I contend that the regulatory failures that led to the crisis and the shortcomings of regulation since are largely derived from a failure to identify the persons responsible for bad decisions. Banks cannot take decisions, exhibit behaviour, or have feelings – but individuals can. The solution lies in reforming the governance set-up and realigning incentives faced by banks’ management.
Recent regulatory problems have been greatly reinforced by a widespread tendency to apply human characteristics, i.e. to anthropomorphise, to an inanimate institute, in this case a bank. We tend to talk about Bank X having assumed too much leverage, or having behaved in an improper fashion—rather than management of Bank X did such and such; We say that Bank X got bailed out rather than the creditors and clients of Bank X got bailed out.
.. When bad behaviour occurs at a lower level, e.g. traders conspiring to rig Libor, or junior employees mis-selling products onto uninformed customers, should managers, directors and CEOs be able to shelter behind the fact that they did not know what was going on? Should they, could they, have taken steps to find out? There is surely a case for reversing the burden of proof. Each manager should be held responsible, and subject to suit, unless they can demonstrate that they took all reasonable measures to oversee and to constrain the actions of their juniors.
..We would be told that such measures would make banks unduly risk averse and prevent qualified bank managers going into the profession. Where is the evidence for that? Banking worked on the basis of unlimited liability up to the second half of the 19th Century, and banks then took plenty of risks.
.. Avgouleas and Goodhart argue that history shows that when a bank’s difficulties reflect broader macroeconomic problems rather than bank-specific issues, imposing haircuts on creditors of one bank is likely to accelerate panic and risks contagion to other institutions, which may require public funds to shore up the system as a whole.
.. If, instead, incentive structures were changed to impose appropriate penalties for failure on the banker, then bankers would themselves choose whatever structure, perhaps smaller and simpler, would provide them with an acceptably reduced chance of failure.
.. Managers on the spot will have a better idea of what they can safely undertake, than illustrious independent outsiders.
.. If a bank CEO knew that his own family’s fortunes would remain at risk throughout his subsequent lifetime for any failure of an employee’s behaviour during his period in office, it would do more to improve banking ‘culture’ than any set of sermons and required oaths of good behaviour. The root of the problem is the bad behaviour of bankers, not of banks, who are incapable of behaviour, for good or ill. The regulatory framework should be refocused towards the latter, with a focus on reforming incentives.
A Bigger Problem Than ISIS?
The Mosul Dam is failing. A breach would cause a colossal wave that could kill as many as a million and a half people.
.. The wave, the Embassy’s report predicted, would move rapidly through the cities of Bayji, Tikrit, and Samarra, wiping out roads, power stations, and oil refineries; damage to the electrical grid would probably leave the entire country without power. At least two-thirds of Iraq’s wheat fields would be flooded.
.. “Less than six inches of moving water is strong enough to knock a person off his feet,”
.. Within four days, the wave would reach Baghdad, depositing as much as sixteen feet of water in many areas of the city, probably including the airport and the Green Zone, the site of government buildings and most of the embassies.
.. By the time the flood wave rolled past Baghdad and exhausted itself, as many as one and a half million people could be dead. But, some experts told me, the aftermath would prove even more harrowing. “I am not really worried about the dead—because they’re dead,” Alwash said. “What worries me is everyone else. How do you feed six million people in Baghdad when it’s flooded? How do you give them electricity? Where do they go?”
.. A third option, which has lately gained currency, is to erect a “permanent” seal of the existing dam wall—a mile-long concrete curtain dropped eight hundred feet into the earth. This would cost an estimated three billion dollars.
Partisan Bias in Factual Beliefs about Politics
Partisanship seems to affect factual beliefs about politics. For example, Republicans are more likely than Democrats to say that the deficit rose during the Clinton administration; Democrats are more likely to say that inflation rose under Reagan. We investigate whether such patterns reflect differing beliefs among partisans or instead reflect a desire to praise one party or criticize another. We develop a model of partisan survey response and report two experiments that are based on the model. The experiments show that small payments for correct and “don’t know” responses sharply diminish the gap between Democrats and Republicans in responses to “partisan” factual questions. The results suggest that the apparent differences in factual beliefs between members of different parties may be more illusory than real.
How American Politics Went Insane
It happened gradually—and until the U.S. figures out how to treat the problem, it will only get worse.
.. . Donald Trump, he said, is “a chaos candidate, and he’d be a chaos president.” Unfortunately for Bush, Trump’s supporters didn’t mind. They liked that about him.
.. Trump, however, didn’t cause the chaos. The chaos caused Trump. What we are seeing is not a temporary spasm of chaos but a chaos syndrome.
.. Chaos syndrome is a chronic decline in the political system’s capacity for self-organization. It begins with the weakening of the institutions and brokers—political parties, career politicians, and congressional leaders and committees—that have historically held politicians accountable to one another and prevented everyone in the system from pursuing naked self-interest all the time.
.. Americans have been busy demonizing and disempowering political professionals and parties, which is like spending decades abusing and attacking your own immune system. Eventually, you will get sick.
.. A radical who wanted to get into the Senate would need to get past the state legislature, which selected senators; a usurper who wanted to seize the presidency would need to get past the Electoral College, a convocation of elders who chose the president; and so on.
.. Unlike the British parliamentary system, the Constitution makes no provision for holding politicians accountable to one another. A rogue member of Congress can’t be “fired” by his party leaders, as a member of Parliament can; a renegade president cannot be evicted in a vote of no confidence, as a British prime minister can.
.. The middlemen could be undemocratic, high-handed, devious, secretive. But they had one great virtue: They brought order from chaos. They encouraged coordination, interdependency, and mutual accountability. They discouraged solipsistic and antisocial political behavior.
.. The system was hierarchical, but it was not authoritarian. Even the lowliest precinct walker or officeholder had a role and a voice and could expect a reward for loyalty; even the highest party boss had to cater to multiple constituencies and fend off periodic challengers.
.. Though sometimes arrogant, middlemen were not generally elitist. They excelled at organizing and representing unsophisticated voters, as Tammany Hall famously did for the working-class Irish of New York, to the horror of many Progressives who viewed the Irish working class as unfit to govern or even to vote.
.. Primary races now tend to be dominated by highly motivated extremists and interest groups, with the perverse result of leaving moderates and broader, less well-organized constituencies underrepresented.
.. only 17 percent of eligible voters participated in Republican primaries, and only 12 percent in Democratic primaries. In other words, Donald Trump seized the lead in the primary process by winning a mere plurality of a mere fraction of the electorate.
.. “This led to a plentiful supply of quality candidates willing to enter races, since the potential costs of running and losing were largely underwritten by the party organization.” The switch to direct primaries, in which contenders generally self-recruit and succeed or fail on their own account, has produced more oddball and extreme challengers and thereby made general elections less competitive.
.. Walled safely inside their gerrymandered districts, incumbents are insulated from general-election challenges that might pull them toward the political center, but they are perpetually vulnerable to primary challenges from extremists who pull them toward the fringes. Everyone worries about being the next Eric Cantor
.. Campaign-finance rules did stop some egregious transactions, but at a cost: Instead of eliminating money from politics (which is impossible), the rules diverted much of it to private channels.
.. “Stake out a position to the right of where his leaders will end up, criticize them for ignoring him and conservative grass-roots voters, then use the ensuing internecine fight to stoke his presidential bid.” No wonder his colleagues detest him. But Cruz was doing what makes sense in an age of maximal political individualism, and we can safely bet that his success will inspire imitation.
.. Smoke-filled rooms, whatever their disadvantages, were good for brokering complex compromises in which nothing was settled until everything was settled; once gone, they turned out to be difficult to replace.
.. TV cameras, recorded votes, and public markups do increase transparency, but they come at the cost of complicating candid conversations.
.. Pork-barrel spending never really cost very much, and it helped glue Congress together by giving members a kind of currency to trade: You support my pork, and I’ll support yours. Also, because pork was dispensed by powerful appropriations committees with input from senior congressional leaders, it provided a handy way for the leadership to buy votes and reward loyalists.
.. Congress has not passed all its annual appropriations bills in 20 years, and more than $300 billion a year in federal spending goes out the door without proper authorization.
.. Pathogens
donald trump and other viruses