It’s nice to see a human take actual responsibility for something every once in a great while, so kudos, Ina Drew, for resigning from J.P. Morgan. It’s even said that the firm may come after some of the $14 million she made last year—earning, or “earning,” the median U.S. yearly wage of $50,000 in about one working day—as she was letting this fiasco unfold under her. But here’s another question. How about Jamie Dimon take responsibility and resign? No? Ridiculous? I’m well aware that the suggestion will strike most people as ridiculous. And I am here to say that the very fact that it sounds ridiculous demonstrates the sickness that we have come to accept as normal. We live in a society whose elites do everything they can to take no responsibility for anything. And that—not gay people who want to get married, not big government, and not even Wall Street greedheads per se—is what’s really wrong with this country. We really must diagnose this properly and precisely before we can fix anything.
What J.P. Morgan did is called portfolio hedging, a hedge tied not to a specific Morgan investment but to a “portfolio” of its business. Portfolio hedging is something that the Volcker Rule originally was designed to prevent, and it’s something that authors like Senator Carl Levin specifically wanted the rule to block. Dimon and other bankers did whatever it is they do—hire the right lobbyists, call the right people at the SEC—to make sure portfolio hedging was able to sneak through the cracks.
But the issue isn’t how he and J.P. Morgan gamed the system to get this little wrinkle ironed out in their favor. The issue is this question: Whatever Morgan was up to, what good was it? This is the question that too rarely gets explored. Michael Hiltzik asked it Monday in the Los Angeles Times: “If J.P. Morgan had $350 billion sitting around idle [roughly the amount caught up in this hedging], why not use it to do something that helps the economy—such as, you know, lending it to businesses? Instead, J.P. Morgan used the money to buy chips to play in the derivatives casino, which doesn’t help the economy one bit.”
I’m no expert on J.P. Morgan’s business, but I’ll hazard an educated guess that maybe there was more money to be made gambling in the derivatives casino than straightforwardly and boringly lending money to businesses. And this is our problem. The incentives for destructive behavior are far too great, and the penalties paid by those who engaged in that behavior and lost billions are far too small. Too often, not only is there no penalty at all, but in fact further reward, as in the case of CEOs who destroy American jobs or are found to have bent the law but who float away on multimillion-dollar parachutes, with written agreements with regulators in which they admit no official wrongdoing so they’re indemnified against lawsuits. And there is nothing that can be done about it—unless our elites start thinking more broadly about their responsibilities.
From banks to Bain Capital to who knows what else, whenever something happens that tears apart a community or sends some mortgages underwater, the refrain is: “Hey, their only responsibility is to their shareholders.” Well, that should not be their only responsibility. They do have responsibilities to their cities, communities, and country. It’s difficult to codify or enshrine those in law, and any slight attempt to do so today would be written off as radical. But they were once enshrined in custom, at least to a much greater degree than they are today.
We hear it all the time about banks and corporations: “Hey, their only responsibility is to their shareholders.” But that isn’t true. They also have responsibilities to their country.
We’re so many light years away from that America. No one even talks very much anymore about civic obligation or civic morality. But I think that many, even most, Americans miss it and wish we still had it. Everyone’s heart soars, liberal or conservative (at least, I hope), when we read the very occasional story about a company that could have made a lot more money sending the jobs down to Mexico but did not because the owners felt an obligation to the place where their grandfathers started the company. Those owners seem to come from another time, and in fact they do. They have somehow managed to stay rooted in a time when greed was tempered by civic morality.
But for the past 30 years or so, it’s all economics in this country, and in economics there isn’t any morality. Actually that’s not exactly right. There’s the morality of self-interest. And classical economics holds that if everyone pursues his self-interest properly, the common interest will inevitably result. Two problems: one, everyone doesn’t pursue his self-interest properly; and two, even if everyone did, the common interest would no longer result. That may have been true of the relatively simple society Adam Smith was describing, but it’s not true of today’s world by a long shot.
Politicians can’t really fix this. Yes, by all means, more regulations. They’re the only tool we the public have. But the political class can’t really tell the financial class what to do. The Republicans won’t of course, and the Democrats can try, but the financial class won’t listen. And the Democrats don’t really get it quite right anyway. The point is not to have a politician inveigh against this class, welcoming its hatred as FDR did. The point is to say that all of us, from workers to corporate titans, have to think about a sense of national purpose. I’m well aware that this sounds a little like a 1940s movie, and that the idea of corporate elites taking broader responsibility for their actions is a long shot. Well, you tell me what shorter shot exists if we want to change our culture. None. I know Dimon isn’t resigning. But maybe someday someone in his position will. And maybe they’ll actually say, “What I did wasn’t good for America.” And maybe, eventually, we’ll become a society again, not just an amalgamation of consumers.