In No One We Trust
By JOSEPH E. STIGLITZ
Opinionator Blog
New York Times
December 21, 2013, 2:39 pm
In America today, we are sometimes made to feel that it is naïve to be preoccupied with trust. Our songs advise against it, our TV shows tell stories showing its futility, and incessant reports of financial scandal remind us we’d be fools to give it to our bankers.
That last point may be true, but that doesn’t mean we should stop striving for a bit more trust in our society and our economy…
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… In the years leading up to the crisis, though, our traditional bankers changed drastically, aggressively branching out into other activities, including those historically associated with investment banking. Trust went out the window. Commercial lenders hard-sold mortgages to families who couldn’t afford them, using false assurances. They could comfort themselves with the idea that no matter how much they exploited their customers and how much risk they had undertaken, new “insurance” products — derivatives and other chicanery — insulated their banks from the consequences. If any of them thought about the social implications of their activities, whether it was predatory lending, abusive credit card practices, or market manipulation, they might have taken comfort that, in accordance with Adam Smith’s dictum, their swelling bank accounts implied that they must be boosting social welfare.
Of course, we now know this was all a mirage. Things didn’t turn out well for our economy or our society. As millions lost their homes during and after the crisis, median wealth declined nearly 40 percent in three years. Banks would have done badly, too, were it not for the Bush-Obama mega-bailouts.
This cascade of trust destruction was unrelenting…
…
… inequality has infected the heart of our ideals.
I suspect there is only one way to really get trust back. We need to pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them. We did just that after the roaring ’20s crashed; our efforts since 2007 have been sputtering and incomplete. Firms also need to do better than skirt the edges of regulations. We need higher norms for what constitutes acceptable behavior, like those embodied in the United Nations’ Guiding Principles on Business and Human Rights. But we also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.
Strong values enable us to live in harmony with one another. Without trust, there can be no harmony, nor can there be a strong economy. Inequality in America is degrading our trust. For our own sake, and for the sake of future generations, it’s time to start rebuilding it. That this even requires pointing out shows how far we have to go.
The differences Stiglitz points out between teachers and bankers—I’ve left this section out along with so much, much more--are no less than a stunning reminder of much of what Henry Giroux’s been writing about for decades.
Virtually every paragraph of this lengthy post by Stiglitz has at least one quotable quote in it.
This may very well be the most important short-form piece Stiglitz has penned since his Vanity Fair article from May 2011: “Of the 1%, by the 1%, for the 1%. “
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For the record, I hope this piece receives mention in scores of diaries here in coming weeks and throughout 2014!
What's your favorite quotable quote from Stiglitz tonight?
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UPDATE 12/22/13 8:45AM: Per Kossack Just Bob, in the comments, there's a problem in Stiglitz' original post, over at The Opinionator Blog, and as he noted (and I concur), we're pretty certain that this is the proper way that sentence should appear in the post (with the link fixed):
...When 1 percent of the population takes home more than 22 percent of the country’s income — and 95 percent of the increase in income in the post-crisis recovery — some pretty basic things are at stake...
Here's the direct link location:
http://elsa.berkeley.edu/...
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