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June 09, 2012 10:38 AM The Banksters Are Clueless

By Ryan Cooper

Speaking of Jon Stewart, Jim Fallows flagged this excellent interview with former Bain executive Edward Conard, author of a new book lauding the virtues of private equity:


It’s a great interview, but not exactly for how Stewart picked him apart. Fallows does a better job countering Conard’s attempt to take credit on behalf of Wall Street for all the innovation in America’s tech sector:

The destructive and false part was his assertion that the only causal factors worth talking about are tax rates and income share for people at the top of the economic distribution.
I think any fair-minded observation of the world shows that other factors matter more in America’s pro-entrepreneurial climate. My list would start with: openness to immigration and outside talent; strong university-based research systems; world’s largest domestic market as incubator; rule-of-law and culture of venture capital (as opposed to absolute income share for venture capitalists); supportive “innovation in a garage can lead to glory” concepts and the related ideal of mobility and opportunity; and so on. A lot of my recent writing has been about why China, in particular, will have trouble matching this range of advantages — and why America will be at risk if we neglect or throw away the pillars of our ongoing wealth.
Moreover: there is no plausible evidence that income inequality like today’s is necessary for this creative climate. How could it be, if most of the success stories on Conard’s list — Microsoft, Apple, Google — in fact got their start when tax rates were higher and income inequality was lower than today’s levels? Does any sane person think that Bill Gates and Paul Allen would not have started Microsoft if Gates had thought he would end up with $20-some billion rather than $50-some billion? That Steve Jobs was driven mainly by money? That Sergey Brin and Larry Page would have given up on Google if they thought they’d end up as only minor rather than major billionaires? That Mark Zuckerberg is quitting Facebook because the IPO is making him a lot less rich than he might have hoped?

Or, as one of Fallows readers put it:

It’s a kind of economic creationism: we can’t possible have an economy if we don’t totally focus on growth and innovation, to the utter ignorance of sustainability, stability and the survivability of those whose lives don’t happen to involve innovation.

All very good, worthwhile and true. But for my money the best part of the interview is how Conard sounded. Even though Stewart didn’t ask the most probing questions one could have imagined, Conard couldn’t answer them anyway, and he was clueless as to how he was coming off.

This is an increasingly glaring trait among the banker class—their total disconnection from the rest of the population. Probably the best example of this was from Blackstone head Steve Schwarzman, who compared Obama’s proposed increase in the capital gains tax to Hitler’s invasion of Poland. A disgusting thing to say, sure, but more importantly it reveals the enormous, tottering egos among the Wall Street titans and their lack of understanding how the rest of the country thinks. It suggests that anyone courageous enough to run against Wall Street FDR style would not only garner significant benefits rhetoric- and enthusiasm-wise, but would probably provoke a hysterical, unhinged over-reaction.

Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

Comments

  • Califlander on June 09, 2012 12:22 PM:

    ... anyone courageous enough to run against Wall Street FDR style would not only garner significant benefits rhetoric- and enthusiasm-wise, but would probably provoke a hysterical, unhinged over-reaction.

    FDR provoked a "hysterical, unhinged over-reaction," remember? The man who saved capitalism in this country was the target of a plot to launch a military coup.

  • fostert on June 09, 2012 12:28 PM:

  • c u n d gulag on June 09, 2012 12:58 PM:

    "Unintended Consequences," my fat ass!

    If they were so "unintended," then how could you have made money by covering your bets with another bet that the consequences would be feckin' disastrous?!?!?!?!?!?!?!

    You and I can't go to a Casino, go to the roulette table, and bet $1 b1llion of other people's money on black to win (you'll collect a nice share of that $1B as a commission, btw), and then turn to the croupier and make a side bet of $2 billion that it'll be red, but if it IS black, you win and you get to keep your share of the $1B, but if it's red and you "lose," the House still has to pay you the whole $2B.

    Try that with $100 at a local Casino, and see if you get anywhere with that.

    WE can't do that.
    THEY DID!!!

    Yeah - completely 'un-feckin'-intended.'
    BS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • T-Rex on June 09, 2012 1:01 PM:

    I haven't read Conard's book and it's probably unfair of me to judge it based on excerpts, so I'll go ahead and do it anyway. Conard thinks every entrepreneur is motivated by money, and therefore will be more motivated by the chance to get more of it, because he isn't capable of imagining any other motivation. He famously sneers at the sort of "losers" who "major in art history" instead of in the subjects likely to launch them on careers that will get them rich. Love of the subject material doesn't even cross his mind as a reason for studying it. Unfortunately for him, a lot of those careers also involve the hard sciences, on which he and his banker pals depend for the actual technical advances that make it possible for them to gamble on the success of a business. That's why they see no problem with tax cuts for the rich and budget cuts for the states that will gut this country's research universities.

  • Jimo on June 09, 2012 1:28 PM:

    Conard seems to believe that because HE is completely motivated by money that everyone else is too. Sure, money can be motivating in two ways: (a) if you have nothing and you need money just to exist above subsistence levels (rare but totally motivating if you find yourself here), and (b) as a measure of relative societal value v-v other people (to the extent you value have a bigger X than your stupid brother in law).

    But all these examples of "success" he notes are people who clearly were not primarily motivated by money. At least, they weren't motivated primarily by such. Heck, I doubt if you went back to the dormroom or garage where these guys got their start that those atavistic kids even knew what a capital gains tax rate was (even in the abstract).

    Steve Jobs is revealed in Walter Isaacson's biography as being mesmerized with calligraphy. In retrospect, its clear that Jobs had quite an appreciation for design. But contrast this with Conard. Who can doubt that if Conard and Jobs could have been placed in the same room back in the day and Jobs prompted to start rhapsodizing about calligraphy that Conard would have dismissed Jobs as a Loser with a capital 'L'?

    It's not so much that Conard is wrong about the core substance of his own expertise, it's that he believes that his narrow range of knowledge explains the world (made worse by the fact that he is given a massive financial reward for so believing, combined with the fact that Conard is highly attuned to financial rewards).

  • TCinLA on June 09, 2012 1:41 PM:

    I'm sure their egos aren't so big they won't easily fit inside a noose when Payback Day comes. And like the French aristocrat crying "why me?" as he rode the cart to the guillotine, they will never understand as they kick and twitch at the end of the rope why they are there.

  • cthulhu on June 09, 2012 4:26 PM:

    As Ryan notes, there's this very obvious attitude that whenever Jon brings up the middle class suffering real economic pain or various aspects of the Commons getting gutted, Conard's tone is basically "well, no one wants that...but it's not my problem."

    We're all against murder but should we really have regulations that keep banks from investing in high growth potential industries such as the Mafia? After all you can't be 100% sure murders would increase, right?

  • James M on June 10, 2012 1:42 AM:

    Didn't someone write a book to the effect that 'sometimes really smart people are really dumb'? In any case, it seems to be that way for the bankers. They have apparently turned against BO, even though he angered large chunks of his base by bailing them out.

    Of course, as most of you have pointed out, creative people and entrepreneurs are almost never motivated by money alone. Also, money per se is actually irrelevant to wealthy people in many ways. I read an article about oil millionaires during the oil boom (in the late 80s, I think). The article mentioned that Texas oilmen had coined a slang term for 100 million dollars. They referred to this amount as a 'unit'. People would get together at parties and have discussions like*

    "How are you doing?"
    "Okay, I got a couple of units."

    The money was just a way of keeping score for these guys and had no connection to their actual lifestyles or well-being. In the now-dated, "The Rich and the Super Rich", the author stated that if you had over 5 million dollars you were basically set for life unless you a total idiot(Of course, those were the days when CDs paid nearly 10% annual interest!). However, his basic point still holds.

    The heads and chief executives of major banks and Wall Street investment firms are already so rich that they (and probably their children as well) will obviously never have to worry about money again in their lives. So, what do they want? Diminishing returns must apply to great wealth as well, and there is simply a limit on how many mansions and luxury cars you can own and enjoy.

    Don't these people realize that their policies,taken to the extreme, would transform America into a South American type 'Banana Republic' almost overnight? Do they really want to be forced to live in grated communities and hire armies of private bodyguards to escort themselves and their families to work and school. Do they really want to chauffeured through tent cities and shanty towns on their way to work every morning? I just don't get it!

  • Anonymous on June 10, 2012 9:34 AM:

    "...an increasingly glaring trait among the banker class—their total disconnection from the rest of the population..." This is a special case. the glaring trait among businessmen is their assumption that they must -- in order to function, and of right -- be above the law. If the law were to be enforced, the American economy would halt by nightfall. The rule of law can be incrementally degraded, but it cannot be incrementally restored. Persons who have internalized impunity cannot be subsequently convinced that they are accountable.

    As for innovation, all of our substantive macroeconomic debates are about the steam engine. We have not faced up to its implications, two hundred years on.

  • Frank Wilhoit on June 10, 2012 9:37 AM:

    the comment above containing the word "impunity" was mine -- slip of the hand -- anonymous commenting is of course impermissible and I apologize.