What the Wealthy Do in a Time of Crisis: Recreational Gambling

Being compelled to stay at home while people are dying and the economy is collapsing, allows one plenty of time to think—and plenty of things to think about.  One thought that may not occur to many is that whenever the economy suffers a crisis, the wealthy emerge stronger while the average wage earner endures ever-greater economic insecurity.  Why is that?  While most are struggling with bill payments, what are the wealthy up to that leads to their financial advancement?  Nick Paumgarten spent time conversing with a some of them over recent weeks and provides a bit of insight.  His article, The Price of the Coronavirus Pandemic, appeared in The New Yorker.

Paumgarten begins by introducing the reader to an investor he only describes as “the Australian.”  This person made his initial money in a traditional means (in terms of finance).

“Reared in Sydney, the Australian moved to New York in 1994, when he turned twenty-two, to trade commodities at Goldman Sachs. At JPMorgan, he and a couple of his countrymen—known as the Aussie mafia—earned the firm hundreds of millions in profits during the early months of the financial crisis, in 2008. In 2015, he moved to Singapore.”

Being nearer to China, and attuned to potential disasters, he picked up on the viral activity showing up in the news and concluded the virus would spread to other countries and become a big deal.

“He quickly put some money to work. He bought a big stake in Alpha Pro Tech, one of the few North American manufacturers of N95 surgical masks, with the expectation that when the virus made it across the Pacific the company would get government contracts to produce more. The stock was trading at about three dollars and fifty cents a share, and so, for cents on the dollar, he bought options to purchase the shares at a future date for ten dollars: he was betting that it would go up much more than that. By the end of February, the stock was trading at twenty-five dollars a share. He shorted oil and, as a proxy for oil, the Canadian dollar. (That is, he bet against both.) Finally, he shorted U.S. equities.”

“’You don’t know anyone who has made as much money out of this as I have,’ he said over the phone. No argument here. He wouldn’t specify an amount, but reckoned that he was up almost two thousand per cent on the year.”

One can detect a note of glee in the Australian’s voice.  One can consider him prescient or lucky, as one wishes, but he was gambling—and it paid off.  For our purposes here, he was merely someone who could afford to gamble.  It does not require profound intelligence to become wealthy, being lucky is often quite helpful, but once one attains significant wealth, it takes unfathomable stupidity to lose it all (there are examples).  There was no indication that the Australian was worried that a pandemic would devastate his portfolio; it was a game.  He was having fun.

Paumgarten tells us that he spent time tracking the discussion between a friend working in finance and a band of his cohorts.

“I’d been eavesdropping for a week on the friend’s WhatsApp conversation with dozens of his acquaintances and colleagues (he called them the Fokkers, for an acronym involving his name), all of them men, most of them expensively educated financial professionals, some of them very rich, a few with connections in high places. The general disposition of the participants, with exceptions, was the opposite of the Australian’s. Between memes, they expressed the belief, with a conviction that occasionally tipped into stridency or mockery, that the media, the modellers, and the markets were overreacting to the threat of the coronavirus—that it was little more than another flu, and that effectively shutting down the economy to prevent, or at least slow, the spread of the virus would turn out to be far more harmful, in the long run, than the virus itself.”

The tone of these conversations seemed to be one of irritation rather than distress: someone is changing the rules of the game we are playing, and we don’t like it.  In particular, they don’t like the fact that, like in all games, cheating is possible.

“On March 20th, Goldman Sachs spooked the world, by predicting a twenty-four-per-cent decline in G.D.P. in the second quarter, a falloff in activity that seemed at once both unthinkable and inevitable.”

“Earlier in the week, notes from a Goldman call, with talk of terrible numbers, had leaked out onto the Street. A couple of the Fokkers, on the basis of no evidence except decades of experience, suspected Goldman of sowing fear in order to profit. They certainly thought that was what Bill Ackman, the hedge-fund billionaire, had done: he went on CNBC and said, ‘Hell is coming.’ He predicted that the nation would enter a depression if the White House didn’t take drastic measures.”

“Like the Australian, Ackman advocated a shutdown of the global economy. And, like the Australian, he had profited from his pessimism. A week after his appearance on CNBC, his firm, Pershing Square Capital Management, announced that it had netted $2.6 billion (on an investment of just twenty-seven million dollars) on bearish credit bets, which paid off if certain bundles of loans declined in value. This news enraged the Fokkers; they felt that he’d been scaring people, for money. (They were more comfortable with those who would reassure people, for money.) But, by then, Ackman told me, he’d plowed most of his proceeds back into the stock market. ‘Our hedge had already paid off prior to my going on CNBC,’ he said.”

Suspicious?  You have a right to be.  But consider exactly how Ackman’s firm made its money: “it had netted $2.6 billion (on an investment of just twenty-seven million dollars) on bearish credit bets, which paid off if certain bundles of loans declined in value.”  Paumgarten described it as an investment in how bets would turn out.  What kind of an investment is that?  What does that have to do with making products and selling them?  Finance has become mostly a zero-sum game, like a casino, where someone wins because someone else loses.  Why use money to invest in the economy when more fun can be had placing these financial bets? 

Particularly infuriating was the advice a fund manager issued to the collection of Fokkers.

“His advice: Borrow as much as you can. Mortgage everything. With interest rates at historic lows, you could accumulate cash and have money on hand to buy distressed assets on the cheap, whether they’re stocks, bonds, or real estate, and be well positioned to make money again when the world got back to work.”

In other words, the wealthy should be prepared to swoop in and pick up at bargain rates the assets of those who were actually trying to contribute their labor and productivity to the economy, but didn’t have the financial depth to survive.  And thus, the wealthy both survive and thrive. 

Paumgarten provided an appropriate final comment on what the future holds.

“The only thing we can say with certainty is that the pain will be unfairly distributed. People are betting on it.”

Societal Transformations: Sweden Wasn’t Sweden Until It Became Sweden

Any conversation between a liberal and a conservative will eventually arrive at a moment equivalent to the following.

Liberal: “Sweden is able to provide a strong social safety net and a strong capitalist economy, why can’t we?”

Conservative: “We are not Sweden and what the Swedish put up with would not be acceptable over here!”

But is that latter statement true?  Sweden provides universal healthcare, education, preschool childcare, and retirement income at moderate costs.  Those are all things that voters claim would be good for us to have in our country.  We tend to welcome and, eventually, cherish such benefits when they are made available.

Thomas Piketty, in Capital and Ideology, has returned with another masterpiece, this one investigating the economic development paths taken by the various governmental entities throughout the last several centuries.  He concludes that our socio-economic systems are arrived at by choices that we either make or have imposed upon us.  There are no fundamental laws or other factors at work that naturally produce effects over which we have no control.  If we wish, we can restructure our society in many different ways and still meet our needs.

“Inequality is neither economic nor technical; it is ideological and political.  This is no doubt the most striking conclusion to emerge from the historical approach I take in this book.  In other words, the market and competition, profits and wages, capital and debt, skilled and unskilled workers, natives and aliens, tax havens and competitiveness—none of these things exist as such.  All are social and historical constructs, which depend entirely on the legal, fiscal, educational, and political systems that people choose to adopt and the conceptual definitions they choose to work with.  These choices are shaped by each society’s conception of social justice and economic fairness and the relative political and ideological power of contending groups and discourses.  Importantly, this relative power is not exclusively material; it is also intellectual and ideological.”

“The Swedish case is…interesting because in the twentieth century the country became synonymous with social democracy.  The social democrats of the SAP came to power in the early 1920s, when the party’s historical leader, Hjamal Brenting, was elected prime minister.  The party subsequently held power more or less permanently from 1932 to 2006, and this long period in government allowed it to develop a very sophisticated welfare and tax system, which in turn achieved one of the lowest levels of inequality ever observed anywhere.  People therefore often think of Sweden as a country that has always been inherently egalitarian.  This is not true: until the early twentieth century Sweden was a profoundly inegalitarian country, in some respects more inegalitarian than countries elsewhere in Europe; or, rather, it was more sophisticated in organizing its inequality and more systematic in expressing its proprietary ideology and shaping its institutional incarnation.”

We do not have to be tomorrow who we are today.  And for the purposes of the current discussion, Sweden was not the Sweden we know today until it became the Sweden we know today.

Until the late nineteenth century, Sweden was a monarchy with a curious political makeup consisting of four components: “the nobility, the clergy, the urban bourgeoisie, and the landowning peasantry.”  Representatives of these classes obtained the relative right to vote in its parliament, the Riksdag proportional to the amount of taxes they had paid.  Economic systems can be categorized by the manner in which they treat private property.  In the most conservative systems, private property is elevated to one the highest rights, if not the highest.  In this era, property implied income, from which taxes followed; and it was this contribution to taxation that defined one’s political power. This notion that from wealth flowed political power became even more firmly established around 1865.

“The quaternary Riksdag regime was replaced in 1865-1866 by a censitary parliament with two chambers: an upper house elected by a small minority of large property owners (barely 9,000 electors, less than 1 percent of the adult male population), and a lower house, also censitary but considerably more open in that roughly 20 percent of adult males were entitled to vote for its members.”

The term censitary refers to making voting dependent on a property or tax qualification.

“What was unique about the censitary system in effect in Sweden from 1865 to 1911 was that the number of votes each voter could cast depended on the size of that voter’s tax payments, property, and income.  The men sufficiently wealthy to vote for elections for the lower house were divided into forty-odd groups, and each group was assigned a different electoral weight.  Specifically, each member of the least wealthy group could cast one vote, while each member of the wealthiest group could cast as many as fifty-four votes.”

“A similar system applied to municipal elections in Sweden in the period 1862-1909, with the additional wrinkle that corporations also had the right to vote in local elections, again casting a number of ballots that depended on their tax payments, property, and profits.  No voter in an urban municipal election, whether a private individual or a corporation, could cast more than one hundred ballots.  In rural towns, however, there was no such ceiling; indeed, in the municipal elections of 1871, there were fifty-four rural towns in Sweden where one voter cast more than 50 percent of the votes.  Among these perfectly legitimate democratic dictators was the prime minister himself…”

If one thinks of this as a crazy system completely divorced from democratic principles, Piketty reminds us that the United States, driven by ideological fervor, has been moving in a similar direction.

“Of course, no one today is proposing that the right to vote should depend explicitly on wealth…Nevertheless, recent years have witnessed the development of various doctrines and ideologies, most notably in the US Supreme Court, whose purpose is to eliminate ceilings on private contributions to political campaigns; this is tantamount to granting potentially unlimited electoral influence to the wealthiest individuals.  The issue of limiting the power of wealth also comes up in relation to jurisdictional inequalities: for instance, certain disputes are now subject to private arbitration, which allows the wealthy to avoid judgement by the public court system.  Access to higher education is also influenced by wealth: many American and international universities give special consideration to the children of wealthy donors…”

We are at a unique point in our history.  Combined health and economic crises are bearing down on us as we head into an incredibly important election.  By the end of this year, things will have changed—for the better or the worse.  Sweden’s example should give us hope.  If one has specific changes in mind, one should promote those changes through party politics and party voting.  One can be sure that those opposing those changes will be doing the same.  Piketty provides these words of advice.

“…the very rapid transformation that took place in Sweden demonstrates the importance of popular mobilization, political parties, and reformist programs in the transformation of inequality regimes.  When conditions are right, these processes can lead to rapid radical transformation by legal parliamentary means, without violent upheaval.”

Or, things can get even worse…

Healthcare and Politics: “Dying of Whiteness”

Eyal Press has produced an article for The New Yorker describing healthcare in the state of Alabama that is both heartbreaking and infuriating.  His work is titled A Preventable Cancer Is on the Rise in Alabama online, and A Deadly Principle in the paper version of the magazine.  The cancer of concern is cervical cancer which is usually caused by the human papillomavirus (HPV) for which there exists a vaccine.  Press provides this background information.

“A century ago, cervical cancer was the deadliest form of cancer among women in the United States. Since then, the prevalence and the lethality of the disease have declined dramatically. The widespread use of Pap smears has allowed doctors to detect abnormalities earlier. And in 2006 the F.D.A. approved the use of the human papillomavirus, or H.P.V., vaccine, which can protect women from the most dangerous strains of the virus. Cervical cancer typically results from H.P.V. infections that are transmitted sexually.”

“Cervical cancer is now viewed by most physicians as preventable, and in more affluent parts of the country it is correspondingly rare. But in the poorer pockets of less wealthy states it remains disturbingly common. According to the American Cancer Society, more than four thousand women in this country will die from the disease this year. Women who develop cervical cancer in Alabama are more likely to die than their counterparts in any other state—and in recent years Alabama’s mortality rate has been rising.”

Press identifies lack of access to healthcare which could prevent the cancer via vaccination or ameliorate it with early detection.  The burden of this cancer then falls most heavily on the poor, and on the rural poor particularly.  A proximate cause for this abysmal performance by Alabama resides in its political decision to not participate in the expansion of Medicaid incorporated in the Affordable Care Act (Obamacare).

“…the 2010 Affordable Care Act…extended Medicaid benefits to all households earning up to a hundred and thirty-eight per cent of the poverty line. But in 2014, when Medicaid expansion took hold, Alabama and twenty-four other states, almost all of which had Republican-led legislatures, opted out; that year, Robert Bentley, then the state’s governor, argued that it would burden taxpayers and foster ‘dependency on government.’ In Alabama, as in much of the South, the Affordable Care Act was derisively called Obamacare, and was attacked as a wasteful government program that showered benefits on undeserving recipients.” 

Who, in effect, would be those undeserving recipients?

“…in Alabama…the income requirements for Medicaid are more stringent than in any state except Texas. In a family of four, a parent qualifies for benefits only if the household income is less than three hundred and ninety-three dollars a month—roughly eighteen per cent of the poverty line.”

The governor essentially ruled that a family with an income greater than 18% was not deserving of any assistance in procuring healthcare.  What have been the results of this political philosophy so persistent among Republicans.

“States that expanded Medicaid under the Affordable Care Act have seen reductions in mortality from kidney failure and cardiovascular disease, along with an increase in early-stage cancer diagnoses. They have also seen lower rates of infant and maternal mortality. A study published last July by the National Bureau of Economic Research estimated that, from 2014 through 2017, states that expanded Medicaid saved the lives of more than nineteen thousand adults between the ages of fifty-five and sixty-four alone. In the states that rejected expansion, the researchers concluded, fifteen and a half thousand lives were lost.”

In addition to direct damage to individuals, this policy produces a feedback mechanism that undermines the basic functioning of the healthcare system.  People who are denied preventive care and treatment of symptoms ultimately fall back emergency wards for assistance.  This places a financial burden on hospitals which must treat these patients without much hope for compensation.  The effect on rural hospitals has been particularly severe.

“Since 2010, fourteen hospitals in the state, more than half of them in rural areas, have closed, forcing women to make long treks to get care. Corporate consolidation and low reimbursement rates from the federal government have contributed to the trend, but another major factor is Alabama’s refusal to expand Medicaid. For years, the emergency rooms of rural hospitals have been inundated with poor, uninsured patients. Hospitals often receive no compensation for treating these patients, which lowers their operating margins and fuels what the Chartis Center for Rural Health has called a ‘closure crisis.’ In February, the organization reported that the eight states with the highest number of rural-hospital closures since 2010 had all declined to expand Medicaid.”

It is critical to recognize that this sorry state of affairs is not an aberration in Alabama politics, it is a consciously designed feature of life in Alabama and of Republican politics.  Since the time of the first instances of black slavery in this country, the political elites in the slave states have played off the tensions between poor whites and blacks to their advantage.  Slavery was very harmful economically for whites who had to compete with slaves as laborers.  They could be held in place by convincing them that they were not really poor because they had the example of black slaves to illustrate their superiority.  Slavery provided the floor to which poor whites could be driven economically in order to keep their wages low.  Nothing has really changed over the centuries.  Slavery has gone, Jim Crow has come and gone, but the political elites still play the same game.  Poor whites are indoctrinated with the notion that that they are superior to blacks and threatened with the possibility that there is a plot to allow blacks to somehow surpass them economically.  Meanwhile, low wages for whites continues to be the basic economic and political strategy.  The only thing that has changed over the centuries is that new minorities have been added to the blacks as threats: Hispanic immigrants, Muslims…

Press provides examples of what this strategy has produced in terms of the politics of healthcare.

“Along with increasing vaccination rates, broadening access to health care is an obvious way to fix the problem. But, in much of the South, a surprising number of the poor and working-class people who would benefit from changing the system are opposed to doing so. A few years ago, Jonathan Metzl, a psychiatrist and sociologist at Vanderbilt, began organizing focus-group discussions near churches and low-income housing projects in Tennessee, which, like Alabama, had refused to expand Medicaid under the Affordable Care Act. At one such meeting, in Nashville, a group of working-class white men were invited to talk about the health-care system. Many of the participants—amputees, men with oxygen cannisters—were in visibly poor health. Some acknowledged having to rely on various forms of assistance to deal with their ailments. ‘I would be dead without Medicaid or the V.A.,’ one man said. But, when Metzl asked about the role of ‘government’ and about programs such as the Affordable Care Act, a man complained that people on welfare with ‘ten and twelve kids’ were abusing the system. Another claimed that ‘illegal mothertruckers’ received all the benefits, and that ordinary Americans were subsidizing them. A flurry of complaints about Mexican immigrants followed, prompting one man to say, ‘We’re starting to sound like Donald Trump’.”

“In 2019, Metzl published a book, ‘Dying of Whiteness,’ in which he argued that people who voiced such views, fuelled by racial animosity and ‘the toxic effects of dogma,’ ended up supporting policies that put their own lives at risk. ‘No way I want my tax dollars paying for Mexicans or welfare queens,’ a white former cabdriver suffering from terminal liver disease told him. ‘Ain’t no way I would ever support Obamacare, or sign up for it. I would rather die’.” 

Once the southern elites were democrats who wished nothing to do with the party of Lincoln.  However, famous race baiters like Nixon and Reagan declared that the Republican Party was a better home for racists, and demonstrated that the racist tropes would work well with whites in other regions as well.  The Republican Party of a few generations ago no longer exists.  Its heart is now in the former slave states and it has no interest in fostering racial, social, or economic justice, or even in democracy as a form of government.  Trump is the culmination of decades of political evolution.

When you cast you next ballot (probably by mail) remember that republicans are not worthy opponents with slightly different perspectives, they are an enemy out to destroy your way of life.  They must be defeated—every last one of them.