Milken Institute Takes Issue With My Post

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The headline above may overstate the case a tad. I sincerely doubt the Milken Institute took much note of last Friday’s offering, Hubris, Denial, and the Financial Services Culture. They had plenty of coverage by the mainstream media and reportedly regard blogs with some skepticism (the person who was responsible for our panel on econobloggers apparently had to push quite hard to get it). However, the organizer was unhappy with the post and sent me a long e-mail taking issue with its observations.

I forwarded it to Felix Salmon, since I believe he was responsible for getting me on the panel and was concerned that I had now put him in an awkward position. To my surprise, he e-mailed both me and the organizer saying (among other things) he thought exposing the difference in views was a positive and argued that it would be good if I posted the Milken Institute e-mail to present its perspective.

I had drafted a reply and waited 48 hours in case the Milken organizer objected to her e-mail being published (she did work very hard on our behalf and I do not want to cause trouble for her). Since I have not heard from her, below first is the her e-mail, then my e-mailed reply.

Let’s start with the person at the Milken Institute who organized our panel:

First, I am sorry that you found the Milken Institute Global Conference experience so distasteful. I, of course, don’t want anyone to have such a terrible experience at any event, but also, because I personally spent many hours and much energy on your personal attendance, find it discouraging that you left with such a negative perception of what we do here.

Second, because I know of your distaste for presenting information and opinion out of context, I did want to point out that the Milken Institute is, by its mission, focused on using financial innovation and capital-markets solutions to address issues. (Also, please note that it is the Milken Institute Global Conference, not the Milken Conference) From our web site:

“For more than 15 years, the Milken Institute has used capital-market principles and financial innovations to address social and economic challenges, from energy independence to poverty, here in the United States and around the world. We help business, foundation, academic and public-policy leaders identify and implement new ideas for creating broad-based prosperity. “

It is a bit disingenuous to criticize a conference of ours for having a focus that is clearly stated in our mission. (No one goes to the library expecting to find a new pump for their aquarium.) If you were looking for a conference that seeks to increase governmental action to address issues, there are many out there – we attend them regularly in our pursuit of partnerships and ideas in finding solutions.

Third, also based on your passion for presenting accurate facts, no one at the Milken Institute denies that NIH provides funding for research in medical advancement. However, as noted in our 2006 report, “Financial Innovations for Accelerating Medical Solutions:”

“Since 2004, NIH research funding has remained static or decreased, based on adjusted dollars. In fact, the most recent budget cut of 2006 is steep enough to bring NIH R&D below the 2003 funding level in real terms, erasing the increases of previous years.1”

We simply believe that this funding decrease is insufficient to address the growing threat of chronic disease, etc. and can’t depend on the government to do it in a timely or effective manner.

The capital markets do have a role in achieving solutions to many problems, problems that governments are either unable or unwilling to address. Reliance on government solutions has, at times, also resulted in disastrous ethanol subsidies, a lack of available credit for SME in emerging domestic markets, and exacerbated health crises around the world by dictating that funding must be allocated to abstinence programs instead of addressing the health issues. And yes, the Milken Institute is committed to bring financial innovations, the capital markets and a belief that we can be a part of creating a better world in order to address those issues.

I encourage you to seek out, and attend other conferences. I think you will find that events and organizations that are voluntary do represent a certain part of a spectrum – whether you are at an ACORN conference or the World Economic Forum. I look forward to reading on Naked Capitalism about such events that gather more than 3,000 attendees from around the globe, spend three days looking for solutions of any kind to the many challenges that we face, and capture even more versatility than a group of this size and caliber that can support both the capital markets and Obama.

It may be, however, that this kind of intellectual agility is only available to those of us who can retain hope and optimism even in dark times.

Finally, I ask that you not overlook the microcosm of the Econobloggers panel in your analysis of conformity. I noted that most of the panelists were extremely displeased that the moderator was so opposed to the panel’s group thought on the issues presented and that he held a bias for mainstream media, let alone the stoic editorial page of the WSJ. Perhaps all of you expected that I would choose someone as a moderator that would nod along with the group and support the consensus. I didn’t, because that would have been boring and uninformative. I chose a moderator who could present a sentiment that the audience that I wanted to reach may have come pre-disposed to (so few of them were blog-literate), so that my panelists could have an opportunity to confront that sentiment live and in-person – and each could be judged on the merit of their argument. And, for the most part, the panelists found it appalling and have publicly stated so.

I wish you success in your blog and your book endeavors.

Now my response:

I gather from your message that my post offended you, and I am very sorry to learn that. I know you and your colleagues put a tremendous effort into making the Conference come into being. At the same time, as it has gotten larger and more widely covered every year, the expectations for it rise as well (at least that is the impression I got from the sample of participants I met)

I am disappointed that you cannot see my comments from the perspective of what the British call “the loyal opposition.” The Institute has every right to present a pro-market point of view and that vantage has a lot of merit.

However, I fear the point I was trying to make was lost: the effort to present that view was more heavy handed than the participants and yes, organizers might realize, and that undermined its effectiveness considerably. If people create the impression, however unintentionally, that they will not allow opposing points of view to be aired, it suggests that they may have something to hide, which in this case would be that their arguments would not survive tough scrutiny.

You have a sophisticated audience; they can read between the lines. Why suggest that the capitalist cause has a glass jaw?

In addition, I am not at all certain what “capital markets solutions” means. As my colleague Amar Bhide pointed out in a classic Harvard Business Review article in 1993, “Efficient Markets, Deficient Governance,” the deep, liquid US securities market are the result of regulations. Bhide, a former proprietary trader, says that in the absence of SEC regulation, no one would trade a promise as ambiguous as an equity on an arm’s length, anonymous basis; the only way you could have equity investment in the absence of disclosure and protection against market manipulation and insider trading would be via private equity type relationships. Capital markets presuppose regulations on, at a minimum, disclosure and settlement. So I am at a bit of a loss to understand the hostility to regulation given the concept of “capital markets principles.”

I was well aware that the Milken Institute stands for a pro-market viewpoint, but I was also under the impression that it was dedicated to finding the best solutions. When I was at McKinsey, not only was dissent something the firm extolled as a value, but it also accepted, even expected, that two different teams, given the same client problem, were likely to come up with different recommendations. Thus it seems unduly limiting for the Conference to take the viewpoint that pure private sector solutions are the best. Indeed, the Conference’s own posture seems internally inconsistent. Why are public-private partnerships a good thing when Arnold Schwarzenegger is in the room and the private sector has the prospect of getting access to government resources, but any other mention of the government elicits derision?

We are in the midst of the worst financial crisis since the Great Depression (note I said financial; the jury is still out on how substantial the economic damage will be); the fact that the Fed and other central banks have created new facilities and implemented multiple large scale interventions says how serious this is. As of Friday’s increase in the Term Auction Facility, we are now up to nearly $500 billion of market support from the Fed alone. Yet admitting to that considerable failure of the marketplace and the government’s substantial and active role in preventing a meltdown was somehow verboten.

More friction would have upped everyone’s game. It’s much more interesting to watch discussions where the participants are pressed to explain their views. I am a bit surprised to see you imply that I objected to Dean Rotbart’s confrontational approach. I told my fellow panelists, and they all seemed to agree, that having Dean be provocative made for a much more lively discussion. The feedback I got from everyone was very positive. It was because Dean pushed all of us on some issues and kept at it and did not let us off the hook if he though our responses were incomplete.

Now CEOs can’t be prodded in the same way, but a skilled moderator can say they are taking the position of a devil’s advocate and tease it out.

The very fact that you invited me to speak, even though the blogger panes was a minor panel, led me to think the Institute was interested in hearing dissenting views as a means to arrive at better solutions. You had said you were a reader of the blog, If so, you would know that I have repeatedly spoken about market failures and externalities and believe that the financial sector’s unwillingness or inability to manage its affairs in a way that is not detrimental to society means it needs to be regulated more tightly.

I am thus a bit perplexed as to your reaction to what I wrote. I am told that the Generation Next paned, Philip Jennings said quite a few provocative things, more controversial than anything I posted. Since he spoke at Davos, I assume you knew his bent as well.

As for ethanol subsidies representing a failure of policy, consider: the need for measures to combat global warming is an example of what economists call externalities, when the price of a good does not reflect fully all of its cost or benefits. Pollution is the classic example of an externality. Even conservatives such as Greg Mankiw, former head of the Council of Economic Advisers under George W. Bush, recognize the need for government intervention to deal with externalities. Mankiw favors what are called Pigovian taxes, such as a carbon tax, to cap and trade regimes. Thus Mankiw would agree that ethanol subsidies were not the best approach. but intervention of another sort was the required solution. Yet based on what I saw, that perspective would not have been well received at the Conference.

As for NIH (and other federal funding, the NIH is the main but not the only source of funding, which is why it is hard to get good numbers), as you know, drug development is a very long process (often ten years), and those drugs that make it have 17+ year patent protection. Thus the drugs we use now are the result of past government support.

As for the shortcomings of the Wall Street Journal editorial page, those are not simply the views of the panel, but of scholarly studies:

I trust that you and your colleagues are pleased with the results of this year’s Global Conference and are moving forward with your many initiatives. Best of luck with all your efforts.

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  1. Richard Kline

    Given that Ms. Organizer pushed hard, and wisely so, to have econ bloggers invited, getting widely read press contrary to the perspective of her organization must really sting. I can feel for her. But here is the question for, not her, but the Milken lot entire: In holding a conference such as this, do they want an echo chamber or a wind tunnel? If they are about ideas, and they think that theirs will fly, then the latter is best. If they are about advocacy and getting press, then the former would better serve—and it would be more honest to just buy their commentators outright.

  2. mappatazee

    Are videos of all the panels available? I can only find a few on the conference home page. For some reason “Financial Innovations” starts with 4 minutes of smooth jazz.

  3. Anonymous

    The Milken rep engages in classic rhetorical either/or-ism:

    “It is a bit disingenuous to criticize a conference of ours for having a focus that is clearly stated in our mission. (No one goes to the library expecting to find a new pump for their aquarium.) If you were looking for a conference that seeks to increase governmental action to address issues, there are many out there”

    Either we solve all problems with pure-base private sector actions — OR we solve problems with pure-base governmental actions. If you, Yves, are a supporter/promoter/etc of the latter, then go sit with other ‘dead ender’ government types. We, here at Milken, know that the pure-base private sector actions are the only — the one and the only — way to ensure freedom.

    And, by the way, part of our incredible success in promoting capital market innovations comes with making sure that everyone involved thoroughly understands our terminology and methods. We control the language; we control the money; and we control the discussions and celebrations of our ingenuity, innovativeness and contributions to free markets everywhere.

    Don’t you get it?

  4. macndub

    When I was at McKinsey, not only was dissent something the firm extolled as a value, but it also accepted, even expected, that two different teams, given the same client problem, were likely to come up with different recommendations.

    Otherwise known as MBA grads just making stuff up on the fly. I kind of suspected this was the case…

  5. Yves Smith


    While McKinsey can legitimately be criticized for not having sufficient quality controls (that is the subject of a much longer discussion), the fact that different teams might come up with different recommendations is not necessarily a sign that something is amiss. McKinsey does not do canned work. Many other consulting firms sell not only the same methodology, but even more or less the same answer, to different clients. You don’t get competitive advantage that way.

    You wouldn’t expect two different architects to design the same building either, yet two different sets of plans can meet a client’s specs.

  6. Anonymous

    if we are really, really lucky, the most conspicuous evidence of the efficacy of structured finance, for the next couple of years at least, is going to be ten million vacant Americsn houses.

    49 1/2

  7. Anonymous

    Very true, anonymous 11.38. Dead and dying lawns across America speak their silent reproach.

    As for the touchy conference organizer, her analogy is in itself “a bit disingenuous”. No, no one goes to conferences expecting to buy aquarium pumps. They go expecting open and honest dialogue, including, at times, open and honest disagreement.

    Right/write on, Yves. You the man.

  8. Chicago Boss

    A few thoughts:

    1) No one needs to defend working for McKinsey…period. If you have a contention with M & Co. you better be consistent and apply that argument to every other firm that dreams of being M & Co.
    2) Milken and his ilk derive their edge from cornering and obfuscating the credit market…good job, you will lose!
    3) You want private solutions, but where were you when the Fed backed JPM’s take-under of Bear Stearns? I don’t remember hearing any outcry from the Milken ilk.
    4) Reality is not binary. The hybrid solution for BSC was nationalization and auctioning off the assets to private market participants. Instead we gift-wrapped BSC for Dimon.
    5) Keep preaching, you are anything but intimidating and should learn not to fight the tape. You too will lose.

  9. Green Eagle

    Why should we waste any time responding to the claims of an “institute” founded with stolen money by a monstrous criminal? Yes, Michael Milken, we haven’t forgotten who you are. Go away. You have nothing to contribute toward making this a better place to live.

  10. Anonymous

    This type of situation will become a large issue in the future, which amounts to fragmentation and censorship.

    Many months ago at another blog sight, there was great interest in making people of software called greasemonkey, which can act as a censor tool in the blog world. The reason some use it, is to ignore troll-like posters that may offend people that feel as if they are at the top of the food chain.

    That food chain issue is a matter of belonging to the same mindset and thinking — just like everyone on the team. Membership in this club depends on agreeing to agree with fellow members, and if you make a choice to not think as the group collective, then apparently this is where censorship, greasemonkey technology and fragmentation of society morph into a new form of isolationism, where debate is not allowed or tolerated.

    If you dont belong to the right group, you need to find people that agree with you, and i think we can all agree on that, just as we can agree that censorship helps keep us focused and narrow minded.

  11. Chicago Boss

    Re: Food Chain

    I eat dinosaurs for breakfast. You don’t get big eating lentils, stick to chicken, fish, bison, and elk.

    I will tip your canoe with my breath as you all lean to the same side.

  12. Anonymous

    Yves Smith’s response to the Milken email illustrates perfectly the problem with bloggers, who tend to demand the same treatment and access as mainstream media.
    Printing that email was entirely wrong and saying you had waiting 48 hours for a response was no excuse in any way. As a blogger who writes for a sizeable audience, you have a responsibility to the people you correspond with. They should be allowed to write to you without fearing that their words be printed in public forum. And yet you have abused that trust, which may explain why bloggers generally fail to get the access they believe they deserve.

  13. heavyhitter

    Where do you get this “bloggers expect the same access and privileges as the MSM” from? I read a fair number of blogs and don’t recall any blog I read asking for or demanding it. Aside from a court case or two where a blogger tried to protect his sources, I can’t think of an example. How many blogs are there? Millions? But you attribute the demand on a specific issue of a microscopic minority caught up in litigation to broad claims by all of them. A rather curious thought process.

    As for privacy, it’s a fact that e-mails get forwarded and used out of context. Anyone who sends something via that medium ought to know that and if they regard something as private, say so. Many firms and individuals now have language to that effect on all their e-mails. Again, I don’t see the big deal here. Felix Salmon thought her defense was worth printing, and I would say she made a good case given a poor fact set. She comported herself well, which is the important thing.

  14. mort_fin

    Milken is not above advocating ‘government’ if someone who wants ‘government’ is sponsoring the research. Consider the Milken report on down payment assistance, where they tout the benefits of the Nehemiah program, which relies on FHA, since the private sector won’t touch them, and costs the taxpayer about $1 billion a year according to HUD’s latest actual review (the next one will probably peg the cost a lot higher). And what is their metric for program ‘success?’ Why, the amount of taxes paid to local governments. So much for the private sector, not government, meme.

    And on the subject of groupthink at Milken, consider this gem from their 2003 real estate conference:

    After the stock market bubble burst in 2000, real estate has regained its position as the “gold” standard of the 21st century. Moderator Joel Kotkin began the session by pointing out that real estate investment surpassed investment in equities and asked panelists if this trend would hold and attract more investors in coming years. Indeed, panelists agreed that today’s real estate market is not a short-term boom …

  15. Chicago Boss

    I am not attending the **Milken Conference** again and not supporting anyone else to do so either as a consequence of the response to Yves’ posting of the Milken Ilk’s disciplinary email. The reason why big media is becoming irrelevant is because bloggers generate real news with analysis that is relevant. You make it sound like a real speculator needs inside information to succeed in this game of wealth transfer. Your “friends”…oops conspirators (sorry) aren’t real players if that’s the case.

    Real players don’t trade on non-public information because you never know when it’s your turn to be the mark until it’s too late.

    Get out before you go to jail.

    Keep it up Yves, we appreciate “bloggeristic” integrity. touche

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