothing to prevent the current crisis, it has almost certainly made things worse, by denying tools that might have allowed the markets to correct themselves. So, given Congress’s track record in this area, more regulations may not necessarily be a silver bullet.
The administration’s plan for the government to buy up all the junk debt is one way to go. But the problem is that there is no realistic way to value the junk debt, ensuring that the taxpayers will most likely overpay and people who made bad decisions will get rewarded and have no incentive not to do it again. There is probably a better, simpler way to deal with it that almost certainly will not get proposed by anybody with any influence. You may not want to consider it either when you hear who else is talking about it (mainly conservative types like Newt Gingrich). The idea is simply to eliminate the capital gains tax. At least for a while or at least as applied to the junk debt.
In one fell swoop, investor money that has been waiting on the sidelines (both domestically and abroad) will suddenly flow into the loan market because now the risk would be offset by a greater potential reward. Yes, this would cost the government a huge amount in lost revenues, but probably not as much as buying all the loans itself. Besides, there is an additional cost to us ordinary people from the proposed government buyout beyond any tax increases that may have to occur to pay for it. That much government expenditure will fuel inflation and make everyone’s dollars worth less. A capital gains tax moratorium would generate new wealth to cover the problem rather than cannibalizing existing wealth. And because the markets would still be functioning, people out in the real world who contributed to the problem would be more likely to get punished rather than rewarded. But this solution will not happen. On one hand, the financial people who sing the praises of the free market are only human and want the easy resolution of a government bailout. On the other hand, politicians by their nature cannot see solutions to problems that do not involve giving themselves more control.
Okay, so back to the original question (before I veered into financial punditry): are the movie stereotypes of bankers and financiers fair? Clearly, they are not, at least in the case of most individuals. And what about movie stereotypes of politicians in general and members of Congress in particular? If anything, they are way too kind.
-S.L., 25 September 2008
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