I wanted to mention an important action that’s happening today at 5:00pm in Herald Square (34th Street and 6th Avenue) in case you are nearby and can join us.
The action is focused on raising the minimum wage. It was planned by OccuEvolve in conjunction with other Occupy groups, including Alternative Banking which made a bunch of signs this past weekend, in solidarity with the 75th Anniversary of the passing of the minimum wage law. The idea is to demand raising the minimum wage to at least 15 dollars a hour.
For a little context, here’s a chart showing the history of the U.S. Federal minimum wage since it began:
Many states have their own minimum wage laws that are either higher of lower than the federal law, and some cities have even more local minimum wages as well. Since federal law supersedes state law, I’m going to assume these guys are just behind recent increases in federal rates. Here’s a picture of the state-by-state minimum wage landscape:
I’ve never done the math on how it would be even close to possible to live on an hourly wage of $7.25 but it’s clearly not possible to, say, budget for emergencies even in the most frugal of approaches.
That general fact is embedded in this Bloomberg Businessweek article which argues that Walmart is subsidized by taxpayers and is a drag on growth. The article refers to a report put out by the Democratic staff of the U.S. House Committee on Education and the Workforce entitled The Low-Wage Drag on Our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth. It contains this excerpt:
While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized. Low wages not only harm workers and their families—they cost taxpayers.
Here’s a graphic showing which big employers are the worst culprits:
Let’s demand better tonight at 5:00pm in Herald Square.
So there’s a new podcast called Disorderly Conduct which “explores finance without a permit” and is hosted by Alexis Goldstein, whom I met through her work on Occupy the SEC, and Jesse Myerson, and activist and a writer.
I was recently a very brief guest on their “In the Weeds” feature, where I was asked to answer the question, ”What is the single best way to rein in the power of Wall Street?” in three minutes. The answers given by:
- The Other 98% organizer Nicole Carty (@nacarty),
- Salon.com contributing writer David Dayen (@ddayen),
- Americans for Financial Reform Policy Director Marcus Stanley (@MarcusMStanley), and
- Marxist militant José Martín (@sabokitty)
Occupy Finance video series
We’ve been having our Occupy Finance book club meetings every Sunday, and although our group has decided not to record them, a friend of our group and a videographer in her own right, Donatella Barbarella, has started to interview the authors and post them on YouTube. The first few interviews have made their way to the interwebs:
- Linda talking about Chapter 1: Financialization and the 99%.
- Me talking about Chapter 2: the Bailout
- Tamir talking about Chapter 3: How banks work
Doing Data Science now out!
O’Reilly is releasing the book today. I can’t wait to see a hard copy!! And when I say “hard copy,” keep in mind that all of O’Reilly’s books are soft cover.
Akshat is a member of Occupy the SEC  and came to talk to us about a short history of financial regulation, and how impressively well things worked in the middle of the last century, when Glass-Steagall was in effect and before it was gamed.
One thing he mentioned in his fascinating hour-long lecture was this lawsuit which I hadn’t heard about. Namely, Occupy the SEC sued the Federal Reserve, SEC, CFTC, OCC, FDIC and U.S. Treasury over not doing their jobs, specifically for the delay in finishing and implementing the Volcker Rule.
You see, Dodd-Frank is a law, and the Volcker Rule, which is supposed to be something like a modern Glass-Steagall act, is part of it. But the law just outlines the rules, and the regulators are supposed to actually turn that law into regulations which they then implement.
There was a deadline for that, and it has passed. So Occupy the SEC sued to make those guys get the job done.
And guess what? The judge found that they didn’t have standing to sue. I’m no lawyer but from what I can understand this means they were deemed not sufficiently relevant to the implementation of Dodd-Frank. They didn’t have enough skin in the game, in other words. Because they’re just, you know, citizens who care about having a functional regulatory environment. Not to mention taxpayers who have bailed out the banks and want to avoid continuing doing that.
That begs the question, who has skin in the regulation game? Answer: banks being regulated. So only those guys can complain to the courts about the regulation. And obviously their complaints will be different from Occupy the SEC’s complaints.
It seems like whenever I look around I see examples like this, where there are people getting away with crappy policies or even crappier deeds because it has a negative effect, but that negative effect is so dispersed that most people don’t have enough “standing” to sue or to even effectively quantify how they’ve been affected.
And I guess this is the land of class-action lawsuits, but that doesn’t seem sufficient. It really seems like there needs to be legal representation for taxpayers somehow. Who is looking out for the average non-insider? Who is keeping tabs on overall systemic risk? In an ideal world that would exist inside the regulators themselves, but we all know it’s not that ideal.
2. Which, if you don’t know, consists of an amazing and wonky group of occupiers who write public commenting letters on financial regulation. Their Volcker Rule comments have made quite an impression on regulators, but they’ve also written numerous amicus briefs on various issues as well. Keep an eye on their work on their webpage.
Sometimes my plan of getting up super early to write on my blog fails, and this is one of those days. But I’m still going to ask you to read this article from the New Yorker written by Lisa Servon and entitled, “The High Cost, For The Poor, Of Using A Bank.” Here’s a key passage, but the whole thing is amazing, and yes, I’ve invited her to my Occupy group already:
To understand why, consider loans of small amounts. People criticize payday loans for their high annual percentage rates (APR), which range from three hundred per cent to six hundred per cent. Payday lenders argue that APR is the wrong measure: the loans, they say, are designed to be repaid in as little as two weeks. Consumer advocates counter that borrowers typically take out nine of these loans each year, and end up indebted for more than half of each year.
But what alternative do low-income borrowers have? Banks have retreated from small-dollar credit, and many payday borrowers do not qualify anyway. It happens that banks offer a de-facto short-term, high-interest loan. It’s called an overdraft fee. An overdraft is essentially a short-term loan, and if it had a repayment period of seven days, the APR for a typical incident would be over five thousand per cent.
It makes me wonder whether, if someone did a careful analysis with all-in costs including time and travel, whether PayDay Lenders are not actually a totally rational choice for the poor.
Many of you have probably already received copies of Occupy Finance. Here’s my personal evidence, for which I was nearly arrested in the post office (who knew you’re not allowed to take pictures in the post office? not me.):
We’re hoping you loved your book, or if you haven’t gotten a copy yet, that you’d like to get one soon.
The thing is, we’re very nearly out of copies, and plus there was a missing page and a few other typos for which we have forgiven ourselves, since we got it out in time for September 17th, but which we were happy to fix.
Our plan, if we manage to raise enough money (hopefully $3500), is to print a few thousand more copies (hopefully 5,000) and distribute them to places like libraries and bookstores, not to mention to any people we hear of who want to read the book. We’d prefer to raise money for the printing and then give them away over selling them, since we’d like anyone who wants one to have one regardless of their financial situation.
So here’s the Indiegogo page, and I hope you’ll go take a look and send it to your friends who might be interested in contributing. It features our favorite street performer and Action Committee Head Marni, which for this campaign we refer to as our “Indie GoGo Girl”. She does a really fantastic job explaining our goals in the campaign video, located here. You may also know her as the money bunny, she’s kinda famous. She also has a law degree.
The starting donation is $10, and if you’ve already given money to our group, don’t feel like I’m asking you a second time (I don’t wanna be like that!) but just go ahead and tell your friends about us. Thanks!
Also feel free to share the shortlink on twitter or what have you: http://tinyurl.com/occfinindie
It’s almost 15 minutes long, and the first couple of minutes are concerned with the housing market, which he has strong opinions on and I don’t, but then he moves on to financial regulation, the question of accountability, municipal bankruptcies, and whether economists suck at their jobs, subjects I care about a lot.
It’s a super interesting interview, and I’m planning to mail Thornberg a copy of Occupy Finance soon. Even though he serves on the advisory board of hedge fund Paulson & Co, he agrees with lots of people who come to Alternative Banking on many issues.
A few examples of what he’s talking about for those of you without 15 minutes to spend on him.
He talks about how Dodd-Frank is collapsing in on itself through extensive watering-down and lobbying, and how negotiations over how much “skin in the game” is required around securitization is the death knell of that process.
He talks about how the overall system is under-regulated and not being made accountable. He claims that, instead of trying to draw lines in the sand, we should try to attack the skewed incentives. A lot of people got very rich doing very bad things, he says, and the continued existence of those messed-up incentives will encourage a whole new generation to do the same.
For example, bonuses shouldn’t be given on how many loans you push out into the market but how they perform. We should be able to clawback money, which is to say pull back money from someone who’s done something bad. After all, he points out, Dick Fuld and Angelo Mozilo as men who became filthy rich from doing bad things and are now “untouchable”.
He also points out that D.C. never went through a recession because of money coming in through lobbying. His top two priorities to improve our system would be:
- To simplify the tax code, both corporate and personal. There too many special interests. Get rid of complexity and make it more progressive.
- Political reform. We like to say the Chinese are “one-party state”. But are we really two-party? We have very little “choice” especially if you take into account the gerrymandering. California is doing a good job reforming here.
Next, he moves onto municipal emergencies in Detroit, Stockton, and San Bernadino. All three city bankruptcies pose the fundamental decisions: what is the sanctity of public pensions? State laws generally insist that pensions be paid.
The issue here is, says Thornberg, that federal bankruptcy laws trump, not state law. So the relevant federal judge can say “too bad” to the contract, and the pensioners will be forced to take a cut like all the other debtholders.
Lawyers in the know think pensions are gonna go, and that precedent for this kind of thing is being established in these three cities in the very near future.
The Reuters interviewer addressed the issue that, generally speaking, economists missed the oncoming crisis. Does that mean there’s something wrong with economics?
Thornberg: “Professors don’t get published writing papers about the current economy – nobody cares about that.”
He claims that, yes, economists should be more on top of day-to-day stuff, but he claims that the critique misses the broader point, which is that everyone needs to be a better economist. He claims it is a social science which tries to address why people do what they do. And although economists would like to think of it as a mathematical science, they’re wrong to do so.
His advice: don’t listen to economists on TV. Educate yourself and know your source. It’s amazing how much stock we put into economists working for, say, the National Association of Realtors who get paid to say good things like, “it’s a good time to buy and sell a house!”
The idea is for the author of each chapter to come and lead a discussion about the subject in that chapter. We expect the feedback to improve the topic and be incorporated into the 2nd edition of the book.
Where: The book club will meet from 2-3pm on the Sundays mentioned below, before the regular Alternative Banking meeting, in Room 402 or 409 of the International Affairs Building of Columbia University at Amsterdam and 118th.
Here’s the schedule:
Occupy Finance Book Club Schedule
Yesterday was pretty amazing, in spite of the fact that we realized a page was missing from the book. The missing page, which was supposed to be between pages 38 and 39, is available here.
UPDATE: the online version of Occupy Finance is now complete.
Hey, but it’s still a great book, and we got lots of fantastic press. Here’s the list so far:
- FT Alphaville with Lisa Pollack
- NPR with Margot Adler
- Bloomberg with Matt Levine
- New York Times with William Alden
- Daily Kos with medicalquack
Thank you guys!
And readers, if you really want a copy of the book, send me email with your address. Our group meeting this Sunday will consist of an envelope-stuffing party. My email address is on my “About” page.
Hey, what are you doing for the 2nd anniversary of the occupation of Zuccotti Park?
I know what I’m doing, namely going down to the park and handing out hundreds of copies of my occupy group’s new book – now on scribd!!. Here’s a ridiculous gif of the pile of books that came from the printer yesterday with my kindergartner posing by it (you might need to click on it to see the animation!!):
I’m also planning a small speech at 10:15am,
which I’m still writing. I’ll post it here later. here it is:
Thank you for coming
Thank you for occupying
I am here today to announce a birth
The birth of a book
It’s called “Occupy Finance”
We wrote it
we are Alternative Banking
Who are we?
We are a working group of Occupy
we first met almost two years ago
we have been meeting ever since
we meet every Sunday afternoon
at Columbia University
our meetings are totally open
we want you to come
We discuss the financial system
we discuss financial regulation
we discuss how lobbyists destroy regulation
we discuss how Obama destroys regulation
we discuss what we can do to help
how we can make our opinions known
how we can make the system work for us
Last year we had a project
The 52 Shades of Greed
we came here to Zuccotti Park
we gave out hundreds of packs of cards
they explained the financial system
they called out the criminals
they called out the toxic ideas
and the toxic instruments
and the toxic institutions
that started this mess
This year we’ve come back
with another present to share
it’s a book we wrote
it’s a book for all of us
it explains how the financial system works
and how it doesn’t work
it explains how the system uses us
how the bankers scam us all
how the regulators fail to do their job
how the politicians have been bought
Why did we write this book?
we wrote it for you
and we wrote it for us
we wrote it for anyone
who wants to know
how to argue against
the side of greed
the side of corruption
the side of entitlement
let me tell you something
some people call us radicals
but listen up
when the top 1%
capture 95% of the income gains
since the so-called end
of the recession,
when more than half the country thinks
that we didn’t do enough
to put bankers in jail,
when the median household income
has gone down 7.3% since 2007,
when the actual employment rate
is 5% below 2007,
when the jobs that do exist are crappy
when we get paid with prepaid debit cards
that nickel and dime us all
then what we demand is not radical
it is only a system that works
we are asking for a just system
we are asking for a fair system
we are asking for an end to too-big-to-fail
we demand banks take less risk
with our money
and we are asking lawmakers
to stop banks
once and for all
from scamming people because they are poor
Please join us
we want you to come
you don’t need to be an expert
we started out as strangers
who wanted to know how things work
we have become friends
we have become allies
we have made something
out of our curiousity
and out of our hard work
and we are here today
to share that with you
and to ask you to join us
please join us
happy birthday to us!
So yesterday there I was with my Occupy group, we’d just gone over our plans for the second anniversary of Occupy Wall Street this coming Tuesday. We talked over releasing our book and the press conference in Zuccotti Park at 10:15am. We talked over the group’s web presence and how we had to improve it a bit before then, what flyers to hand out with the book, and how to get everyone copies of the book before then. In other words, logistics.
Then we turned to the content of the meeting, namely working on our op-ed focused on Larry Summers and why he shouldn’t be named the Fed Chair.
We’d brainstormed about it last week, and I put together a crappy first draft, and then another in our group had blown away my milquetoast logical argument with a couple of paragraphs of pure Occupy outrage. We were thinking about how to combine them, and we were also trying to decide whether to come up with a list of better candidates or just say “anyone would be better than Larry Summers.”
All of a sudden, someone in our group, who had been browsing the web in search for better candidates, suddenly interjects that “Larry Summers has withdrawn from consideration for the Fed job!”
That’s some good fucking karma.
And yes, it’s a pretty awesome moment when exactly what you’re working towards comes true like that, even if it’s only one thing on a very long list.
Here’s the next thing on the list: Too Big To Fail needs to end, people. Someone named Scott Cahoon sent me a video regarding that very topic last night which advertises his book called “Too Big Has Failed,” available on Amazon.
p.s. also, it’s been 5 years since the crisis, and not enough has changed.
Holy shit I’m just about bursting with pride to announce that my Occupy group’s book, Occupy Finance, is coming out Tuesday and is at the printer right now.
This is thanks in large part to all of you awesome people who sent contributions for the printing. You guys totally rock.
Our plan is to meet in Zuccotti Park Tuesday morning, September 17th, which is the 2nd anniversary of the occupation, give a wee press conference at 10am or so, and then hand out hundreds of copies of the book to whomever shows up.
Here’s the wrap-around cover to give you just a taste:
See you guys on Tuesday! The event is also on Facebook.
I’m helping organize a protest against HSBC with my Alternative Banking group. We’re going to be joined by Everett Stern, an HSBC whistleblower. You can learn more about that guy by reading Matt Taibbi’s Rolling Stones article on him.
Here’s the press release, I hope I see you there!
Members of the Alt Banking Occupy group have been hard at work recently writing a book which we call Occupy Finance. Our blog for the book is here. It’s a work in progress but we’re planning to give away 1,000 copies of the book on September 17th, the 2nd anniversary of the Occupation of Zuccotti Park.
I want to tell you more about our book, which we’re writing by committee, but I did want to mention that in order to get the first 1,000 copies printed by September 17th, we’ll need altogether $2,500, and so far we’ve collected $2,150 from the various contributors, editors, and their friends. So we need to collect $350 at this point. If we get more then we’ll print more.
If you’d like to help us towards the last $350, we’d appreciate it – and I’ll even send you a copy of the book afterwards. But please don’t send anything you don’t want to give away, I can’t promise you some kind of formal proof of your contribution for tax purposes. This is Occupy after all, we suck at money. Consider this a crappy version of Kickstarter.
Anyway if you want to help out, send me a personal email to arrange it: cathy.oneil at gmail. I’ll basically just tell you to send me a personal check, since I’m the one fronting the money.
Audience and Mission
The mission of the book, like the mission of the Alt Banking group, is to explain the financial system and its dysfunction in plain English and to offer suggestions for how to think about it and what we can do to improve it.
The audience for this book is the 99% who are Occupy-friendly or at least Occupy-inquisitive. Specifically, we want people who know there’s something wrong, but don’t have the background to articulate what it is, to have a reference to help them define their issues. We want to give them ammunition at the water cooler.
What’s in the book?
After a stirring introduction, the book is divided into three basic parts: The Real Life Impact of Financialization, How We Got Here, and Things to do. I’ve got links below.
Keep in mind things are still in flux and will be changed, sometimes radically, before the final printing. In particular we’re actually using DropBox for most of our edits so the links below aren’t final versions (but will be eventually). Even so, the content below will give you a good idea of what we have in mind, and if you have comments or suggestions, please do tell us, thanks!
Our table of contents is as follows, and the available chapters have associated links:
The Real Life Impact of Financialization
- Heads They Win, Tails We Lose: Real Life Impact of Financialization on the 99%
- The bailout: it didn’t work, it’s still going on, and it’s making things worse
How We Got Here
- What Banks Do
- Impact of Deregulation
- The top ten financial outrages
- The muni bond industry and the 99%
Things to Do
Update: I’ve got $
225 $301 pledged so far! You people rock!!
I wrote a post yesterday to discuss the fact that, as we’ve seen in Detroit and as we’ll soon see across the country, the math isn’t working out on pensions. One of my commenters responded, saying I was falling for a “very right wing attack on defined benefit pensions.”
I think it’s a mistake to think like that. If people on the left refuse to discuss reality, then who owns reality? And moreover, who will act and towards what end?
Here’s what I anticipate: just as “bankruptcy” in the realm of airlines has come to mean “a short period wherein we toss our promises to retired workers and then come back to life as a company”, I’m afraid that Detroit may signal the emergence of a new legal device for cities to do the same thing, especially the tossing out of promises to retired workers part. A kind of coordinated bankruptcy if you will.
It comes down to the following questions. For whom do laws work? Who can trust that, when they enter a legal obligation, it will be honored?
From Trayvon Martin to the people who have been illegally foreclosed on, we’ve seen the answer to that.
And then we might ask, for whom are laws written or exceptions made? And the answer to that might well be for banks, in times of crisis of their own doing, and so they can get their bonuses.
I’m not a huge fan of the original bailouts, because it ignored the social and legal contracts in the opposite way, that failures should fail and people who are criminals should go to jail. It didn’t seem fair then, and it still doesn’t now, as JP Morgan posts record $6.4 billion profits in the same quarter that it’s trying to settle a $500 million market manipulation charge.
It’s all very well to rest our arguments on the sanctity of the contract, but if you look around the edges you’ll see whose contracts get ripped up because of fraudulent accounting, and whose bonuses get bigger.
And it brings up the following question: if we bailed out the banks, why not the people of Detroit?
If this article from yesterday’s New York Times doesn’t make you want to join Occupy, then nothing will.
It’s about how, if you work at a truly crappy job like Walmart or McDonalds, they’ll pay you with a pre-paid card that charges you for absolutely everything, including checking your balance or taking your money, and will even charge you for not using the card. Because we aren’t nickeling and diming these people enough.
The companies doing this stuff say they’re “making things convenient for the workers,” but of course they’re really paying off the employers, sometimes explicitly:
In the case of the New York City Housing Authority, it stands to receive a dollar for every employee it signs up to Citibank’s payroll cards, according to a contract reviewed by The New York Times.
Thanks for the convenience, payroll card banks!
One thing that makes me extra crazy about this article is how McDonalds uses its franchise system to keep its hands clean:
For Natalie Gunshannon, 27, another McDonald’s worker, the owners of the franchise that she worked for in Dallas, Pa., she says, refused to deposit her pay directly into her checking account at a local credit union, which lets its customers use its A.T.M.’s free. Instead, Ms. Gunshannon said, she was forced to use a payroll card issued by JPMorgan Chase. She has since quit her job at the drive-through window and is suing the franchise owners.
“I know I deserve to get fairly paid for my work,” she said.
The franchise owners, Albert and Carol Mueller, said in a statement that they comply with all employment, pay and work laws, and try to provide a positive experience for employees. McDonald’s itself, noting that it is not named in the suit, says it lets franchisees determine employment and pay policies.
I actually heard about this newish scheme against the poor when I attended the CFPB Town Hall more than a year ago and wrote about it here. Actually that’s where I heard people complain about Walmart doing this but also court-appointed child support as well.
Just to be clear, these fees are illegal in the context of credit cards, but financial regulation has not touched payroll cards yet. Yet another way that the poor are financialized, which is to say they’re physically and psychologically separated from their money. Get on this, CFPB!
Update: an excellent article about this issue was written by Sarah Jaffe a couple of weeks ago (hat tip Suresh Naidu). It ends with an awesome quote by Stephen Lerner: “No scam is too small or too big for the wizards of finance.”
I’m not sure where to start with deconstructing this pick-up-artist wannabe clan, but let’s just START WITH THE ALL CAPS. Who does that? Update: turns out THE NAVY DOES THAT.
I’m thinking of crashing this Meetup with a posse of sufficiently ridiculous and hilarious friends.
First the good news: I can easily imagine what kind of person I’d love to attract for this action (namely, anyone who thinks this is ludicrous, in a fun way, and wants to join me) but, and here’s the other good news, I’m having trouble figuring out the perfect thing to do once we get there. Let’s think.
First thought: line dance with boas, singing “I will survive.” Maybe not that exactly, but something to intentionally and directly contrast the oppressively normative nature of a bunch of straight guys looking for “hot” women using a formulaic approach involving magic tricks. Bonus points, obviously, for ill-fitting cocktail dresses that emphasize jiggling flesh.
In other words, let’s take a page out of this book, one of my all-time favorite Occupy actions:
Other ideas welcome!
I got covered in an Israeli newspaper talking about Occupy.
Here’s the article. If you can read Hebrew, please tell me how it reads.
Update: here’s a pdf version of it.
Next weekend at Pace University in New York City I’ll be taking part in two panels at the Left Forum, a yearly conference of progressives that everybody who’s anybody seems to know about, although this will be my first year there. For example Noam Chomsky is coming this year.
First, from noon til 1:40 on Saturday June 8th, I’ll be debating how to shrink the financial sector with Doug Henwood, author of Wall Street: how it works and for whom. The panel will be moderated by my buddy Suresh Naidu, an occupier profiled in the Huffington Post. The announcement for this panel is here and includes room information.
Second, from 3:40 til 5:20, also on Saturday June 8th, I’ll be facilitating a meeting of the Alternative Banking group of OWS, which will be loads of fun. The idea is to explain to the panel audience how we roll in Alt Banking, to have a discussion about breaking up the banks, and to get the audience to participate as well. We expect them to enjoy getting on stack. The announcement for this panel is here, please come!
Registration for the Left Forum is still open and is affordable. Go here to register, and see you next weekend!
I’ve discussed the broken business model that is the credit rating agency system in this country on a few occasions. It directly contributed to the opacity and fraud in the MBS market and to the ensuing financial crisis, for example. And in this post and then this one, I suggest that someone should start an open source version of credit rating agencies. Here’s my explanation:
The system of credit ratings undermines the trust of even the most fervently pro-business entrepreneur out there. The models are knowingly games by both sides, and it’s clearly both corrupt and important. It’s also a bipartisan issue: Republicans and Democrats alike should want transparency when it comes to modeling downgrades- at the very least so they can argue against the results in a factual way. There’s no reason I can see why there shouldn’t be broad support for a rule to force the ratings agencies to make their models publicly available. In other words, this isn’t a political game that would score points for one side or the other.
Well, it wasn’t long before Marc Joffe, who had started an open source credit rating agency, contacted me and came to my Occupy group to explain his plan, which I blogged about here. That was almost a year ago.
Today the SEC is going to have something they’re calling a Credit Ratings Roundtable. This is in response to an amendment that Senator Al Franken put on Dodd-Frank which requires the SEC to examine the credit rating industry. From their webpage description of the event:
The roundtable will consist of three panels:
- The first panel will discuss the potential creation of a credit rating assignment system for asset-backed securities.
- The second panel will discuss the effectiveness of the SEC’s current system to encourage unsolicited ratings of asset-backed securities.
- The third panel will discuss other alternatives to the current issuer-pay business model in which the issuer selects and pays the firm it wants to provide credit ratings for its securities.
Marc is going to be one of something like 9 people in the third panel. He wrote this op-ed piece about his goal for the panel, a key excerpt being the following:
Section 939A of the Dodd-Frank Act requires regulatory agencies to replace references to NRSRO ratings in their regulations with alternative standards of credit-worthiness. I suggest that the output of a certified, open source credit model be included in regulations as a standard of credit-worthiness.
Just to be clear: the current problem is that not only is there wide-spread gaming, but there’s also a near monopoly by the “big three” credit rating agencies, and for whatever reason that monopoly status has been incredibly well protected by the SEC. They don’t grant “NRSRO” status to credit rating agencies unless the given agency can produce something like 10 letters from clients who will vouch for them providing credit ratings for at least 3 years. You can see why this is a hard business to break into.
The Roundtable was covered yesterday in the Wall Street Journal as well: Ratings Firms Steer Clear of an Overhaul - an unfortunate title if you are trying to be optimistic about the event today. From the WSJ article:
Mr. Franken’s amendment requires the SEC to create a board that would assign a rating firm to evaluate structured-finance deals or come up with another option to eliminate conflicts.
While lawsuits filed against S&P in February by the U.S. government and more than a dozen states refocused unflattering attention on the bond-rating industry, efforts to upend its reliance on issuers have languished, partly because of a lack of consensus on what to do.
I’m just kind of amazed that, given how dirty and obviously broken this industry is, we can’t do better than this. SEC, please start doing your job. How could allowing an open-source credit rating agency hurt our country? How could it make things worse?
As a fat person, I’ve dealt with a lot of public shaming in my life. I’ve gotten so used to it, I’m more an observer than a victim most of the time. That’s kind of cool because it allows me to think about it abstractly.
I’ve come up with three dimensions for thinking about this issue.
- When is shame useful?
- When is it appropriate?
- When does it help solve a problem?
Note it can be useful even if it doesn’t help solve a problem – one of the characteristics of shame is that the person doing the shaming has broken off all sense of responsibility for whatever the issue is, and sometimes that’s really the only goal. If the shaming campaign is effective, the shamed person or group is exhibited as solely responsible, and the shamer does not display any empathy. It hasn’t solved a problem but at least it’s clear who’s holding the bag.
The lack of empathy which characterizes shaming behavior makes it very easy to spot. And extremely nasty.
Let’s look at some examples of shaming through this lens:
Useful but not appropriate, doesn’t solve a problem
Example 1) it’s both fat kids and their parents who are to blame for childhood obesity:
Example 2) It’s poor mothers that are to blame for poverty:
These campaigns are not going to solve any problems, but they do seem politically useful – a way of doubling down on the people suffering from problems in our society. Not only will they suffer from them, but they will also be blamed for them.
Inappropriate, not useful, possibly solving a short-term discipline problem
Hey parents: shaming your kids might solve your short-term problem of having independent-minded kids, but it doesn’t lead to long-term confidence and fulfillment.
Appropriate, useful, solves a problem
Here’s when shaming is possibly appropriate and useful and solves a problem: when there have been crimes committed that affect other people needlessly or carelessly, and where we don’t want to let it happen again.
For example, the owner of the Bangladeshi factory which collapsed, killing more than 1,000 people got arrested and publicly shamed. This is appropriate, since he knowingly put people at risk in a shoddy building and added three extra floors to improve his profits.
Note shaming that guy isn’t going to bring back those dead people, but it might prevent other people from doing what he did. In that sense it solves the problem of seemingly nonexistent safety codes in Bangladesh, and to some extent the question of how much we Americans care about cheap clothes versus conditions in factories which make our clothes. Not completely, of course. Update: Major Retailers Join Plan for Greater Safety in Bangladesh
Another example of appropriate shame would be some of the villains of the financial crisis. We in Alt Banking did our best in this regard when we made the 52 Shades of Greed card deck. Here’s Robert Rubin:
I’m no expert on this stuff, but I do have a way of looking at it.
One thing about shame is that the people who actually deserve shame are not particularly susceptible to feeling it (I saw that first hand when I saw Ina Drew in person last month, which I wrote about here). Some people are shameless.
That means that shame, whatever its purpose, is not really about making an individual change their behavior. Shame is really more about setting the rules of society straight: notifying people in general about what’s acceptable and what’s not.
From my perspective, we’ve shown ourselves much more willing to shame poor people, fat people, and our own children than to shame the actual villains who walk among us who deserve such treatment.
Shame on us.