Saturday, April 25, 2015

On the Southwest American Drought: Looking to China

Lake Mead, a reservoir outside Las Vegas serving 40 million people in Nevada, Arizona, Southern California, and Northern Mexico, was at its lowest level (i.e., below 1,080 feet) in April 2015 since it was formed with the Hoover Dam.[1] Particularly for California, whose snow-melt would again be minimal, the continued drought was quickly turning dire. With a surplus of rain-water coming down on western Washington and Oregon, the U.S. Government could have dusted off FDR’s Civilian Conservation Corps (CCC) to activate the long-term unemployed (and the imprisoned) to assist the Army’s Corps of Engineers in constructing aqueducts and digging canals that would hook up with the extant canals running from the delta area north of Sacramento to southern California. It is not as though the Oregonians and Washingtonians would miss the water, and the Californian farmers could see to it that their best produce finds itself up north. Yet as easy as such a large-scale governmental project seems, the devil is in the details, which can actually be rather huge in themselves. China provides a useful case study that the Americans could, conceivably at least, benefit from—should they endeavor on a truly large-scale governmental project.

By April 2015, the Chinese central government had spent 308 billion yuan ($50 billion) on the South-North Water Transfer Project.[2] It’s sheer size is not for the faint-at-heart. The project “takes water from the Yangtze River and channels it across a half-dozen provinces and more than 1,700 culverts, aqueducts and other man-made structures.”[3] More than 400,000 people had been relocated. In spite of all of this effort, many towns in need of the water were continuing to pump up ground-water—causing the ground to sink even more. The shortage of water in Northern China had prompted cities to over-rely on their respective wells. Unfortunately, getting water that way was cheaper for the cities than from the transferred water via the project’s massive canals. Adding still more incentive to stay with the status quo, the cities in need of water had to build related infrastructure, including pumping stations and processing plants, in order to have access to the water from the project. Leaving this last bit to the city governments was not the smartest move by the project’s planners.

The lapse is particularly sad, given all the credit the Chinese government is due for having thought of and embarked on such a large-scale project capable of solving such a potentially devastating problem. At the time, Californians would have been aware of just how dire a water-shortage can be, yet the government of California was merely constructing more reserve-basins and ordering municipal water utilities to cut water-use by 25 percent. With all the surplus rain-water along the coast and western mountain-range in Oregon and Washington, why the U.S. Government had not stepped in to construct a massive Northwest system of massive canals taking the surfeit runoff to California is baffling to me.

The academic literature of international political economy may provide an answer. To explain why the Asian countries like Taiwan and South Korean have developed economically whereas Latin-American countries such as Panama have not, the literature distinguishes between strong- and weak-state countries. A strong state, or government, is able to resist pressure from society to consume governmental revenue. A strong state, for example, can say no to corporate welfare, for example—not just to spending more tax revenue on food-stamps!—whereas a weak state succumbs to corporate and other lobbying. The U.S. Government is a weak state because of the influence that defense-contractors, Wall Street, and corporate America have on members of Congress and the president. Put another way, after having spent roughly $4 trillion on the U.S. military in Afghanistan and Iraq, and trillions more in fiscal and monetary policy in the wake of the financial crisis of 2008, spending tens of billions more on a water-transport system linking the northwest with the southwest (including Arizona) was not even on the radar screen.

The difference here between China and the United States is not merely one of priorities; the Chinese government is stronger with respect to fending off powerful interests in China who want money from the government. The difference, in other words, is not between democracy and dictatorship; rather, plutocracy is a weak-state form of government (e.g., the U.S.). To be sure, dictatorship brings with it a myriad of problems, but that of being a weak-state incapable of large-scale infrastructure projects is not one of them. In the literature, democracy is associated with weak-states in Latin America—the electorate being able to vote for candidates promising more consumption of government resources at the expense of the sort of investment in infrastructure that could bring in foreign-direct-investment (i.e., multinational corporations). Similarly, we can add plutocracy to the weak-state side of the ledger. Whereas plutocracy is inherently weak from the standpoint of a government being able to resist pressure from private wealth, democracy is not so, as a citizenry can vote in candidates who campaign on resisting corporate welfare, whether to Wall Street or Lockheed Martin.

In short, for all the credit that the Chinese central government deserves in having gotten the huge canals built—and why were not the governments of California, Oregon, Washington, and the U.S. talking in similar terms?—a mammoth project must be designed beforehand with everything covered—from the intake of the water to the flow into municipal pipes. Otherwise, the entire project can falter. “Water, water all around, but not a drop to drink” could otherwise apply. Were the U.S. Government to contemplate such a massive project to solve the water-shortage in the Southwest, the planning should include an analysis of the financial incentives and disincentives that every actor along the process, including at the end-point, would have. Water flows downhill, and the incentives must likewise. Otherwise, a dam could pop up that keeps any of the water from reaching the end-users.



[1] Reuters, “Lake Mead on Track for Record Low Water Level Amid Drought,” The Huffington Post, April 24, 2015.
[2] Te-Ping Chen, “China Water Project Leaves Some Cities Dry,” The New York Times, April 24, 2015.
[3] Ibid.

Wednesday, April 22, 2015

Democracy as an Anti-Trust Criterion: The Comcast Time-Warner Merger

As the U.S. Department of Justice and the SEC were reviewing the proposed merger between Comcast and Time Warner in April 2015, six U.S. senators signed a joint letter opposing the $45 billion deal. Comcast would control about 30 percent of the pay-television subscribers in the U.S. and an estimated 35 to 50 percent of the American broadband internet service.[1] That more senators had not signed on is telling with respect to how business-oriented American society had become.

At the time, the Justice Department was investigating whether the takeover would harm competition, while the Federal Communications Commission was evaluating whether the combined company would be in the public interest. For their part, the senators wrote that the combined company’s “unmatched power” would reduce competition and hamper innovation, as well as lead to higher prices, fewer choices, and worse service.[2] Opponents more generally “portrayed Comcast’s effort as a land grab that would give the company too much leverage in the industry.”[3] In short, one company would have too much power over the future of television and broadband. What about over Congress? The silence alone on this question is telling.

Beyond the industry-level impacts, which would admittedly be quite significant, the plutocric ramifications are also striking. That is, the giant company would have so much financial muscle that its forays into campaign finance would likely have an anti-democratic impact. Members of Congress, for example, would be subject to greater temptations to do Comcast’s bidding at the expense of their respective constituents (and states). As recipients of political-campaign donations, elected representatives have an incentive to look the other way as a large corporation gets even bigger.

In 2008, for example, the largest single contributor to Barak Obama’s presidential campaign was Goldman Sachs. The $1 million contribution helped insure that the White House under Obama would not come down too hard on the bank (or Wall Street). Interestingly, the Dodd-Frank Financial Reform Act of 2010 does not give the federal government the authority to break up banks that are too big to fail. Similarly, a “super Comcast” would insulate itself in Congress against populist attempts to break up the company in order to bring more competition to the television and internet industries. I submit that anti-trust law ought to be strengthened to include the protection of representative democracy from encroachments from large concentrations of privately-held capital (i.e., large corporations).



[1] Emily Steel, “6 Senators Urge Rejection of Comcast-Time Warner Cable Deal,” The New York Times, April 21, 2015.
[2] Ibid.
[3] Emily Steel et al., “Comcast Is Said to Abandon Bid for Major Rival,” The New York Times, April 24, 2015.

Monday, April 20, 2015

Anti-trust Enforcement in the E.U. and U.S.: Business, Government and Society

In 2014, the E.U. depended on Gazprom, a state-controlled Russian gas company, for one-third of the natural gas used in Europe. Meanwhile, Russia depended on the company for export-earnings. Moreover, both the E.U. and Russia view Gazprom from not only commercial vantage-points, but geopolitical ones as well. Both dimensions were in the mix as the European Commission weighed bringing anti-trust charges against the company in April 2015. At the time, the E.U.’s executive branch was already formally pursuing Google on anti-trust grounds. Relative to anti-trust enforcement in the U.S., the E.U.’s own represents a formidable attempt to open up competitive markets. We can generalize, in fact, to posit a more balanced “check and balance” between business and government in Europe.

Regarding the salience of geopolitics, the E.U.’s action could force Gazprom to “drop conditions with European utilities that restrict those utilities’ ability to share the gas with other countries.”[1] We need only recall Russia’s use of Gazprom to cut off natural gas to Ukraine in the midwinter “gas wars” in 2006 and 2009 to grasp the geopolitical weight on the Russian side of the “commercial transactions.” Even though an anti-trust action would also involve going after Gazprom for the more exclusively commercial practices of “thwarting its European customers’ efforts to diversity sources of supply, and . . . imposing unfairly high charges by linking gas prices to those of oil, rather than basing prices on global natural gas market rates,” the Commission’s decision-making process included the geopolitical element of Russia’s military involvement in Ukraine at the time. That is to say, going after even egregious commercial practices could have dire political consequences. Government regulation of business is not merely about market efficiency and effectiveness. In fact, Gazprom demonstrates just how salient geopolitics can be in the management of a company. 

In fact, government regulation is itself nestled in a broader social contract, even if implicit, between business and society. The greater a people’s ingestion of business values, the less likely is a government to pursue powerful companies on anti-trust grounds. Those companies may even have disproportionate influence politically. From this standpoint, the E.U.’s executive branch may seem biased.

For her part, Margrethe Vestager, the E.U.’s competition commissioner at the time, answered such criticism just prior to her visit to the U.S. In her view, going after Google for skewing search results in favor of its own shopping service is simply a matter of enforcing the law. “As enforcers, we build our cases on evidence and on interpretation of facts because the European Union as well as the United States is built on the rule of law.”[2] Although the definition of a market is different in the U.S., the relative dearth of anti-trust enforcement in the U.S. may have been her real message here. Rather than defending Google, Americans might see to it that their elected representatives represent constituents by pushing for more competitive and less oligarchic markets. 

To be sure, it is one thing for one government to go after a foreign company, and quite another for another government to go after a domestically-based company. It is also true, however, that a domestic company could have too much political leverage over its home government, especially if the societal values align with those in the business world. In the U.S., the relative value put on economic liberty and business values such as efficiency may ironically make anti-trust action in favor of more competitive (i.e., efficient) markets less likely; a pro-business society may actually be less favorable to the long-term best interests of a commercial system (while being more favorable to the more narrow interests of powerful companies).



[1] James Kanter, “Europe Is Expected to Charge Gazprom in Antitrust Case,” The New York Times, April 20, 2015.
[2] Jessica Guynn, “EU Enforcer Means Business,” USA Today, April 20, 2015.

Sunday, April 19, 2015

BuzzFeed’s Internal Firewalls Fall to a Conflict of Interest

In spite of the fact that public-accounting firms rely on their respective audit clients’ decisions to be retained to perform the next year’s audit, society deems an unqualified audit-opinion to be independent. The assumption is that the audit firms can police themselves, keeping their financial pressures from influencing the audit opinions. The ongoing temptation is of course to produce a clean opinion so as to be retained as the client’s public accountants. Unfortunately, someone at a given CPA firm must have authority requiring attention both to audit opinions and the firm’s own financial performance; internal policies separating pressure from the latter from reaching the former can thus be easily overcome from the vantage point of that authority. This vulnerability was on display in 2015 in the “dot-com” industry in BuzzFeed.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.


Electric Utilities Thwart Solar Applications: A Conflict of Interest Rewarding the Status Quo

Considering the contribution of coal-burning power-plants to atmospheric carbon-emissions and thus global warming, governments around the world should be encouraging rather than discouraging home-owners to install solar panels. That is to say, we ought not privilege the status quo when it has contributed so much already to an uncomfortable or even uninhabitable Earth for mankind. So it is unfortunate that energy officials in Hawaii’s government had to step in to pressure—no, order—the Hawaiian Electric Company to approve its “lengthy backlog” of solar applications.[1] I submit that the officials should have gone further in correcting for the conflict of interest in the utility. Put in the vernacular, electric companies tended at the time to screw customers who could sell back “home-grown” solar power. The root problem here is in the utilities’s dual roles of seller and consumer of power.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.


Friday, April 17, 2015

Hollywood’s Conflict of Interest in Trade Negotiations

At the intersection of business and government, a conflict of interest can be indicative of plutocracy, the rule of wealth, at the expense both of balanced public policy and democracy. That is to say, where the regulated have disproportionate influence over regulators and said influence places the regulated in a conflict of interest, the unethical dimension is dwarfed by the distortive impact on the political system. The disproportionate influence of the content industry (i.e., Hollywood) in the U.S. position on the Pacific Trade negotiations in 2014 is a case in point.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.


Wednesday, April 15, 2015

God's Gold: Banking and Monopoly

A decade or so into the twenty-first century, a typical business practitioner might suppose that godliness and greed live in two utterly different universes—Wall Street and Main Street both being subject to the sway of greed rather than the bliss of the heavenly hosts. The world is profane, while the sacred lives in some other shoebox. Even so, the oil and water have been allowed to mix, though of course without fusing into one compound. For example, God has been invoked to justify profit-seeking and wealth, and even love of gain, or greed. The relationship between greed and what we take to be the divine is actually more complex than meets the eye.

In my book, God's Gold, I set out to identify and trace certain clusters of stances on the relationship of profit-seeking and wealth to greed in the history of Christianity through the seventeenth century. From Christianity’s beginning through the major reformers in the Protestant Reformation, a subtle shift (and backlash) can be detected in what constituted the dominant thought on the relationship. Beyond simply mapping this out as if it were a line (with a hook) on a graph, my objective is to explain the shift itself in terms of Christian theology, rather than merely pointing to the changing economic context through the centuries. A chapter on John D. Rockefeller effectively applies the positions of two of the major Calvinist theologians from the seventeenth century to a practitioner working in the second half of the nineteenth century, and this preface discusses the context more contemporary with the writing of this book. This is the book in a nutshell, with an underlying intent to give Christian theology its due without being uncritical.

Before diving into the historical theology, which I have endeavored to describe in a readable format for virtually any college-educated general reader who has an interest in the topic, I want to take a look at the surprising ways in which God has been invoked by participants in the financial crisis of 2008. After having read the historical stuff, the usages of God in the contemporary financial world may not be so surprising after all.

For decades in the second half of the twentieth century, after WWII, the American housing markets were on a course shooting “ever” upward as if the party would never end. Homeowners felt free to use the equity that had been added to their property by the upward market itself as leverage to borrow still more, whether for a vacation, a new car, sending a few (of one’s own) kids to college, or even for a second house. The equity was viewed, in other words, as wealth. There was just one problem. The added wealth was not real; rather, it was dependent on supply and demand. As the tulip craze of the seventeenth century in Holland attests, what goes up can come busting down. Moreover, just because something is in more demand does not mean that it is any more valuable, at least inherently. At the very least, such value is temporary, dependant on what people want at a particular moment and given supply, which also can change.

In September of 2008, two years after the housing market had peaked, the hens came home to roost in the American financial sector. The housing bubble had burst, just as the overvalued “dot.com” boom had caved a decade earlier. As home values dropped, so too did the equity, triggering millions of foreclosures. This was so particularly in the sub-prime mortgage sector for lower-income (especially Black and Hispanic) borrowers. The foreclosures in turn reduced the market value of bonds consisting of bundles of those sub-prime mortgages. Astonishingly, some of those securities had been rated triple-A by rating agencies. The agencies’ lapses can be attributed to succumbing to the conflict of interest in the issuer-pays method. That is, an investment bank issuing a bond paid a rating agency to rate the bond. How it is that the agency could ever do so independently, especially where more can be earned by issuing a higher rating, attests to how blind we as a society can be to corruption. It is as though we expect people to behave as angels then act surprised when greedy conduct ensues.[1]

Just over a year after the crisis of 2008, Lloyd Blankfein, the CEO and chairman of the board (another conflict of interest) at Goldman Sachs, found himself criticized in the press for his bank’s quick resumption of risky trading on its own books (i.e., proprietary trading). That the bank had become a bank holding company—a commercial bank—at the height of the crisis in order to have access to help from the Federal Reserve—made no nevermind in terms of risk. The public’s resentment was especially harsh against the hefty bonuses at Goldman, especially because the bank had received taxpayer-funded “bailout loans” and $14 billion through AIG in a dollar-for-dollar payment to Goldman as a counter-party to AIG. Typically in such a case, the counter-party payments would have been negotiated as something less than dollar for dollar because AIG was in such a dire financial condition. That the Treasury Secretary at the time, Henry Paulson, was a former CEO of Goldman Sachs only made his approval of the taxpayer-financed payments to AIG’s counter-parties yet another instance of a conflict of interest. At the time of the financial crisis, the American political economy was riddled with such conflicts. Meanwhile, the public seemed blind to the self-serving that a conflict of interest can trigger. Even though the public was angry at Goldman Sachs for its risky proprietary trading and its bonuses after the crisis, that the bank had alums at high levels of the U.S. government went largely unscathed. Besides being in the blindspot of bystanders, a convenient conflict of interest can—incredibly enough—actually be accompanied by a certain arrogance. One might call it the arrogance of greed, as greed is scarcely able to recognize itself.

For example, Blankfein—the highest-paid CEO on Wall Street at the time—dismissed (in a published interview) the criticism of his bank out of hand and defended his exclusively market-making machine and its lavish bonuses in the wake of the taxpayer-funded bailout.[2] He claimed that in addition to being the engine of economic recovery, Goldman Sachs was providing a social function in making capital available to companies so they could expand. Astonishingly, he even claimed that Goldman Sachs was doing God’s work! One might wonder what God has to do with peddling triple-A sub-prime-based securities even while knowing they are “crap” and betting against them by borrowing some in order to sell them (at a higher price) before buying them (at an expected lower price).

Moreover, unless one takes God as being opposed to political liberty, Blankfein’s claim of Goldman’s stewardship of God’s gold is difficult to reconcile with Thomas Jefferson’s warning that banking institutions are more dangerous to liberty than are standing armies.[3] As if engaging in contrition for having overreached in invoking God, Blankfein issued a statement the next week in which he admitted: “We participated in things that were clearly wrong and have reason to regret. . . . We apologize.”[4] To be sure, Blankfein’s claim to have been doing God’s work and even his apology could have been sheer public relations. Nonetheless, it is striking that religious rhetoric had been expressed in a public square as secular as Wall Street.

Less than a century before Lloyd Blankfein, when America was a far more overtly religious society of churchgoers, John D. Rockefeller had characterized his role in expanding Standard Oil similarly in having done God’s work as a dutiful steward. In viewing Standard as saving the refining industry from its destructive competition of the late 1860s and early 1870s, Rockefeller had the Christian salvific sense of the word in mind. Adding a Jewish motif, he claimed to have offered his competitors the choice of being pulled aboard his ark or drowning. However, notably differing from Noah and Jesus, Rockefeller saw nothing wrong with facilitating the drowning of the refiners who refused to be bought up by his huge company. It was their own fault—those small, proud men who refused to join Rockefeller’s giant project of cooperation in place of the destructive competition that had caused so many refiners to go out of business in the 1860s.

Both chief executives, Blankfein and Rockefeller that is, provide us with examples of human overreaching in making commercial-religious declarations amid charges of unethical conduct. Strictly speaking, however, unethical conduct does not necessarily nullify a religious mission. Unethical divine decrees, such as God’s instruction to the Hebrews to kill even the women and children of Jericho for not converting and worshipping Yahweh exclusively, are not uncommon in the Hebrew Scriptures. God giving the devil permission to torment Job is hardly fair to that righteous man. Faith transcends what is ethically fair, perhaps because more is on the line. So Rockefeller and Blankfein could have claimed that unethical business conduct was part of their respective commercial-religious missions. In other words, unethical conduct does not in itself mean that we should disregard claims of a religious basis of a company.

It could be argued, however, that unethical divine decrees do not justify religious persons acting unethically in religions wherein humans are commanded by the divine to behave ethically. The moral commandments in the Ten Commandments, for example, such as the one that forbids bearing false witness (i.e., lying), undoubtedly render virtually any unethical business practice as incompatible with a mission based in one of the three Abrahamic religions. For example, salesmen at Goldman not telling potential clients that the mortgage-backed derivative securities are “crap” while the bank betted against them on its own books constitutes lying. The practice violates the divine prohibition against bearing false witness, and is thus incompatible with any religion that recognizes the Ten Commandments as valid in a religious sense. In other words, Goldman Sachs could not have been doing God’s work while bankers at the firm were lying to clients. Even though God, being all powerful, cannot be limited by one of our ethical principles, humans can be constrained by a divine moral decree. At the same time, as discussed above, humans can also be subject in the sense of a religious obligation to an unethical divine decree and still be in sync with the religion. It becomes tricky if following such a decree violates one of the moral Commandments. God cannot act at cross-purposes with itself, so it could be argued that no specific divine decree (in any of the Abrahamic religions) could be valid if it violates one of the Ten Commandments.

The relationship between business ethics and religion pertains to the financial crisis of 2008 on the company-end. This is not to say that religion did not also play a role on the consumer-end. Most significantly, a specifically Christian theological stance called “the prosperity gospel” was adopted by some of the sub-prime mortgage borrowers. In fact, that particular theology helps explain why they got in so far over their heads—in some cases even knowing it at the time!

Unlike Blankfein’s (and Rockefeller’s) stewardship notion, wherein doing something for God obligates one in some way, the prosperity gospel treats being rich as an entitlement not hinging on fulfilling a duty. Those first-time, lower-income mortgage-applicants subscribing to the prosperity gospel deemed being rich as a deserved entitlement granted by God as a reward for having true belief in Jesus Christ as Lord and Savior. Right belief, in other words, rather than obligation, is the justification for riches. Simply stated, the prosperity gospel holds that God wants the faithful to be rich in this world—meaning in terms of earthly goods. Adherents can cite the third epistle of John (2), which reads: “I wish above all things that thou mayest prosper and be in health.” Poverty and sickness are temporary in terms of God’s plan. Therefore, because all things are possible for God, who can move mountains after all, a true believer wanting to buy a house could be certain that he or she could take risks financially—even act recklessly—because God’s grace could deliver a miracle even if the circumstances seemed adverse at the time.[5] Paul writes, “We know that God makes all things cooperate for good for those who love him.”[6] Rockefeller built a giant monopoly to save the refining industry through the logic of cooperation rather than competition so as to minimize risk. In contrast, the homeowners who signed up for high-risk, sub-prime mortgages that they knew they could not afford left the risk to God, who can work miracles. The religious-based speculation, plus Blankfein’s denial made possibly by his claim of doing God’s work, is like a religious sandwich around the financial crisis of 2008.

From the standpoint of our earthly existence, both Blankfein’s assertion that his bank was doing God’s work and a mortgage applicant’s belief that God rewards one’s true belief with material riches involve a certain amount of presumption concerning one’s knowledge of God. To be sure, the belief that revelation comes from the source of the divine plays a role in the assumed knowledge of God’s ways. Even with Biblical passages as one’s guide, however, both denial and great risk can ensue from assuming the “divine” stewardship or prosperity gospel perspective.

Can we as mere mortals translate stewardship as God’s work down to specific concrete plans without making the Kingdom of God too much of this world rather than reflecting God’s “wholly otherness”?  This is a critique of liberation theology, by the way: that the Kingdom of God comes to be too identified with particular socio-economic structures in this world. Furthermore, can we finite beings really be so certain that we are correctly interpreting what we take as “true belief,” and, by extension, that God necessarily rewards everyone affirming that particular belief with earthly wealth?  Is the connection between religion and economics really so tight—so deterministic?

Assuming Blankfein’s “God’s work” comment was not a ploy to improve Goldman Sachs’ public relations, his application of stewardship to himself and his bank could have blinded him to the possibility that he was sailing his bank into the eye-wall of a hurricane—even strengthening the winds in so doing. Poor mortgage borrowers could have been setting themselves up to lose their homes by being blind-sided by complicit  banks stubbornly insisting on the sanctity of contract regardless of their contributory negligence and even whether they lose more money on the foreclosures than in reducing the higher payments in the out-years of the adjustable-rate mortgages.

On both sides of the mortgage/security equation, “I can’t be wrong” was given far too much validity. As Socrates points out in his dialogues, a person who is certain he or she knows piety, for instance, can be reduced to utter confusion on what the term means. The culprit here does not seem to me to be limited to pride. The human psyche may have trouble distancing its opinions from knowledge—being too friendly to our own views but also overstating a declaration’s claim to be rightly counted as knowledge. In other words, we may naturally assume that we know more than we do, even aside from the impact of pride. Treating an opinion as if it were knowledge blurs two very different categories. The human mind may be susceptible to this type of error, when enables the overemphasis on opinion (as fact).

Given the lapses to which the human mind is susceptible, even taking the validity of revelation as a given means that our grasp of the nature of the divine is as though looking through a stain-glass window. By analogy, looking at such a window in a chapel, one can see the green glass leaves in the window. Even the moving shadows of the oak leaves on the large tree just outside the window can be seen. However, the tree’s actual leaves cannot be seen through the window, and it would be foolhardy to assume that either their moving shadows on the glass or the glass leaves can be taken as the leaves themselves. Even though both the shadows and the glass leaves provide us with some sense of what the actual leaves are like, we are wont to minimize the differences and assume we are looking at the actual leaves themselves. Adding insult to injury, we typically assume that we cannot be wrong about our assumption, and we seek to disgorge any heretic for having the gall to contradict our opinion, which we take as being based on truth (i.e., the actual leaves). From the standpoint of the leaves themselves, we may be the heretics and those who disagree with our opinions could be the truth-seekers.

In short, we may subtly suffer from a natural tendency to insufficiently question (not to mention fail to notice) our assumptions even though we rely on them, and from the related lapse wherein we treat our own opinions as though they were royal facts of knowledge. In turning our opinions into little gods, we engage, in effect, in self-idolatry. Anyone who dares to commit heresy by disagreeing with one of our opinions gets fire from hell, emotionally-speaking.

Greed is a related species of self-idolatry, as the limitlessness of the internal desire for more puts its objects above the only truly unlimited good (i.e., God). In other words, greed applies a lack of limitation to the motivation for a finite, lower good as though the good were God. The lack of limitation is a signature aspect of greed. In affecting our perception, the desire that is inherently without satisfaction can cement or even extend the assumed certainty that one has regarding the validity of his or her assumptions and opinions. Accordingly, greed can blind one to one’s assumption of greater risk or severely discount its severity.

Great financial risk to oneself or one’s company, and even to the economy itself, can be assumed without the person even realizing it. Excessive systemic risk was one of the hallmarks of the financial crisis of 2008. I have already suggested how presumed godliness aided greed in enabling Blankfein and the sub-prime mortgage borrowers to discount or dismiss their respective risks. Even without the element of godliness in the economic equation, greed can motivate a person or group of people to assume much more risk than they realize and perhaps even would want in the clear light of day after a cold shower and perhaps a slap or two.

BP’s repeated shirking of safety regulations and contingency plans before the deep-water  oil rig explosion in the Gulf of Mexico in 2010 is a case of greed disregarding risk in the absence of a religious rationale.[7] The chairman of Exxon Mobil told a subcommittee of the US House Energy and Commerce Committee on June 15, 2010, that BP took risks that went beyond industry norms in pressuring Halliburton to cut corners at the Deepwater Horizon oil rig.[8] Defying common sense not to mention prudence, BP coupled profits of $16 billion in 2009 and $2.56 billion in the first quarter of 2010 with statements of zero risk of a deep-water off-shore well catastrophe. Accordingly, the company invested very little R&D in capture and clean-up technology. In their negligence that virtually assumed-away any risk because it was so far removed whereas profits could be grasped (i.e., greed), the BP managers were like the sub-prime borrowers who also ignored rather blatant risks, though the borrowers did so on account of God’s ability to work miracles rather than by distorting an assumed low-probability/high risk scenario.

To sum up, this discussion of the financial crisis of 2008, accompanied by references to Rockefeller’s commercial “Christ-spirit” and BP managers’ reckless secular greed, suggests that godliness and greed may not be as separated into different domains as might be initially supposed. In the business world, a religious rationale can actually enable greed, at least with respect to taking on excessive risk. Such a rationale can even be interpreted as a manifestation of the self-idolatry that may lie just behind godliness serving greed, even if unknowingly as under the cover of an assumed righteousness that cannot be wrong. Rather than being intentional, the enabling of greed is perhaps like that of enabling an alcoholic by supposing that just one drink won’t cause a problem.

In historical Christianity, theologians have held differing assumptions on whether profit-seeking and/or accumulated wealth point to or even trigger greed as a motive. Vulnerabilities to greed exist whether one “couples” it to wealth and/or profit-seeking or not. I contend that the vulnerabilities in the “decoupled” camp lay behind Rockefeller’s self-proclaimed incarnation as Noah or Christ at Standard Oil, and the sub-prime borrowers’ prosperity gospel (as well as Blankfein’s presumably Judaic claim of doing God’s work at Goldman Sachs while clients were being sold “crap”). Vulnerabilities in the “coupled” stance in turn kept that “camp” from functioning as a viable check. In other words, the financial crisis of 2008 and Rockefeller’s monopoly in restraint of trade were facilitated by the temptation of greed that resides in the assumption that profit-seeking and wealth need not entail or involve greed. Meanwhile, weakness in the assumption that greed is entailed or involved kept it from acting as a restraint in Rockefeller, Blankfein, and the mortgage borrowers as in, hey, maybe I’m rationalizing greed here?

Somewhere along the line in the history of Christianity, profit-seeking activity and wealth itself became unhinged from greed as the dominant theological assumption on business. I refer to the de-coupling as the “pro-wealth paradigm” and the previously-dominant “coupling” assumption as the “anti-wealth paradigm.” The term paradigm warrants some explanation.

Formally, I use the term paradigm throughout this book to mean a basic framework (e.g., of assumptions) into which theological interpretations and even schools of a similar nature on a given topic can be placed, or clustered. More than one “school” can be included in a paradigm, which after all is pretty broad. For example, I contend that two schools exist in the “coupled,” or anti-wealth, paradigm. One maintains a strict coupling, while the other loosens, or modifies, it. A more familiar example of paradigm is the laissez-faire (or free-market) ecomomic perspective, which assumes that government regulation would be harmful. That paradigm contains the assumption that a market is self-regulating (which, as Alan Greenspan would admit to a Congressional committee, was undercut by the credit freeze during financial crisis of 2008). The European “social model” is also a paradigm. That one assumes that government has a legitimate role in providing a “survival floor” or “safety net” for the citizens. If the word paradigm itself is too abstract, simply think general framework of a few basic assumptions and you will be good to go.

In arguing that a shift took place wherein the pro-wealth paradigm came to dominate the anti-wealth paradigm, I am well aware that no one period or culture has but one interpretation on a given topic. Therefore, for any given period, I try to include views that did not dominate among the theologians. Out of such diversity, I assume that a dominant paradigm, school of thought, or even a particular stance can be discerned for the period by looking at the writings of its theologians, and even at how later theologians react to the various positions in the period. If most of the later writing punce on the dangers in a certain paradigm as represented a century or two before, for example, chances are that paradigm held some sway or the dangers would not have aroused so much attention. Very little if anything was written in 2000 on the dangers of communism in the U.S. because the U.S.S.R. had collapsed roughly a decade before and the ideology was not much of a threat in the U.S. as a result. In contrast, following the financial crisis of 2008, quite a bit was written about the free-market economic paradigm because it had been dominant since the Reagan administration.

Taking a drive through history pointing to tussles between paradigms or even schools within a paradigm can be a pretty abstract journey. Therefore, I try to accommodate readers who want at least a few pictures for their imagination by including three historical businessmen who can be taken as personifying important stages in the history of ideas covered in this book. In turning now to a brief overview, or “map,” of our upcoming journey through the historical ideas, I begin by discussing the three men we will meet along the way as a way into the material.

The first case study is on Godric of Finchale, a former merchant trader who lived as the Commercial Revolution of the eleventh and twelfth centuries was getting under way. In spite of having traded ethically, he assumed he had to give up all of his accumulated “buried treasure” in order to gain salvation. As a hermit, he lived in the tradition of Cuthbert. For our purposes, Godric can be viewed as personifying the assumed coupling of profit-seeking and wealth to greed quite strictly. That anti-wealth school had been dominant in early Christianity before Augustine’s later works, which modified the school by loosening the assumed coupling of wealth and greed. That moderated school of thought would not be chosen weapon, however, to face an awakening pro-wealth consciousness during Commercial Revolution. Rather, in line with the monastic teachings of Francis of Assisi and example of Godric of Finchale, the strict school would trounce Augustine’s relatively vulnerable moderated school.

How long the anti-wealth paradigm’s dominance lasted and when the shift toward a dominant de-coupling took place are major questions that I address in this book—including most importantly why it took place. The journey itself must be taken before we can look back on the entire route and fully appreciate the value in the why, so on we go with our preface tour.

The other two major case studies in the book are on two major figures in the history of business, representing the banking and the refining industries, respectively. Cosimo de Medici personifies Christianity with respect to profit-seeking and wealth during the Renaissance. I contend that wealth (and profit-seeking) had been de-coupled from greed in Christianity by Cosimo’s retirement in the mid-fifteenth century. Therefore, he personifies the pro-wealth paradigm before the Reformation. Even though the paradigm had achieved dominance as if by de Medici’s say, pro-wealth “decoupling” had been a minority report of sorts among theologians in Godric’s day, as well as when the paradigm had been presented in Augustine’s early works and to an extent before then in Clement of Alexandria’s sermon on the rich man.

John D. Rockefeller at the helm of the Standard Oil Co. can be viewed as personifying not only the pro-wealth paradigm, but also how successful the Reformers were in keeping it from lapsing into (unintentionally) advocating greed. The prosperity gospel itself can be understood as the ultimate outcome as far as the Reformers’ various defenses are concerned.

In short, Godric, Cosimo and John D. represent the dominance of the anti-wealth paradigm, the triumph of the pro-wealth paradigm, and the Reformation as a reaction to this shift. Our story actually begins before the anti-wealth theologies of early Christianity, back with the pre-Christian, Greco-Roman thought of Homer and Aristotle on natural wealth and Plato and Cicero on justice; both of these concepts would find their way into Christianity. My formal thesis—that which all the preliminaries lead up to—concerns the shift from the dominance of the anti-wealth paradigm to that of the pro-wealth paradigm. I contend that the transition got off the ground with Aquinas and was complete in the writings of many of the fifteenth-century Christian “Humanist” theologians who lived in thriving Itialian city-states two centuries before the Protestant work ethic.

The shift itself was gradual and in a “back and forth” manner, rather than turning on a pivot as if a light switch had been turned on (or off) on New Year’s Eve at midnight in 1250 or 1450. Contrary to Max Weber’s interpretation that treats the Calvinists of the Reformation as the turning point, I contend that no event or even period can be pointed to as the definitive pivot in the decoupling of profit-seeking and wealth from greed.[9] Moreover, intellectual history is not as smooth as it may seem in a generalized retrospective skimming over the centuries. I tend to view the twentieth century as decadent, though such a generalization does not do justice to the incredible technological progress (though even this, as per an implied materialism, could be indicative of a culture in decline).

Because my thesis on when the shift took place may be viewed as a refutation of Weber’s famous thesis, I want to address any relation to Weber here at the outset before launching into the history. It is partially true that my thesis refutes Weber’s theory. I argue that rather than developing further in the Reformation of the sixteenth and seventeenth centuries, the pro-wealth paradigm was checked, although only temporarily, by the Reformers’ various degrees of pessimistic thought on wealth. Luther’s ideas are definitely in line with the economy of antiquity as well as  with coupling wealth with greed, and even Calvin’s writings on the topic do not include industriousness as a virtue (which favors profit-seeking), unlike the Calvinists who followed him in the seventeenth century. We know in retrospect that in spite of the Reformers’ efforts to halt the “de-coupling” that permits great wealth out of concern that the latter could stimulate greed (i.e., the old “coupled” assumption), the pro-wealth paradigm would go on to eventually embrace the prosperity gospel. It is almost as if I can hear Luther and even Calvin looking at the twentieth-century pro-wealth gospel from beyond the grave and letting out an exasperated, “Oops, looks like we didn’t pull back enough on that horse’s reins!” In other words, the horse had run out of the barn.

Weber argues that psychological motivation related to Calvinism contributed to the impetus requisite for the formation of capital in capitalism. I argue that the theological interpretations on profit-seeking and wealth of the major seventeenth-century Puritan Calvinists “split the difference” as far as the two paradigms are concerned. This claim is different than that which is oriented to psychological motivation. It is possible, for example, that a theological statement, such as one that values asceticism, is theologically against profit-seeking and yet sparks psychological motivation that furthers capital accumulation. Theological interpretation and psychological motivation are different things, even as they can be related. In other words, theological statements can be distinguished from their psychological effects, potentially allowing for my unknown thesis and Weber’s celebrated theory.

However, if the “decoupled” theological writings of the Christian Humanists of the fifteenth century triggered psychological motivation to earn and accumulate wealth even if it was not pooled as capital, Weber’s privileging of the psychological motivation from seventeenth-century Calvinism may be unjustified. Furthermore, if Weber’s thesis includes the claim that Calvinist theology (i.e., aside from the motivation) is wholeheartedly pro-wealth (i.e., “uncoupled”), then my thesis on Calvinism challenges his thesis in this respect too.

Rather than viewing the Calvinists following Calvin as pushing along the already-dominant pro-wealth paradigm, I argue that they, as well as the major Reformers generally, feared that the fifteenth-century Christian Humanists as a whole had moved Christianity too close to the brink of advocating greed. That is to say, the Reformers’ theological writings on economics are oriented to forestalling love of gain from gaining respectability (or even inclusion) in Christianity. I examine relevant writings from Luther, Calvin, and major Calvinist Puritan divines.

Regarding how the Reformers attempt to pull back on the pro-wealth paradigm in their writings, I argue that the theologians draw on the tradition of justice as love and benevolence. This tradition, which quite a bit from principles of modern legal justice as personified by Shylock demanding a pound of flesh in Shakespeare’s Merchant of Venice,  had entered Christianity through Augustine, who in turn had drawn on Plato and Cicero. After Leibniz, the tradition lost out to theories of positive legal justice. Although Augustine and the Reformers draw on the tradition in line with the anti-wealth paradigm (universal benevolence being quite a drain on wealth), I contend that the various Christian versions are vulnerable to internal tension. This weakness partly explains why the pro-wealth paradigm succeeded in achieving and maintaining its dominance. What the Reformers were worried about can be seen by contrasting Godric, who personifies the anti-wealth paradigm, with Cosimo de Medici and John D. Rockefeller, both of whom personify the pro-wealth paradigm. I contend that both de Medici and Rockefeller illustrate how godliness can be put in the service of greed in line with the pro-wealth paradigm.

Although most of this book’s pages are dedicated to laying the groundwork for the anti-wealth paradigm and tracing the actual shift of Christian thought on profit-seeking and wealth in relation to greed, the dramatic climax comes when the focus turns to explaining the shift and paradigms’ respective susceptibilities to greed. Although vulnerabilities in the anti-wealth paradigm compromised its ability to accommodate or check the oncoming pro-wealth ferver, I look particularly at the lapses of the pro-wealth paradigm and problems with the Reformers’ various degrees of defense against such lapses in asking why.

Rather than merely examining contextual (i.e., economic) changes such as increasing trade or commercial activity, I train my lenses on Christianity itself  to ask whether some element in Christian theology is at fault, or whether the source is merely a misinterpretation that has taken root since it arose sometime during or after the Commercial Revolution. If the source of the problem is in the theology itself, can the “damaged gene” be fixed? If the problem is merely a pattern of misinterpretation that inadvertently risks creating an opening for greed in Christian thought, can the faulty assumption be found and replaced with another that is more solid? In short, the question is whether Christian theology is too much of the world rather than merely in it.


1. As a recent college graduate working in public accounting, I was completely unaware of the inherent conflict of interest in the tick-mark, “As per comptroller, discrepancy resolved.” The regularity of the tick-mark among others in everyday use kept me (and I assume my colleagues) from recognizing the lapse involved in the tick-mark itself. How could an independent audit take a comptroller’s word for a discrepancy?
2. John Arlidge, “I’m Doing God’s Work. Meet Mr. Goldman Sachs,” Sunday Times, November 8, 2009.
3. Thomas Jefferson to John Taylor, Monticello, May 28, 1816, in The Writings of Thomas Jefferson, ed. Paul L. Ford (New York: G.P. Putnam’s Sons, 1892-1899), 11: 533.
4. Graham Bowley, “$500 Million and Apology from Goldman,” New York Times, November 17, 2009, A1.
5. Hanna Rosin, “Did Christianity Cause the Crisis?” Atlantic Monthly 304, no. 5 (2009), 38-48.
6. Rom. 8:28.
7. Trading safety for saving on cost and time, BP managers opted for a “long string” pipe for the well rather than a liner tieback that would have cost $7 million to $10 million but would have added barriers to prevent gas from reaching the surface. Also, BP engineers used just six “centralizers,” rather than twenty-one as recommended by Halliburton, to stabilize the well before cementing it. According to an April 16, 2010, email from BP’s well team leader, the problem was that the extra centralizers would have taken ten hours to install. Another official emailed later that day of the decision: “Who cares, it’s done, end of story, will probably be fine.” BP also skipped a test to determine if the cement had properly bonded to the well and rock formations. A petroleum engineer independent of BP told a congressional committee that the decision not to conduct the test was “horribly negligent.” BP managers also decided not to take twelve hours to completely circulate the heavy drilling fluid in the well that would have enabled detection and removal of any leaking gas. Lastly, BP managers ignored reports from employees at the rig that bits of rubber were coming up from the blowout preventer. Neil King, Jr., and Russell Gold, “Congress Says BP Crew Focused on Costs,” Wall Street Journal, June 15, 2010, A5. In terms of BP’s contingency planning for a well rupture, technological claims were made that turned out not to be the case because the actual capture and clean-up measures attempted did not reflect them. Chairman Ed Markey of the U.S. House Energy and Commerce subcommittee on energy and environment said his subcommittee found several oil companies’ oil spill response plans to be “identical” and “ineffective.” Markey noted that “(i)n some cases, they use the exact same words”—right down to the same irrelevant promises to protect walruses, which don’t live in the Gulf of Mexico (the arctic being a bit further north). Alex Johnson, “Oil Patch Rivals Turn the Screws on BP,” MSNBC 2010, http://fieldnotes.msnbc.msn.com/_news/2010/06/15/4511915-watch-live-competitors-turn-on-bp (accessed June 15, 2010).
8. Johnson, “Oil Patch Rivals.” The use of the term “stewardship” here comes from the journalist rather than the executive.
9. Max Weber, The Protestant Ethic and the Spirit of Capitalism, trans. Talcott Parsons (New York: Scribner’s Sons, 1958).


Breaking Up the Biggest Banks: The Impact on Moral Hazard

Citing the “slap on the wrist” culture at the U.S. Federal Reserve and the Securities and Exchange Commission (SEC), U.S. Senator Elizabeth Warren called on Congress in April 2015 to break up the big banks such as Bank of America, Citigroup, JPMorgan Chase, and Goldman Sachs.[1] She coupled the ‘break-up” approach to reducing the systemic risk with limiting the Fed’s ability to bailout individual banks. The synergy in Warren’s approach is worthy of further analysis.

The full essay is at "Breaking Up the Biggest Banks."




[i] Reuters, “Elizabeth Warren Calls on Congress to Break Up the Big Banks, Change Tax Rules,” The Huffington Post, April 15, 2015.

Monday, April 6, 2015

Wall Street CEOs Suffering with Lower Pay: Self-Preservation or Greed?

As much as the titans on Wall Street pull in during a year, they still want more. It must be human nature. If so, nature may be at odds with narrowing economic inequality. Even as 2014's compensation figures show such a narrowing, I suspect that such a case is an exception rather than being indicative of a fundamental shift.

The CEOs of the five largest U.S. banks made on average 124 times the average worker at the banks in 2014. The corresponding figure for 2006 is 273 times. The CEOs were not hurting in 2014, however; collectively, they got $92.5 million ($18.5 million per CEO on average). The collective figure for 2006 is $173.6 million.[1] Meanwhile, the banks’ employees saw their compensation rise by 17% to $148,740 from $127,379. According to The Wall Street Journal, the increased reserve requirements under the Dodd-Frank Financial Reform law of 2010 made it costlier for the banks to increase profits by taking on more debt (i.e., leverage), and the CEO pay suffered accordingly.

Suffering may not be the best term to describe a CEO’s average pay of roughly $18 million per year. How much of that figure can even a person awash in luxury spend in a year? Doubtless, a significant amount is invested. Were I among that elite cadre, I would lean toward investing as much as I could so that one day I could live comfortably and with security of mind off the investment income. A job cannot be relied on in perpetuity. Even investing in just one company (e.g. Enron) or even one industry entails some risk. Moreover, I would diversify my portfolio internationally with security of mind foremost in mind.

I mention “security of mind” because the economizing instinct does not turn off after a certain level of income or wealth has been achieved because the future is almost by definition uncertain. Put another way, you never know for sure whether what you have stored away in a savings account will be enough even for survival needs. So the bank CEOs were probably scrambling in 2014 to come up with non-leveraged ways of increasing earnings per share as if $18 million were not enough. This is an instinctual rather than a rational dynamic although reason does confirm that nothing in the future is absolutely certain.

Profit-seeking activity and accumulated wealth do not necessarily indicate the presence of greed, or love of economic gain.[2] So it is possible to go on with the economizing instinct without necessarily being greedy. Where the instinct is exaggerated or multiplied into an obsession, however, love of gain is very likely in the mix. For the 5 CEOs, reaching the point of being able to live off very well diversified investment income is quite possible. At that point, whether or not the CEO continues on with the instinct may give us a sense of whether greed has taken over.

From my own experience, I have struggled with whether to stockpile too much food in case I ever need it. For instance, I spent Easter 2015 volunteering at a Christian church’s meal for the impoverished and food pantry. I was selected for heavy labor on the tables since I was the youngest among the volunteers (which really says something). Before the meal, I could go through the pantry myself to get some food supplies. Even though the volunteer taking me through the pantry would not have curtailed my appetite to stockpile, I kept well within the allotment that anyone would get.[3] The following day, however, I could have returned to the church and helped myself to still more, but I asked myself, How much is enough, really? Sure, I could have used the additional food, but I could not shake that question, so I did not avail myself of the church’s generously-stocked outdoor cabinet that was always open; I would not abuse the church’s openness, which I had seen so little of when I had volunteered at food pantries in my rather sordid hometown. My point here is that I felt the instinct to stockpile and I could see its relation to food-security, yet I could not cleft the presence of the economizing urge from what greed might have been in me at the time. At any rate, a normative constraint can indeed be efficacious against the instinct and/or greed, though I don’t think a society can rely on such a check.

That even a Wall Street CEO cannot be absolutely certain that he or she would not want for necessities ever again leaves open the possibility that the economizing instinct—being inherently without a limit (i.e., a maximizing variable)—could still be operating rather than or more so than love of gain. Distinguishing the motive of self-preservation, which Thomas Hobbes emphasizes in Leviathan, from loving economic gain (not to mention taking it as an end in itself) is difficult. Whether a person seems to be obsessing on getting as much money out of other people as possible, especially if coupled with a willful disregard for related harm, however, can be taken as a good indicator of greed.



[1] Peter Rudegear, “Wall Street’s Pay Gap Slims,” The Wall Street Journal, April 6, 2015.
[2] Clement of Alexandria, a theologian in early Christianity, stressed that a person can be rich and yet cap his or her desire for more at the level of necessities. Augustine would disagree, and thus place limits on wealth before it can be taken as being indicative of underlying greed. See Skip Worden, God’s Gold: Beneath the Shifting Sands of Christian Thought on Profit-Seeking and Wealth,” ch.s 3 and 4.
[3] The ham supper was excellent, by the way. Just before the meal, people wanting food from the pantry were given tote bags with numbers attached, As they were called during the meal, the individuals would go to the pantry room and quickly return to their meal. I had the pleasure of sitting with a mix of low-income people and church members. I was impressed that everyone got into a discussion of the U.S. Civil War. We even had a confederate!  Our table was a microcosm of society re-integrated. In contrast, the Wall Street CEOs doubtless live in their own world, and sadly so do most poor people.