I have a Facebook friend, Gary, who was writing about plutocracy quite a bit a couple of years ago. I thought it a bit extreme at the time. Now it seems spot on. It seems to be coming to the fore with the "campaign" for selecting the next Fed Chair. Let me present some of the things I've read yesterday and today first, then circle back to the conclusion about plutocracy.
Yesterday there was a piece in The Atlantic about Sexist Attacks on Janet Yellen, motivated to demote her as the leading candidate. There is some foul language in the piece that I won't quote, but you don't need it to get at the essence of what it says.
The idea that Yellen somehow wouldn't be good in a crisis smacks of sexism. It's the implicit idea that leadership is shouting down your opponents, and that the markets need an alpha male to tame them.
The piece makes reference to an earlier piece by Ezra Klein on the same theme. He explains this in part by the fact that all previous Fed Chairs and Treasury Secretaries have been male, so macho characteristics have become associated with the mental image of what it takes to do these jobs. He writes:
This generic portrait survives in part because monetary economics remains a bit of a boys’ club. “In the general finance world, and even in economics, there are tons of women,” said Christina Romer, an economist at the University of California at Berkeley and former chairman of President Barack Obama’s Council of Economic Advisers. “But I’m lucky at monetary-economics conferences if I’m one of three women, and now that Anna Schwartz has died, if I’m one of two.”
Let me turn to some other reading. In his Opinionator column from last night, Steven Rattner endorses Larry Summers for Fed Chair and in so doing gives a spiel for why Summers would do an excellent job, without ever once mentioning Yellen in the piece. Rattner's essay is one long sales pitch. One particular paragraph rubbed me the wrong way:
In his private-sector work, it is true that he has consulted for a variety of financial services firms, and that’s being presented as a liability. But I believe that has given him an important practical understanding of how Wall Street functions that can only be helpful to a Fed chairman. Since when is having relevant experience disqualifying?
I started to recall that Rattner himself had been involved in financial scandal. Was he really the right guy to make this point about Summers? Then I started to ask about how Rattner, the Car Czar, could have his Times column given this recent history. After a quick Google Search I found this piece from the Columbia Journalism Review. It makes the point that Rattner is buddy buddy with a lot of rich and powerful people in New York and that is the basis of "his return."
The fate of the economic world, it seems, is decided at these parties. That may be the key issue behind all the politics with the next Fed Chair. But let me point out still one more reading before trying to tie this all together. By happenstance, some reader found a blog post of mine from last year entitled The Foreclosure Debacle. In turn, it made reference to this in depth piece A Mortgage Tornado Warning, Unheeded. It is about the massive amount of fraud in mortgage origination documents, with some of the fraudulent practice dating as far back as the S&L crisis of the 1980s, apparently accelerating in the 1990s, and going berserk a decade later. This fraud coincides with the development of a commercial registry system for holding title to mortgage documents:
One of those close friends is NYT Chairman Arthur Sulzberger himself. Rattner ended up with a monthly spot on the NYT op-ed pages. Another Rattner friend is Michael Bloomberg, who lets Rattner manage billions of his wealth and who gives Sorkin a charming quote about how this little world works:
I never heard anyone say they wouldn’t invite Steven Rattner to a party because of what was happening.”
PERHAPS no development has done more to obscure the forces behind the foreclosure epidemic than the rise of the MERS, the private registry that has all but replaced public land ownership records. Created by Fannie, Freddie and big banks, MERS claims to hold title to roughly half the nation’s home mortgages. Judges and lawmakers have questioned MERS’s legal authority to initiate foreclosures, and some judges have thrown out foreclosures brought in its name. On Friday, New York’s attorney general sued MERS, contending that its system led to fraudulent foreclosure filings. MERS refuted the claims and said it would fight.Mr. Lavalle warned Fannie years ago that MERS couldn’t legally foreclose because it didn’t actually own notes underlying properties.The report agreed. MERS’s approach of letting loan servicers foreclose in its own name, not in that of institutions owning the notes, “is not accepted legal practice in all states,” the report said. Moreover, “MERS’s counsel conceded false allegations are routinely made, and the practice should be ‘modified.’ ”It continued: “To our knowledge, MERS has not addressed the issue of its counsels’ repeated false statements to the courts.”
Reading this, you get the impression that the mortgage industry needs muckraking of the kind Upton Sinclair did with The Jungle, which led to the passage of the Pure Food and Drugs Act of 1906. We've had the mortgage crisis. But it doesn't seem we've had the fundamental reform. One can only speculate why. Though it hasn't taken on this particular issue, the HBO series, The Newsroom, illustrates the tension between ownership and the news division. One of the delicious pieces of irony in that show is the casting of Jane Fonda as the owner, where we got to know her in an earlier life playing something of the muckraker about Viet Nam.
I don't think there is one big plutocracy. It is believable that Arthur Sulzberger and Michael Bloomberg attend the same parties, from time to time, and that this circle would prefer Larry Summers for Fed Chair, as he also attended those parties. Ben Bernanke did not. They've endured his term as Fed Chair. Now they want one of their own. Janet Yellen is like Bernanke in this respect.
One suspects that Rupert Murdoch and the members of the Wall Street Journal's editorial board have their own parties, where tea is served. This is what I mean when I say there is not one big plutocracy.
There would be real and substantive differences between a Rupert Murdoch chosen Fed Chair, say Glenn Hubbard, than the current candidates. Presumably the money supply would get tighter and interest rates would rise. In the left-right continuum it would seem Yellen is to the left, (meaning she cares about unemployment and inflation instead of just caring about inflation) Hubbard is to the right, and Summers is somewhere in between. My previous post can be interpreted as saying that Summers is far closer to Yellen than he is to Hubbard.
But in terms of letting the plutocracy have its impact on the Fed Chair's world view, it is Yellen who is the outlier.