Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

In all these realms, not only is unaccountability a problem: the public trust is under siege.

TRUTH UNHINGED

How did that happen? For one thing, many of the old pillars of truth have gone wobbly.

Signature institutions such as media and finance have lost the ability to themselves judge the truth, much less to be accurate purveyors of it. The Washington Post , the paper that toppled a president (Richard Nixon), now casts a very faint shadow, bought recently by a tech billionaire, Amazon’s Jeff Bezos. Jamie Dimon and JPMorgan Chase, which came out of the 2008 financial crisis with a better reputation than many of its peers, has had that reputation battered by the “London Whale” trading fiasco.

The almost willful lack of clarity about the value of the financial instruments and complex derivatives being held or traded was at the core of the 2008 collapse—and reportedly continues today. And the real-world impact of exotic or opaque deal-making is wholly removed from the way traders are compensated, encouraging them to push the limits and “innovate.”

Recall the expression “Let’s listen to what the market says.” Markets were said to function as harbingers of truth and barometers of the state of the world. That was back when banks still knew, more or less, what holdings they had, and traders knew the value of what they were trading. Information was, and is, of course, never as perfect as the economic orthodoxy had it. But with the proliferation of obscure financial instruments, prices have become much more disconnected from reality. Markets convey a lot less truth about the intrinsic value of what they are selling than they did just a few years ago, and this disconnect now underpins the financial system. 18

The “rational” models of risk—such as the computer-generated ones we’ll explore later—that have taken hold, and the titanic faith placed in them at the expense of on-the-ground analysis, have abetted the disconnect not only from the people supposedly served by them but also from reality. Former trader and sociologist of finance Vincent Antonin Lepinay, who spent nearly two years studying derivatives in a French bank, writes that “the bank itself did not always assess properly its risks and costs. Only after having launched these innovative products did it try to devise ways of counting them and measuring their costs.” Moreover, both clients and investors were kept in the dark about the bank’s “secret and opaque strategies,” and there was no mechanism in place by which investors owning shares could monitor its strategies. 19

Anthropologist of finance and political economy Alexandra Ouroussoff agrees. She spent several years studying rating agencies (such as Moody’s, Standard & Poor’s, and Fitch) from the inside in the years leading up to the 2008 financial crisis. She argues that this dominant new (unspoken) model—which has come into being since the 1980s—posits, incredibly, that profits can be made without taking risks. This is distinct from previous conceptions of capitalist profit-making, where risk was intrinsic to competition. 20As a result, corporate executives massage their numbers much more frequently to conform to what she calls the “rationalist model” compelled by rating agencies. As one executive told Ouroussoff, “We used to lie twenty per cent of the time. Now it’s eighty per cent.” 21

With finance barely understandable even to many practitioners, we can’t count on the media to explain it clearly. That landscape has been flattened by the Internet. As we shall see in Chapter 5, the standing of the media, whether old or new, as an accurate purveyor of truth has also been undermined. The Internet age has both ravaged the ranks of journalism and inundated us with “information” that is questionable in accuracy and obscured in sponsorship. We seem to increasingly accept “facts” that feel right, especially as social media have given us like-minded “friends” to agree with those facts. Back in 2005, comedian Stephen Colbert first dubbed this phenomenon “truthiness”—the feeling that something is true, and the idea that if enough people believe something, it actually becomes true.

Truthiness requires the active participation of the listener, and, as with offering up our personal information on Facebook, or affirming that we have read the details when signing on to a new software package or computer system, truthiness depends on our participation. Truth is the listener’s choice. We tune in to those “experts” and commentators whose facts are compatible with our worldviews and, not surprisingly, get “truthi-news,” as Colbert calls it. As we, the listeners, actively buy into truthi-news, the media, too—whether right-leaning or left—loses its bearings. Truth that is disconnected from core institutions provides the perfect breeding ground for the new corruption.

COMPROMISED LEADERS

What of the leaders of democratic society who, theoretically, could help guide us out of this conundrum? Those who once displayed integrity now personify a mixed bag of intentions. Heads of once-admired institutions hand us even more reason for the lack of public confidence.

In the old world, at least in many democratic nations, public service was a good in its own right and an endeavor that earned one social respect and status. It was not merely a rung on the ladder to big money. Today, former heads of state don’t confine themselves to the golf course or philanthropy. Many take on opaque roles of influence—and they no longer command the respect they once did.

Take, for instance, those in charge of the “free world.” In the old world—before the last couple of decades—it would have been unthinkable for the leader of one sovereign state to buy the leader of another, especially Germany, the third-largest industrialized democracy. In the new world, Gerhard Schroeder, while chancellor, agreed to a pipeline deal with Gazprom, the Russian energy giant that commands a quarter of the world’s natural gas reserves and represents a murky mix of state and private power. The pipeline was highly controversial in both Western and Eastern Europe, and Germany paid a political price for the deal. 22But the deal went through, and Gazprom, within a matter of months, nominated Schroeder to a highly paid position as head of the shareholders’ committee for the Gazprom-controlled pipeline. 23

No wonder his successor, Angela Merkel, was reportedly furious in the spring of 2014 when Schroeder defended Vladimir Putin’s aggression in Ukraine. Could anyone trust the former leader’s intentions, considering that his current lucrative role depends on Russia’s goodwill? 24

Neither Schroeder nor Tony Blair is alone in his adoption of multiple opaque international roles. Since leaving office, President Bill Clinton, in addition to establishing the Clinton Foundation and its Global Initiative, has served as a paid adviser to a global private equity and consulting firm called Teneo (among other business ventures). His close aide Douglas Band reportedly recruited donors to be Teneo clients. As the New York Times put it, “Some Clinton aides and foundation employees began to wonder where the foundation ended and Teneo began.” 25Such overlapping roles lead one to wonder whose interests are at heart and stand to undermine the integrity of the good work that the foundation might do.

What appears to be new with Clinton and Blair is the melding of business, philanthropic, and potentially policy portfolios. When the boundaries among them are nonexistent or shift conveniently, we have to question where accountability lies. 26

A different kind of president has been leveraging considerable power as well. Universities, once prized for adding to the public good, are also yielding to this lucrative brand of blurring. In the old world, members of the Ivy League and other institutions of higher learning cherished their reputations for scholarly impartiality. In the new world, ivory towers can often seem more like influence generators, with scholars marketing their supposed impartiality as a selling point outside the academy, something I’ll examine in depth in Chapter 8.