A simple fix for our financial system

Crude timeline:
1929-Greedy wall street bankers crash economy and cause Great Depression
1933-To prevent another crash, the Glass-Steagall Act is passed
1999-Republican Phil Gramm introduces a bill to repeal Glass-Steagall which passes in November with broad bipartisan support
2007-Greedy wall street bankers crash economy and cause Great Recession

The put it simply, Glass-Steagall said that commercial banks could not participate in the same risky activities as investment banks. So, consumers could choose what sort of financial exposure they were subject too. Want to put your money in a safe place? Put it in a commercial bank. Want to make money by risking your money in the stock market? Put it in an investment bank.

The stock market is kind of like a casino. Certain folks control it and know how it works and the rest of us just try to get lucky. Consequently, there are a lot of good reasons why we might want to keep our money out of the stock market. For more on this, here's Jon Stewart for four minutes:


In 1999, since Glass-Steagall had served us well for over half a century, our brilliant elected officials decided to fix something that wasn't broken... and then dropped it and shattered it on the floor.

In late 2009, Senators McCain (R-AZ) and Cantwell (D-WA) attempted to clean up the mess and proposed reinstating Glass-Steagall. Instead, congress (after the conference committee) passed a financial reform bill that contained a watered down version of the Volcker Rule (essentially a watered down version of some of Glass-Steagall). So, a bill with some really good loopholes.

Side note: The fact that McCain took part in the effort to reinstate Glass-Steagall is strange. During the 2008 presidential campaign, McCain hired Phil Gramm (the original culprit here) to be his chief economic advisor. Clearly McCain has had a change of heart, or during the campaign, the guy who was writing his economic policy disagreed with him fundamentally.

While I acknowledge that there are more problems with our financial system than just a partition between commercial and investment banks, reinstating Glass-Steagall would go a long way toward fixing the problem. Certainly, the meltdown we experienced would not have been nearly as widespread as it was and would have probably been relegated to traditional investment entities rather than permeating the entire system.

The bigger issue here is that by removing the barrier between commercial banks and investment banks, we also remove the delineation of what banks are insured by taxpayers. Under Glass-Steagall, taxpayers were only on the hook for commercial banks; investment banks could take all the risks they want, but they would be responsible for the consequences of those risks. Without the separation of Glass-Steagall, taxpayer responsibility is much less clear. Consequences include paying $700 billion in TARP funds (though we're getting most of this back) to banks that have gotten into trouble.

Opponents of financial regulation point out that regulation raises the cost of doing business. However, we must realize that the short-term cost of protecting ourselves is far outweighed by the long-term cost of saving our entire financial system every time wall street bankers lose themselves to greed.

How the financial meltdown is like Calvin and Hobbes

Writing a blog post on the Glass-Steagall Act (which will appear tomorrow) made me think of my favorite Calvin and Hobbes sketch. So, I decided to do a separate post on the financial meltdown and how we rewarded those who caused it.

In the late nineties, we deregulated the banking industry (repealed Glass-Steagall). I guess we just assumed that wall street bankers would be extra careful with our economy.

But, of course, they did ridiculous things with our economy, like over-leaveraging their assets.

We thought maybe they had just damaged a small portion of our economy. But alas, they had designed the mishap to be catastrophic and complete by spreading their problems throughout the entire system.

At first we were mad.

But then we realized that if we didn't teach them responsibility now, they would soon be ruining much more of our economy.

So, we shielded them from the consequences of their actions... and taught them to do it again.

Unfortunately, wall street bankers are not children (though they may act like it). They are adults with the God-given right to conduct their business to the detriment of everyone else.

Redefining "bargain" (or: pay more for less)

There's a prequel to this video and it's here.

Why we need to get sensible about bottled water (found here):



And if that wasn't enough, check out this infographic about bottled water:

Via: Term Life Insurance

Christian Capitalism

I was talking to David, who mentioned Goldman Sachs, which reminded me of capitalism, which reminded me of Satan, which reminded me of school (or something like that).

All kidding aside, how can capitalism interface with Biblical principles?

1 Timothy 6:10 says:

For the love of money is a root of all kinds of evil. (New International Version)

For the love of money is a root of all kinds of evil. (International Standard Version)

For the love of money is the root of all evil. (King James Bible)

For a root of all the evils is the love of money. (Young's Literal Translation)

Now, let me make a basic statement about the nature of capitalism: Within the economic system of capitalism, people are motivated by the love of money. I think that's pretty fair.

Don't get me wrong. Capitalism has been as much a part of our nation as baseball and apple pie. It's driven our industry and our innovation. I've done quite a bit of thinking about how to optimize capitalism (which I'll relate later), but today I want to talk about some of its problems.

I'm reading a book about human motivation right now. The author makes a succinct statement that defines exactly the motivational energy that drives capitalism: 

In a world of perfect information and low transaction costs, the parties will bargain to a wealth-maximizing result. (26)

First, we should note the phrase "perfect information." The likelihood of a consumer having perfect informational about a Cornflakes box on aisle 7 in Walmart is about the same as Sarah Palin citing Huffington Post as her favorite news source or Pixar making a bad movie (although David did think Toy Story 3 was too scary).  That's the first difficulty we find with capitalism-- it's very difficult to arrange the setting in which it's designed to function.

Second, the book details how the statement made on page 26 isn't actually true; people don't operate that way. Studies in human motivation have been showing us for decades that human's are not "hyperrational calculator-brained" wealth maximizing robots (26). Economist Bruno Frey summed up the reason for this discrepancy,

Intrinsic motivation is of great importance for all economic activities. It is inconceivable that people are motivated solely or even mainly by external incentives. (28)

So that's the second difficulty we find with capitalism-- people don't actually behave according to the system's most basic assumption about human motivation. 

What I find most disturbing is why a "Christian nation" chose capitalism as its economic system in the first place. Regardless of which translation of 1 Timothy 6:10 we prefer, we find significant problems with the motivational force of the love of money-- it leads us into evil. So, why would we ever assume that the love of money would lead us into good and that capitalism, despite being grounded in an evil producing force, would succeed in making society better?

All other criticisms of capitalism aside, the Bible's is the most troubling to me. If we read about the early church in Acts, we find a close-knit community that functions like something reminiscent of a commune. In fact, I might call their miniature economic system "communist." 

Some point out that the Bible is a message to individuals and small groups rather than governments. Further, the United States is a democratic state (more specifically a Federal Constitutional Presidential Republic), not a theocracy. Just because my Bible says capitalism has a dubious motivational engine doesn't mean we ought to change our economic system.

These things are true. But though the Bible targets individuals and small groups, what is government if not a group of citizens banded together for the common good? I don't think a group like that is exempt from Biblical truth. Let's not forget, we are a government "of the people, by the people, [and] for the people." If "we the people" decide something ought to change, that's our prerogative.

What we must decide is whether the sub-prime triggered economic melt-down, the BP oil spill, golden parachutes, and misleading/manipulative advertising are isolated accidents, minor annoyances, or systemic problems indicating the need for change.

The beauty of death panels

First let me say that I don't know what entity could accurately be called a "death panel" (the Supreme Court when it sends someone to death row?), but I do know what Sarah Palin meant when she said it and I'd rather use her definition anyway.

If you've been listening to NPR this week, you'll have noticed that they've talked quite a bit about palliative care. Many of you, like me, may not know what that is. Palliative care is the holistic approach to health care that takes into account a patient's psychological, emotional, and spiritual, as well as physical needs. Often this care emphasizes helping a patient feel better (holistically) rather than curing the patient (it's usually used in cases where a cure is doubtful). 

So, instead of shipping grandma off to the hospital and pumping her full of drugs until she's drooling and wetting the bed just to keep her alive for an extra six months, palliative care might send her to a hospice instead (hospice care is a type of palliative care) where she is made comfortable and allowed to settle into the idea of death without the frantic attempts of extending her life.

The idea here is dignity and dying a good death rather than drawing out the process into an ugly experience that leaves families gasping emotionally.

But, there's another huge benefit to palliative care: it saves loads of money.

For those of you who followed the health care debate (or tried to avoid it, but were ambushed every time you turned on the TV or opened the newspaper), you know that the cost of health care was one of the things that both drove the need for reform and set the parameters of the debate.

Simply, we're spending too much on health care. And much of that expenditure comes in the very last part of life (unusually in the form of heroic treatments that have very predictable and negative outcomes). In fact, according to this article from the Journal of the Royal Society of Medicine, 10-12% of all our health care dollars and 27% of Medicare dollars are spent on a patient's last year of life.

Palliative care enthusiasts (a group I now find myself in) insist that all this money is going to care that isn't helping the situation anyway.

There's quite a lot of debate out there about how to cut down on this. The article that got the most attention was a piece in Newsweek entitled "The Case for Killing Granny."

The health care reform bill originally contained a measure that would provide funds for voluntary end-of-life counseling that would discuss options like palliative care. It was these counseling sessions that Sarah Palin called "death panels." However, it was also these counseling sessions that John McCain and Sarah Palin supported during the 2008 presidential campaign. So, similar to her position on Alaska's "bridge to nowhere," Palin was "for it before she was against it."

Hippies get a bad rap (or: Why A New Materialism)

Please go and look at this picture from Nikki McClure's collection because it illustrates perfectly what we're trying to do here.

The counterculture of the 1960s began as a sociological backlash against the stuffy/uniform/materialistic society of the 1950s. To (over)simplify the situation, society in the 50s encouraged everyone to live in a ranch style house with a station wagon parked outside that you drove to your nine-to-five while wearing a dark suit and tie with a white shirt. You also buzzed your hair (I'm talking men here--you women stayed at home and did the dishes... and did NOT buzz your hair). The counterculture was a rejection of such materialistic revelry.

In the long run, maybe hippies should get a bad rap for letting themselves become polluted by some of the movement's more publicized traits (e.g. smoking grass and dropping acid). Conspiracy theorists point to the evidence that the CIA actually initiated the drug culture. Regardless of who started it, "mind expansion" became a hallmark of the counterculture and this distraction ultimately led to its demise.

Two weeks ago I drove across the country so I would have my car in D.C.

Something about driving across the country (as opposed to flying) made the expansiveness and the beauty more concrete. When we fly, it's as if we appear at our destinations by magic. We climb into a metal tube that roars for several hours, screeches to a halt, and suddenly we're across the country.

While driving, we are aware (at least partially--depending on how enthralled we are by BBC Radio's coverage of the World Cup) of every mile we travel. After all, we have to scan the radio dial to find the next NPR station when the last one gets too fuzzy. We get out to take pictures when we come to a scene that moves us. This visceral experience puts us in touch with the material reality of traveling across the country. It makes the physical nature of our place real.

This is what we must do with the rest of our material world. Instead of the materialism that amounts to the rabid acquisition of stuff, we must adopt a materialism that puts us in touch with the apple blossoms waiting to become apples that occasional get stuck in our hair, the butterflies that are willing to land on our (collective)nose, the woodpecker waking us up in the morning, and the breeze that whisks our napkins off the picnic table and into the grass where ants are transporting crumbs home. These are the material things with which we ought to be obsessed.

More than that, we ought to be more careful about our possessions too. As Annie Leonard, creator of The Story of Stuff, said on the Colbert Report, "I want us to have greater reverence and appreciation for our stuff instead of this just mindless buying and chucking all the time. I want us to look at our stuff and think 'someone made this, someone mined those metals, someone felled that forest, or produced those crops, or fished in the ocean, or whatever they had to do to get that stuff, someone brought it to us'. Let's have a little more appreciation and reverence for the stuff we have instead of this mindless consumerism all the time."

That's what "new materialism" is all about.

Here's the view from my tent in Bozeman,  Montana: 

The other side of laziness

Though Callenbach points out the lazy attitude employed in much of our lives (how to innovate so we can sit in front of the TV more), there's another phenomena that American's struggle with: the principle of incessant toiling. This seems contradictory (and it is), but let's talk about it a little.

It seems strange to me the preoccupation we Americans have with inventing stuff that will "save us time." Like, washing machines, dishwashers, computers, and especially TV dinners. What do we do with the time we save? Americans work more than anybody else. So, at least in this country, we're using those labor saving devices to do more labor. Seems a little counterintuitive to me and how does this interface with our "laziness?" 

Even our efficiencies go to allowing us to work more. Today, it takes less than 15 hours per week to produce the same amount of work product that a 40 work week produced in 1950 (check out what we could do with productivity increases if we didn't use them the buy more possessions here).

Juliet Schor, author of The Overworked American, has compiled an interesting table:

Annual hours over eight centuries

Year	Type of worker	Annual hours
13th century	Adult male peasant, UK	1620 hours
14th century	Casual laborer, UK	1440 hours
Middle Ages	English worker	2309 hours
1400–1600	Farmer-miner, adult male, UK	1980 hours
1840	Average worker, UK	3105–3588 hours
1850	Average worker, U.S.	3150–3650 hours
1987	Average worker, U.S.	1949 hours
1988	Manufacturing workers, UK	1855 hours
2004	Average full-time worker, Germany	1480 hours
2008	Average worker, India	2817 – 3443 hours
2010	Investment Banker, NY	5082 hours

I'm not trying to suggest that work is bad. Actually, what's most alarming is the kind of work that's expanding in the United States: office work. This article from The Onion makes fun of this trend. What's troubling is that sitting in an office all day and staring at a screen is so unnatural. If you've been keeping up with the new trend of barefoot running, you know that humans were designed to run. We were not designed to sit and stare at a glowing rectangle all day.

And what do we do with the money we get from staring at our glowing rectangles while slumped in our favorite office chair with magnificently engineered lumbar support? We buy Air Nautiques, vacations to Hawaii, tickets to Disney World, massages at Calistoga Ranch, etc (or other things that don't cost so much, but are in the same vein). It's like we're medicating with the extreme opposite of our office jobs. After the fun, it's back to the grindstone (or in the 21st century our friendly glowing rectangles) to earn money for the next dose.

What's worse is that this incessant toiling coupled with the backlash of recreational lethargy leaves no time for the maintenance of our society (like educating ourselves about voting or even eating a balanced meal so we don't get obese and cost the rest of society millions in health care dollars). It's all we can do to drive home after work and plunk down in front of our "funner" glowing screen with a Marie Callender's in hand.

Why not just work less, relax more, and quite medicating?

For more on this, read Your Money or Your Life.