Steve Waldman, Who Extolled Deception and Theft, Needs to Explain Himself

At the end of 2011, Steve Waldman wrote:

This is the business of banking. Opacity is not something that can be reformed away, because it is essential to banks’ economic function of mobilizing the risk-bearing capacity of people who, if fully informed, wouldn’t bear the risk. Societies that lack opaque, faintly fraudulent, financial systems fail to develop and prosper. Insufficient economic risks are taken to sustain growth and development. You can have opacity and an industrial economy, or you can have transparency and herd goats.

A lamentable side effect of opacity, of course, is that it enables a great deal of theft by those placed at the center of the shell game. But surely that is a small price to pay for civilization itself. No?

Nick Rowe memorably described finance as magic. The analogy I would choose is finance as placebo. Financial systems are sugar pills by which we collectively embolden ourselves to bear economic risk. As with any good placebo, we must never understand that it is just a bit of sugar. We must believe the concoction we are taking to be the product of brilliant science, the details of which we could never understand. The financial placebo peddlers make it so.

Last week, Waldman, apparently moved by Steve Brill’s account of heath care price gouging, or, as Waldman put it, “ass rape,” wrote:

As soon as you delve into the policy wonkery in cases like this, you are submitting to a conspiracy by the powerful against the many. The greater the sphere of disagreeable things that are “complicated”, the more it is possible to construct intricate and inscrutable bureaucracies to “arbitrate”. There will be think-tanks and policy papers, funded by people who are well-meaning (in a narrow, idiotically un-self-aware way) but very rich and powerful. The conclusions of which will be earnest and carefully researched but confined to a window not very upsetting to the very rich and powerful. Undoing the ability of plutocrat hospital “CEOs”, or bankers or lobbyists or whatever, to continue the sort of ass-rape to which their lifestyles have grown accustomed will not be on the table. A good society depends on an active public, first and foremost. A society that has allowed the predations of the powerful to become purely private matters mediated via “markets”, courts, academies, and bureaucracies, that has delegated “activism” to a mostly protected professional class, is nothing more than a herd hoping that today it is somebody else who will be slaughtered.

I would like Waldman to explain how he reconciles these two views. This looks like pure and simple opportunism. Waldman provided a clever defense of abuses by the powerful when they are often so complicated that, as one financier I know who has amassed a nine-figure net worth put it, “It takes them years to figure out what I’ve done to them.” But when a writer provides a long form expose of harm that results when people cannot protect from powerful interests, Waldman is then outraged. Maybe he has had a Pauline conversion, but otherwise, he has some explaining to do.

And please do not try the argument that healthcare is different from finance. Finance is if anything worse. Medicine has inherent opacity. The overwhelming majority of us don’t know enough to judge the caliber of services were are receiving, and rely on poor proxies like bedside manner. Tyler Cowen’s review of Maggie Mahar’s Money Driven Medicine should make the parallels clear:

I interpret the basic story as this: the American health care cost spiral comes from suppliers and their entrepreneurial abilities to market expensive and highly specialized services of dubious medical efficacy. Medical care starts off as ambiguous in value and hard to measure in quality. Customers are cowed by doctors and other family members into accepting or even demanding what is offered to them. Third-party payments make the problem worse, and government intervention has stoked rather than checked the basic dynamic. You end up with massive expenses, lots of stupidity, and – because of its expense — radically incomplete coverage. Every now and then the extra services do pay off, but not frequently enough to boost American stats on health care quality.

Finance not only uses complexity and opacity, as Waldman stressed, to foist risks on the unsuspecting, it further has incentives to create risk, which it also fobs off on the public. As Andrew Haldane of the Bank of England explained:

Tail risk within financial systems is not determined by God but by man; it is not exogenous but endogenous. This has important implications for regulatory control. Finance theory tells us that risk brings return. So there are natural incentives within the financial system to generate tail risk and to avoid regulatory control. In the run-up to this crisis, examples of such risk-hunting and regulatory arbitrage were legion. They included escalating leverage, increased trading portfolios and the design of tail-heavy financial instruments.

So again, contra Waldman, finance does not simply shove risks around to facilitate commerce, it actively creates them for its own feather bedding.

So I hope Waldman resolves the inconsistency between his two propositions. You cannot say you are a fan of abuse of the public in theory and then deplore it in practice.

Print Friendly, PDF & Email


  1. OMF

    From reading the first two paragraphs, it’s my conclusions that Mr. Waldman is a “columnist provocateur”. His job is to generate provocative and strident copy in an effort to catch eyeballs. I don’t think there’s likely to be much more to his philosophy(strictly speaking he’s not required to have one).

    1. jake chase

      Not having any idea who Steve Waldman is I cannot imagine why anyone cares about his inconsistent positions.

      Can anyone explain why this matters? His writing isn’t even funny, either time, nor is he saying anything important, or true either.

    2. erik

      “it’s my conclusions that Mr. Waldman is a “columnist provocateur””

      I usually don’t comment, but have to make a exception.

      I can see why you would think that – but I would recommend you to take a closer look.

      In my opinion, it is Christmas (almost) every time Waldman puts up a new post. Not because I always agree (and, about the need for opacity, i disagreed more than usual), but because they are highly original and often gives you new perspectives on things. As far as I can see, you wont find a more open minded writer. Show me three posts of most bloggers, and I will give you not only their opinion on pretty much every other issue, but also roughly what arguments they will use. Not so with Waldman – and he even seem to change his mind, or rather evolve in his views ,from time to time.

      So, if you are not already reading Interfluidity, you just discovered a treasure.

      PS: This is written by a market socialist who really really hate the current setup in finance

    3. Harald K

      If he’s a provocateur, he would have been a damn good one, to be repeatedly taken seriously by economic professors on the left and right, not to mention the US Treasury department.

    1. Doug Terpstra

      I was wondering the same at first; it reads like an Onion piece. Are you for real, Steve? After all, opacity and herding goats is just exactly what banksters do, a more abusive form of animal husbandry.

  2. from Mexico

    It looks as if Waldman operates under a very different moral regime than the traditional Western one that believes in fixed, immutable, moral-spiritual principles such as you shall not steal, you shall not lie, you shall not murder, etc.

    In Denktagebuch Hannah Arendt describes the moral regime that by the end of the 18th-century had become triumphant:

    1) There exists an “absolute” which is “above” the senses — the true, good, beautiful

    2) That “anything will do as the absolute” — race, for instance, or a classless society, or in the case of Waldman and the classical economists, the maximization of aggregate utility

    3) That it is a requirement that everyone accept the “absolute”

    4) And that any means — stealing, lying, torture, murder, etc. — are acceptable not only to achieve the “absolute” end, but also to make everyone accept the “absolute”

    In banking, Waldman perceives lying, stealing, opacity, etc. as contributing to his absolute end: the maximization of aggregate utility. Thus they are accepable to achieve that end.

    When it comes to medical care, on the other hand, Waldman does not perceive lying, stealing, opacity, etc. as contributing to his “absolute” end, and therefore they are not acceptable.

    Economists dismiss out of hand anything — traditional morality, psychic pain, nostalgia for community, etc. — that collides with their “absolute.” As Robert H. Nelson put it in Economics as Religion:

    To give weight to psychic pain…as the economy moves from lower to higher stages of economic productivity, is to stand in the way of economic progress…

    [The] transitional psychic burdens of progress, as borne by each citizen, are not important enough to be counted. Indeed, to count them might engender the future economic salvation of the world.

    It is instead the religious duty of all good citizens of our time to bear the sacrifices of economic progress without complaint.

    1. Yves Smith Post author

      Well, it would seem Waldman has moved the goalposts. After all, in healthcare, the practitioners are operating to maximize their aggregate utility, as are the bankers. And if that maximization of overall utility involves some utility transfer, as in some little people being harmed, oh, well, you have to break eggs to make omelets, right?

      1. from Mexico

        Perhaps I failed to make myself clear. When I referred to aggregate utility, I was referring to a more transcendent aggregate utility — the aggregate utility of the nation or of the world.

        It seems to me that Wadman has managed to convince himself that lying, stealing, opacity, etc. on the part of the bankers enhances national or global aggregate utility.

        Lying, stealing, opacity, etc. on the part of healthcare providers, however, he deems not to enhance national or global aggregate utility.

        This dispute over morality seems to be one of the major issues that drives an ideological wedge into revolutionary movements. Martin Luther King, for instance, argued the use of “almost anything — force, violence, murder, lying,” is not a “justifiable means to the ‘millennial’ end,” whereas Marxism, Nazism, Neoliberalism and Neoconservatism assert it is.

        The other major point of ideological contention in revolutonary movements seems to be whether they should be horizontal (lacking hierarchy, employing direct democracy) or vertical (hierarchical, employing representative democracy or no democracy, elite rule).

        1. Yves Smith Post author

          But as you point out, the operative is “he deems”. This is all about belief. He’s got no evidentiary basis for one v. the other, just victims he empathizes with v ones he doesn’t. Or alternatively, perps he admires v. ones he doesn’t.

          1. from Mexico

            Oh, OK, I get what you’re driving at.

            Even if we accept the proposition that lying, stealing, opacity, etc. are justifiable means to the millenial end — in Waldman’s case the maximization of national or global utility — he fails to use any criteria other than his own whim and caprice to determine whether bankers’ lying, stealing, opacity, etc. causes maximization of aggregate national utility, or conversely whether healthcare providers’ lying, stealing, opacity, etc. causes maximization of aggregate national utility.

            So Waldman is a fail regardless of which moral regime one uses.

          2. Harald K

            An admiration for bankers isn’t what I immediately associate with Waldman’s blog- The opacity piece was uncharacteristically pessimistic and cynical.

        2. mafer

          Morality itself is a means to an end. Even “thou shall not kill” must have its exceptions in order to produce moral results.

          The only doctrine that expressly rejects social ends, and therefore rejects morality, is Machavellianism.

          1. from Mexico

            mafer says:

            Even “thou shall not kill” must have its exceptions in order to produce moral results.

            I’m not so sure about that. This is where Martin Luther King broke with Reinhold Niebuhr, and according to Niebuhr, where Gandhi broke with Tolstoy. King and Tolstoy believed in pacifism, and Niebuhr, after the outbreak of WWII, believed in just war. Niebuhr asserted that Gandhi sided with him, but King believed Gandhi, like himself, was an absolute pacifist. King wrote of his break with Niebuhr extensively:

            “My Pilgrimage to Nonviolence — An Encounter With Niebuhr”

            I don’t know if you read Spanish, but there is a wonderful essay published in the Annals of the Magazine of the History of Phiosophy that provides an excellent overview of what the lay of the land was in the mid-16th century in regards to just war theory.


            The article reports on the famous debate between Fray Bartolomé de las Casas (1474-1566) and Juan Ginés de Sepúlveda (1490-1573), conducted in 1550-1551. The subject of the debate was whether the war on the Indians in the Americas was a just war. Both contestants believed in the idea of just war, Sepúlveda arguing the war on the Indians was just, and las Casas arguing that it was not just.

            However, there were those at the time who were pacifists. For instance, as the essay explains, there was a large passifist following in the College of the Spanish of San Clemente in Bologna, Italy that asserted that “all war, including defensive war, was contrary to the principles of the Catholic religion.”

            At the opposite extreme were those who believed in Roman law and/or papal donations, which gave legitimacy to diverse forms of “war of conquest.”

            Las Casas and Sepúlveda both subscribed to the philosophy of Francisco de Vitoria, who Maestre Sanchez asserts was “the founder of modern International Law.” According to de Vitoria, “neither the Pope nor the Emperor possesed the least right to exercise political jurisdiction over princes or peoples whether they be Christians, pagans or infidels; all the nations have the right to their liberty and sovereignty and to establish relations with other nations and trade with them peacefully; all imperialism is unjust, and all conquest is illicit.” War is just, according to de Vitoria, only if it can be justified by reason or natural law.

            Sepúlveda invoked the following points of ‘reason’ to justify the war on the Indians:

            1) The natural servitude of the Indians. Sepúlveda, invoking late-classical secular philosophy, cited rationality as the defining characteristic of the human condition. This philosophy asserts the legitimacy of a natural aristocracy, which implied the existence of natural servitude, conceived of a humanity structured under the principle that some men are more rational than others.

            2) The obligation to eliminate the human sacrifice and cannibalism practiced by the Indians.

            3) The obligation, by natural law, to liberate the innocents sacrificed en these rituals.

            4) The obligation to convert the Indians to Christianity.

            Las Casas countered as follows:

            1) That the Indians “still were created in the image of God and are not totally abandoned from divine providence and are not unable to enter the kingdom of Christ, being our brothers and having been saved by the precious blood of Christ, no less than the most prudent and scholarly of the earth.”

            2) That Sepúlveda used the practice of human sacrifice and cannibalism as a reason to declare war against a collectivity — all Indians — instead of those individual Indians who practiced these rituals.

            3) That Sepúlveda used the reason of liberating victims from human sacrifice and cannibalism to declare war on all Indians, when the practice of these “monstrous rituals” was “sporatic and individual.”

            4) That instead of conversion by the sword, conversion should take place by admonition, indoctrination and preaching. That Sepúlveda had expended immense energy in exaggerating the incidents where the Inidans had killed priests or resisted evangelization.

            I know that short history carried us wide of the mark, but the point is this: there do indeed exist people like the large passifist following in the College of the Spanish of San Clemente in Bologna, like Tolstoy, and like Martin Luther King who do not believe in the use of violence (killing) under any circumstances. When you assert that “Even ‘thou shall not kill’ must have its exceptions in order to produce moral results,” you are denying the existence of these people, either that or you are denying that they had any “moral results.”

          2. different clue

            Aren’t “thou shalt not kill” and “thou shalt not murder” two separate things? Didn’t the original commandment say “thou shalt not murder” until someone else dis-translated it to “thou shalt not kill” for reasons which deserve a very close and detailed analysis?

        3. Jonas

          I’m a big fan of both this site and Steve Waldman’s. Your viewpoints are typically not that different, although Yves is more direct and honest about it. Waldman makes his points using the language of the economists.

          Among his posts, I think that one is one of the more controversial ones. I agree with it though. I think without the magic of obfuscation, no one would ever take their hard fought surplus and recycle it through the hands of thieves. That just makes capitalism break down. You can’t have surplus without a recycling mechanism, as Germany/the EU is learning.

          If you could wave your fingers and fool Germany into recycling its surplus back to the periphery (perhaps through transfer payments), wouldn’t everything work better all over again? You can only do so much of this by force so the next step is to do it by fraud.

          Medicine is a real science, fighting against nature, and so it doesn’t need this kind of trickery for it to be useful. We’re all on the same side (or we can be).

          1. Yves Smith Post author

            I would bet any amount of money you are under 40.

            I grew up in finance in the 1980s. Savings were recycled then. It did not involve thievery. Any cheating by finance people was around the margin and was quickly quashed when officials found out about it.

            We didn’t have monster crises every few years and we didn’t have instiutionalized chicanery. There is absolutely no truth in Waldman’s claim that people need to be cheated for finance to work.

            The 1980s were when the cheating started, and there are plenty of ways to prove the proposition that the financialzation of the economy is simply large scale looting, which is inherently destructive.

            You’ve been sold a con by the crooks and don’t recognize that Waldman is running their PR.

          2. Jonas

            Yves you have me pegged. Maybe it’s a failure of imagination/lack of memory, but I can’t quite imagine the world that honest again (not just finance, although finance is a big part of it). Even kids cheating in school, etc. Can we dial the clock that far back? The whole system has to hang together somehow.

            The furthest back I can imagine it is back to the 90s when it was somewhat less dishonest (or perhaps just the dishonesty was on a smaller scale).

            I think that might be the cause of Waldman’s perspective as well (he’s under 40 as far as I know).

          3. charles sereno

            I think Aquinas once said a person should be 40 to philosophize. When I was 20 and my grandmother was 80, she caught me reading a book in her basement and smirkingly called me a “falapa” (philosopher). 20, 40, 80, you will always have philosophers among you, but wisdom not so much.

          4. Nathanael

            It is absolutely possible, Jonas, to restore a financial system without the cheating.

            In order to do so, you have to *destroy the existing institutions and imprison the people who committed the fraud*.

            Then you can *create new financial institutions run by different people* who aren’t fraudsters.

            The branch of economics which studied “institutional culture” understood this very well. This branch has been suppressed by our current elite.

            Understanding this principle was, in fact, why the SEC (under FDR and Joe Kennedy) was given the power to bar people from the financial industry for life.

            The culture of institutions depends on the people in them, but is also self-perpetuating. In order to clean up an institution, you have to permanently remove the crooks who perpetuated the culture of crime, and you usually also have to dissolve the institution and build a new one.

            (Incidentally, this is also the argument for revolution. A post-revolutionary government could dissolve the worst of the entrenched bureaucracies, such as the DoD or the US Senate, and start over with something which wasn’t culturally defective.)

    2. steelhead23

      Mexico – You are one of the reasons I read this blog daily. Terrific and thought-provoking post. Thanks.

    3. Cynthia

      No doubt that price transparency is a problem in health care, as it is in finance, but an even bigger problem in health care, by far, is COST. But because health care is a heavily subsidized industry (well over half of all healthcare dollars come from the Federal government), even if we were to correct the problem of price transparency, we’d still have the problem of cost. And yet policymakers and healthcare economists would rather focus on improving price transparency than on reducing costs.

      Why is this so? I don’t know for sure, but I suspect that it’s because policymakers and healthcare economists are stuck in the mythical mindset that healthcare is part of the free market. They’ve got a mental block which is preventing them from believing that health care is a heavily subsidized industry, and will always be a heavily subsidized industry. They’ve got blinders on that are preventing them from seeing that health care is front and center to our social welfare system. Almost every social program is centered around health care. You can’t say that about finance, nor can you even say that about education, but you can certainly say that about health care!

      Regarding the issue of cost, it’s wrongheaded to think that if we just reduce the number of test and procedures on patients, whether they are done on an inpatient or outpatient basis, we will quickly and magically solve the cost problem in healthcare. Most tests and procedures are necessary in order to rule-in/rule-out a specific diagnosis or a specific set of diagnoses. If tests and procedures aren’t done, we run the risk of improperly diagnosing patients. And believe me, I’ve seen this happen far too often with very tragic results. The smart thing to do is to NOT order fewer tests and procedures, but reduce how much these tests and procedures cost. It doesn’t make a bit a sense that a CT done in the US costs three to four times more than what it does in Japan, especially given that in both countries, the quality of the CT scanners are the same, as well the quality of radiologists who are reading the scans.

      1. Doug Terpstra

        How true. Medicine is one of the most inherently opaque, non-free market industries there is — and also the most vital necessity there is, as vital as defense and security, or more so. So how can anyone logically or morally defend a system that costs Americans twice as much per capita as civilized societies … and yields measurably poorer outcomes? To anyone with rudimentary synaptic capacity, it’s indefensible.

        From Mexico’s “moral-spiritual principles” allow no factual or moral ambiguity in that: twice the cost for poorer results, including right to life. This is because our entrenched system is inadequately-regulated, parasitic and extortionate, ranking on a par with aggressive war and banking.

        And that was before Obamacare. Now our dear government will force us to buy this vital necessity from an expressly for-profit industry, a “self-regulated” industry from which our “representatives” extract sizable bribes (yes, bribes). This is about as kleptomaniacal and fascistic as it gets — government as organized crime — and militarily aggressive, too. People voted to fundamentally change these perversions, but Obama has instead carried us bodily over a darker threshold, one that leads to the basement.

        This is the rogue regime we now have, in all economic and foreign policy — a unified, two-party regime dedicated to “ass raping” others and its own citizens for elite benefit, while it effectively immunizes the rapists from any and all accountability.

        1. Ms G

          ” … but Obama has instead carried us bodily over a darker threshold, one that leads to the basement.”

          Indeed. The similarities, in essence, to the “final solution” are increasingly apparent to anyone paying even mild attention.

          Always enjoy your posts. Thank you.

  3. vlade

    Well, I’d say that SRW’s views are not inconsistent.

    His first post shows he believed that some positive externalities (PEs) generated by opaqueness in finance may be worth it. From his second post, he clearly believes now that the positive externalities generated by the opaqueness in healthcare (and we could find some) are not by a long shot.

    Ultimately though, PEs generated by one or the other are quite different (even if the price we ultimately pay is very similar in ruined lives), so saying one set is wrong and the other not is not inconsistent IMO, just a value call. So yes, someone could call him up on that, but not on inconsistency. For the record, I have my doubts on whether SRW believes that PEs in banking were worth the price we paid, but that doesn’t prevent a thought experiment on PEs given by opaqueness.

    Of course, yet another approach (one I suspect you had in mind with the post) is to say that under an opaque regime the costs will ALWAYS end up outweighing whatever positive externalities may be gained by the opaqueness, thus there’s no point to argue that opaqueness has a place in the world. That is certainly my view.

    1. Yves Smith Post author

      No, go read his post. He gives examples of individuals being harmed in health care and calls it “ass rape”. He has no metric for saying that a ruined life somehow undermines all the good stuff done by the medical industrial complex (financially ruined, mind you, this is all about money, not about people dying). People without insurance get ripped off. People who are black or Hispanic get steered to lousy mortgages. Or better yet, how about complete non-parties to the transaction who suffer? What is Waldman’s justification for the people in Jefferson County who have to choose between having running water or having electricity because they can’t afford both (if you are part of the municipal water system, sewer charges follow, and they are roughly $50 a person a month no matter what you do. The charges were raised when people tried cutting water use to lower sewer charges. It winds up being a de facto poll tax). They didn’t opt into taking any sort of placebo, they were force fed the results of stupidniks with bad incentives having risk dumped on them. Oh, but they are trailer trash in Alabama, so I guess not worthy of Time reporters and therefore Waldman’s outrage.

      Medicine is inherently opaque. He has argued that finance NEEDS to be opaque, which gets him to the same position.

      I do not for a minute buy that finance needs to be opaque. I worked in finance when it wasn’t and it delivered MORE value to society, not less. And if the argument is necessity, that you can’t avoid going to the doctor if you are sick, you ALSO can’t escape dealing with the financial system if you are a part of modern society.

      He has never addresses the aggregate cost/benefit question in healthcare. He has merely gotten outraged about people being ripped off for hundreds of thousands of dollars. That happens in mortgage land too, frequently. So how is people getting ripped off by predatory servicers any different than his medical “ass rape”?

      Waldman has not presented anything to justify why his reaction to financial abuses in medicine differs from that in banking. And he never proved his contention, that risks needed to be shifted onto chumps for finance to work. The traditional model is that speculators choose to assume risk and that the reason for more complex and varied financial products was to allow people to tailor their risk exposure to their risk seeking appetite more closely. He’s flagrantly turned that into a wonky version of Gordon Gekko “greed is good”, stuffing stupid people is fine as long as the capitalist wheels grind a little faster. So what else is justified by that logic? It is pure might, or in this case, wealth makes right. And then in the piece I extracted, he does a 180 degree turn. So no, this is not consistent.

      1. Greg Taylor

        Finance was opaque before 1980 and plenty of people suffered because of it. The Fair Debt Collection Act and laws against redlining weren’t passed until the late 70s, The Home Mortgage Disclosure Act became law in the mid 70s, the Fair Credit Reporting Act passed in the early 70s, and the Truth in Lending Act in the late 60s. I don’t see the financial nirvana that you claim existed between from the 1940s through the 70s.

        While I disagreed with Waldman’s thoughts on financial opacity at the time (comment #15 on his original post) I saw value in it then as I do today. Attempting to refute his argument forces you to think about what it would take to eliminate opacity from finance. I’ve not found a good example in a modern society – certainly not pre-1980 US.

        You could make some headway with plain vanilla contracts (advocated by Waldman) but human variation in the ability to comprehend risk creates the information asymmetries exploited by financiers. As long as consumers make financial decisions regarding retirement, insurance, and mortgages the financier will have much greater knowledge of the financial risks and how to value them. Western societies have always been plagued by these financiers taking advantage of this asymmetry. How can you get rid of opacity in finance without eliminating it altogether? To me, that was his point.

        I really like Waldman’s blog Interfluidity. When I can understand him, he forces me to think deeply. Even when I can’t understand, the effort is still worthwhile.

        Yves post is not a fair characterization of the totality of Waldman’s work. He has many, many posts railing against financial opacity in various forms and supporting vanilla contracts that might reduce it. This is bit of a cheap shot and a poor effort to refute the argument Waldman made in the financial opacity post.

      2. Harald K

        You worked in banking when it was not opaque? No, not by Waldman’s measure. He thinks even very basic banking (just deposits and borrowing) obfuscates risk to depositors – and although he believes this is necessary, I don’t read from it that he thinks all obfuscation is OK.

  4. MIWill

    Perhaps Steve had a personal experience, himself or among his circle, and commenting on Brill’s article provided for a distanced venting.

    1. diptherio

      Ding, ding, ding!!!

      This is the intuitive explanation. Waldman knows people who have been personally “ass raped” by the Medical system, but doesn’t know anyone who’s been “penetrated” by the foreclosure crisis. Strokes discriminate less than sub-prime mortgages.

      1. Doug Terpstra

        As Reaganitis spurred advances in Alzheimer’s and stem-cell research, Michael Moore wrote that we should pray for disease to afflict the rich as a way to benefit humanity as a whole. Waldman’s POV is likely captured by this Bloomberg Business Week mag cover: minorities cashing in on the latest flipping bubble. One propagandist’s picture is worth a thousand words.

  5. El Snarko

    Yves, you are of course correct, but this points to a deeper issue that I have noticed increasingly over these last three years in policy discussions, as well as the blogosphere in general. Your writing comes from an expressively reasoned, artfully articulated, and comprehensive world view. It is consistent, interesting and regrettably operationally passe. By this I really mean quite rare. In a sense you are a philosopher of a sort, in the practical sense. Almost everyone else, even those who are quite capable of this, do not do it because they are part of the reflexively reactive world of the now. Everything is stochastic, and on the social scale, crazily perceived to be self determined at the same time. Hummm, I am not sure exactly what I just wrote means but I suspect that you do!

    Waldman is a very good blogger, but like the majority of humanity is conversationally inconsistent. This relative absence of a finely tuned, and reflective foundation is the basis of much inconsistent policy and the dreary politics of the best possible deal. Or war, whichever.The reason for this is a singularly strong orientation toward a view implies specific values. Values mean the embrace of certain ends to the exclusion of the others. Exclusion of the others is a cost, and we all know costs must be minimized.

    1. Zachary Smith

      *** Waldman is a very good blogger, but like the majority of humanity is conversationally inconsistent. ***

      Change “very good” to “successful” and I’d agree. I’m much more inclined to the viewpoint of the poster who said “So Waldman is a fail regardless of which moral regime one uses.”

      I’ve spent the last while trying to learn a little something about Steven Waldman, and I have a small headache and a growing dislike for the man to show for it.

      I’d have never caught the discrepancy noted in the thread starting post because I’d never read this fellow. His normal writing style is – I suspect – aimed at a target audience who will understand it. Not that the guy can’t get straight to the point when he feels it to be necessary.

      Take this from a 2004 piece in the National Review:

      *** But it is perfectly appropriate to force one’s religious beliefs on others. ***

      Notice how that little gem is given its own paragraph. The rest of the piece may be over the heads of his peckerhead target audience, but they’ll understand THAT.

      He is quite capable of ditching the bafflegab when it suits him, so I’m not surprised that he’s also able to talk out of both sides of his mouth.

      BTW, Waldman isn’t just a ‘blogger’. He’s a very wealthy man, and IMO is going to do whatever he needs to do to stay in the good graces of his Top 1% buddies.

      And yes, “tens of millions of dollars” puts him at the top of the heap.

      Mr. Steven Waldman made those millions posing as some kind of moralist at his wealth-making Beliefnet site. Now he’s working for an administration which is among the most corrupt and murderous in US history. Independently wealthy, he doesn’t have to stay there – he’s an ObamaBot on BHO’s payroll because that’s where his heart is.

      1. Steve Randy Waldman


        your biography is mistaken. there are several Steven Waldmans in public life. none of the articles you’ve linked to are by or about me. i’ve made no millions of dollars, alas.

        i try to use Steve Randy Waldman in public to disambiguate, to distinguish myself especially from BeliefNet/FCC Steven Waldman whom you have found.

        1. Zachary Smith

          Please accept my sincere apology for the slanders I directed your way.

          But what I said about the other fellow who shares your name still stands, though.


        2. different clue

          So . . . you are not the Steve R Waldman this post is about, and you are not the rich Steve R Waldman mentioned just upthread. You are a third Steve R Waldman.

          Is there a fourth one? A fifth one? How many Steve R Waldmans are out there?

          Who is Harvey Pekar!?

          1. Steve Randy Waldman

            No, I am the Steve Randy Waldman this post is responding to. But that Steve Randy Waldman, aka me, is not the person Zachary Smith described in his original, understandably mistaken, biography.

  6. ltr

    When a person uses the vile expression that Steve Waldman used in describing Steve Brill’s article, that person is obviously vile. There is no dignity nor decency in the user of such an expression.

    1. different clue

      Maybe a non-vile person has to use a vile expression to capture and express the vileness of a vile situation and vile practices. I’ve seen non-vile persons use vile expression to describe vile situations and practices over at Sic Semper Tyrannis on occasion.

  7. Synopticist

    Maybe he feels beholden to the bank lobby, but not the medical/pharma guys?

    Perhaps if medical insurers made a bit more of an effort for him, invited him to some glitzy conferences, paid him some fat speaking fees, dangled a cushy non-exec job at him, he’d shill for them as well.

  8. Jesse

    I see a number of example of cakes that were baked too quickly amongst the blogosphere.

    They make look firm on the outside, but when you slice them, they are not well set.

    A little learning is a dangerous thing.

  9. JEHR

    Steve Brill’s account of a family suffering with disease and having to pay up front for proper treatment does not deserve Waldman’s reply.

  10. from Mexico

    • Cynthia says:

    …health care is a heavily subsidized industry…

    …policymakers and healthcare economists are stuck in the mythical mindset that healthcare is part of the free market.

    I think it’s pretty safe to say that banking and finance are bellied up to the government trough too, perhaps even more so than the healthcare industry.

    • Cynthia said:

    …health care is front and center to our social welfare system. Almost every social program is centered around health care. You can’t say that about finance, nor can you even say that about education, but you can certainly say that about health care!

    Here in Mexico they have a saying: Sin dinero, no hay nada. Without money, there is nothing. I think you underestimate the importance of finance in our contemporary setting.

    1. Cynthia

      The shorter Waldman: it’s okay to be a deceiver and a thief when it comes to other people’s money, but it’s not when it comes to other people’s health.

      I suppose that’s true, assuming you value your health over your money. But the logic here is still exceedingly warped. In fact, it’s warped enough for its mass to exceed the Chandrasekhar limit, causing it to collapse and degenerate into a black hole!

      1. Yves Smith Post author

        Aha, you are still missing the point!!!

        The Brill piece that set Waldman off was about PRICE GOUGING! This was not about ruining people’s health, it was about hurting them financially! So how does this differ from screwing people financially over shelter (their housing) which is also a basic human need?

        1. Ms G


          Totally in agreement re. massive (indefensible) inconsistency in SW’s positions re. finance v. health care.

          Disagree, however, that Brill’s superb piece about price gouging in the health care delivery system does not address hurting people’s health. The financial abuse and the abuse of the person (and their health) are inextricably entwined.

          Ms G

  11. diptherio

    I used to have some limited respect for SRW, but then I read this:

    You can have opacity and an industrial economy, or you can have transparency and herd goats.

    A lamentable side effect of opacity, of course, is that it enables a great deal of theft by those placed at the center of the shell game. But surely that is a small price to pay for civilization itself. No?

    WTF? I assume he has mountains of research to back this up and that this trade-off between opacity and civilization is a totally agreed-upon and non-controversial issue, right? Well, I can’t find any, and Waldman doesn’t offer any links or references, so I assume he’s just pulling that one out of his heiny.

    Which is where the rest of his analysis in that essay comes from as well. (So you can concoct a payoff matrix with a nash equilibrium at your desired outcome…big whoop, you just made the thing up. I could easily re-jigger the numbers and “prove” something different. It’s mental masturbation, pure and simple.)

  12. bluntobj

    I will content myself with the observation that SRW aligns himself more with bankers, and thus when it comes time to consider who to cast off the shrinking iceberg to drown it is much easier to pick any other group but his own.

    In the end, the leeches will do anything to stay in power for another month, day, or hour. Time is getting short.

    1. Ms G

      Pithy, sharp and right on the money.

      At current levels of desperation lackeys grabbing another second on the head of the pin which is the remaing tip of the iceberg.

  13. Ignacio

    As I see it what Mr Waldman gets wrong is the identy of risk takers. Financiers, and this has gotten chrystal clear in this crisis, DO NOT TAKE RISKS with their personal wealth. They enjoy playing risky games with others’ money and they are sure to collect huge benefits via fees and comissions as well as safe to divert losses to their customers or the public in general via opaque instruments, political pressure, cronyism, lobbysm etc.

    The malfunction odfWaldman’s theory on risk taking is that financiers have become used to create the risks that others, but not them, take.

    1. Ignacio

      It is then obvious that when a financier takes risks supposedly on behalf of others, transparency is a must in this particular business.

  14. docG

    Both quotes are perfectly consistent. It’s just that Waldman is being sober minded and sincere in the second, and wittily ironic in the first. It’s obvious that encouraging bankers to take inordinate risks is NOT his idea of good economic policy. It’s his idea of the system we are now stuck with, whether we like it or not — so long as our intention is to preserve the status quo. Actually that first quote is far more radical, because it’s based on a much deeper insight into the absurdity of the situation in which we now find ourselves. And the clear implication is that “fixing” the status quo by regulating the banks will only make things worse.

    I was pleased to read this because it resonates very nicely with some things I wrote back in 2009:

    “The backbone of our financial industry for the last 25 years has been all the uncontrolled trading. Money has been made, gobs of it, specifically because highly risky, highly questionable, but also high profitable (because the risk could be deferred almost endlessly) trades were not only permitted but encouraged. . .
    Let’s face it, the real engine of growth in this country over the last 25 years — or more — has been the financial industry, which has accounted for a whopping percentage of the GNP. And if it gets cut down to size, as MUST happen, then what will become the basis for the American economy during the “recovery”? Where will the jobs be?”


    1. Yves Smith Post author

      No, he is not being ironic. He was taken to task over his theivery-defending post by e-mail by people I know, as well as on Twitter. He was deadly serious.

  15. ChrisPacific

    I read the first post. It amounts to an “ends justify the means” argument. I also think it fails on a number of accounts.

    He presents a game theory model with a couple of equilibria, and argues for the banking model being necessary in order for us to reach the ‘higher’ one as a natural consequence of (apparently) rational decisions on the part of individuals. He then presents a degree of theft as a lamentable but necessary side effect.

    There are a number of points on which I could challenge this but I’ll start with his concept of ‘low’ and ‘high’ equilibria. The banking system we have today is the end result of bankers asking the question: if we can get away with stealing a great deal of the money, why not all the money? In the absence of transparency, who is to say that the ‘high’ equilibrium is actually higher? Ample evidence has been presented on this blog over the years that the current financial system is actually acting as a net drain on society.

    I also think Waldman is overstating the case at the low end – in other words, I don’t think that the absence of a predatory financial layer means we all end up as dirt farmers. I don’t think it’s proven that capitalism and transparency are incompatible, and in any case there are models other than the capitalistic under which human progress and advancement of technology is possible – the public domain research model, for one. In Waldman’s own terms, I think that the dichotomy he presents – complete with dire consequences at the low end and utopia at the other – is part of the con. If you grant someone a license to steal, it’s foolish to expect them not to rob you blind.

    1. Ms G

      “In Waldman’s own terms, I think that the dichotomy he presents – complete with dire consequences at the low end and utopia at the other – is part of the con. If you grant someone a license to steal, it’s foolish to expect them not to rob you blind.”

      Thank you.

  16. tawal

    I’d rather herd goats, but I can’t find a way to save enough money in the ‘post’-industrial economy to get started.

  17. Susan the other

    Why am I the only one who ever says this? Because it looks so much like big brother? If Waldman were consistent he would call for the computer age to solve these monkey problems. We know that monkeys can replace stock pickers, aka investment bankers, and do slightly better; who knows, maybe they can replace doctors too. For sure computers can. We need specialty computers to handle finance and diagnoses both. Oh, but what kind of jobs does that leave us with? Probably ones in which gains are not predetermined to go to corporations. I’m pretty sure Waldman won’t even touch this idea.

  18. Steve K.

    I am a professor at a major East-coast research univerity. One can substitute ‘US higher education’ in place of ‘health care’ (and ‘students’ for ‘customers’) in Maggie Mahar’s inset and explain the coopting and corruption here, too.

  19. Dan Kervick

    He’s purporting to describe the system we live under – the financial element of which he calls “status quo finance.” His argumentis that fraud and intentional obscurity are deeply inherent in that system, and do changing that system system requires large alterations that go beyond “reform”.

    At the end of the piece he writes:

    “I have presented an overly flattering case for the status quo here. The (real!) benefits to opacity that I’ve described must be weighed against the profound, even apocalyptic social costs that obtain when the placebo fails, especially given the likelihood that placebo peddlars will continue their con long after good opportunities for investment at scale have been exhausted. By hiding real economic risks from those who ultimately bear them, status quo financial systems blunt incentives for high-quality capital allocation. We get capital allocation in bulk, but of low quality.”

    1. Jonas

      Bingo! He’s arguing that as currently constructed, opacity is needed to make the system run at all. It’s not whether it runs well or not.

      If you’re rebuilding from scratch, you can probably engineer out a lot of the opacity. But I think it’s an open ended question whether or not any finite system that lets surplus build up in one place can avoid opacity in an effort to recycle that surplus. You can only do so much by force.

      Maybe you can rely just on irrationality as crazyman says. Or prodigal sons/daughters. But the need for something like that is there.

  20. Heretic

    In general I liked Mr.Waldman’s blog. He has been rather insightful. However, his article on the necessity of opacity of fiance is utter horse-excrement. Never mind that the small and medium sized and non-connected investors are bankrupted, has he or anyone studied the amount of wasted investment and industries that were produced, and was thereafter either idled or dismantled after the boom. (i.e. empty housing) Hence there was no real wealth accumulation for society. Or the fact that the connected oligarchs can then deploy their money to buy useful assets on the ultra-cheap (internet telecommunications boom), and thereafter undercut other legitimate businesses, and thus concentrate more industrial power into their own hands? Conversely, from 1945 to 1980, although there was no major finance based crash in the western world, social prosperity was reasonably widespread and technology improvement continued unabated and at a good rate. So why do we need to engage in opaque finance? I conclude that to protect opacity in finance is to protect the oligarchs who benefit from it.

    He makes an analogy that without opacity, we would herd goats. This is rhetorical goat excrement. I believe that a study of nations around the world will reveal that the technologically and economically weaker societies are those with with the most opacity, are the ones most vulnerable to corruption and cronyism and the resulting concentration of power wealth. Where as it is the nations with transparent institutions that are accountable to the ordinary people and who uphold principles to the benefit of the entire nation that are the most dynamic and proserous.

  21. craazyman

    He doesn’t need to worry. Even if you lose opacity, you still have irrationality. People will persuade themselves to gamble on new ventures, just like they play the lottery. No goat herding required.

  22. allis

    I think Yves is mistaken when she implies, in her statement, “And please do not try the argument that healthcare is different from finance,” that the differences between finance and health care are irrelevant. One difference is that most of us are at sometime impelled to enter the health care market, or else suffer pain, disability or even death. No similar compulsions drag buyers into the financial market. In fact, excluding FDIC insured accounts, the majority of Americans never invest in financial products at all. Investment buyers must be enticed to enter the financial market, much as buyers must be enticed (by advertising) to enter other markets. This seemed to be the gist of Waldman’s 2011 blog.

    After reading the articles Yves referred to, I was reminded of a 1958 article by the historian Gerald Mattingly (reprinted in The American Scholar Reader, 1960), “Machiavelli’s Prince: Political Science or Political Satire?” He notes that this republican author, who wrote the Discorsi, who served the Florentine republic in official capacities for fourteen years in the 1480’s and 1490’s, and who under Medici rule in 1512-1513 was arrested, imprisoned and endured the torture of six turns of the rack, that this same man, according to both historians and the-man-in-the-street, approved of and promoted the methods of rule described in “The Prince.”

    There is a “Machiavellian Curse”: one who describes a bad situation is believed to be promoting that bad situation. As Mattingly noted, “Machiavelli did say that he wanted to show things as they really are instead of as they ought to be.”

    Perhaps Steve Waldman is a victim of the Machiavellian Curse.

    In the first article Yves quotes, Waldman is describing how investment and finance work in our capitalist system. The question is, is Waldman also approving or even promoting what he describes? Or is he saying, in effect, that this is the way it is, and your best way of coping with it is to understand it. As he himself added in a note, “I do think there are alternatives to goat-herding and kleptocratically opaque semi-fraudulent banking. But adopting those would require not ‘reform’ but a wholesale reimagining of status quo finance.”

    1. Yves Smith Post author

      No, if you want shelter, or a job that pays in anything other than cash, you need to interact with the financial system. You cannot rent OR buy without a credit record (or a co-signer who interacts with the financial system on your behalf). You need a bank account to deposit check or accept wire transfers.

    2. ChrisPacific

      No similar compulsions drag buyers into the financial market. In fact, excluding FDIC insured accounts, the majority of Americans never invest in financial products at all.

      No, the government does it for them when it bails out failed financial institutions (and through all the numerous backdoor subsidies like ZIRP). The idea that you can opt out is appealing but wrong.

  23. Lrellok

    Is Mr Waldman attempting to refute the existance of market equalibrium, or Information Asymitries relation to it? Assuming Prof Stiglitz is correct (or i am not misreading him), Optimal Equalibrium requiers that actors be fully informed when making purchasing decitions, and denying actors information shifts prices, producing disequalibrium and inefficencies in the market.

    Combining these, Mr Waldman has just effectively stated that a significant portion of the value of the NYSE is a dead weight loss on our economy, if not its whole value. If the valuation of all assets is based on the misrepresentation of those assets risks, then the value of all assets is wrong, and reflects an (large) inefficency in the market. This would (might?) mean that the existance and objective of the finantial sector is to misallocate capital and prevent markets from operating efficently.

    I know many in Occupy where effectively trying to say that the existance of wallstreet itself is a misallocation of capital, but for someone to try making the case that widescale capital missallocations are a net positive, that is intersting to see…

  24. beowulf

    When did Waldman become History’s Greatedst Monster?

    I take his point and agree with it wholeheartedly. Its like Winston Churchill said…
    “Dis­ease must be attacked, whether it occurs in the poor­est or the rich­est man or woman sim­ply on the ground that it is the enemy; and it must be attacked just in the sane way as the fire brigade will give its full assis­tance to the hum­blest cot­tage as read­ily as to the most impor­tant mansion…”
    That there are still people in this country who vehemently disagree with that sentiment is a national scandal. To his credit, the first thing President Trtuman asked Congress for after World War II (I mean, within weeks of Japan surrendering to MacArthur) was enactment of National Health Insurance. That from 1945 to today it hasn’t happened yet has been a source of untold (and unnecessary) human misery.

    Sure, there are plenty of greedy rent seekers in finance, so pop them w/ excess profits taxes to recapture the rents. And certainly those who commit fraud should be thrown in prison by the busload but the lack of affordable healthcare is a more serious problem. Jack Benny notwithstanding, your money is not as important as your life. Kudos to Steve Randy Waldman for recognizing this point.

    1. Yves Smith Post author

      Did you somehow miss that people are becoming homeless thanks to foreclosure abuses? Have had their savings wiped out? Face protracted unemployment? The suicide rate is up enormously in Greece and somewhat in the US, and that is attributed directly to the aftermath of the financial crisis. We have Social Security and Medicare cuts coming as a direct result of the crisis (the explosion in debt levels was caused by the crisis). That means old people dying faster.

      If you can’t see that financial abuses have killed people, that being poor because your had no job and had to eat into your savings means you have no money for medicine, I can’t help you. The connection between the financial system and survival is direct, thanks to the huge impact it now has on the economy, but you refuse to see it.

  25. allis

    Yves, you are, of course, right to spotlight the misery caused by the financial system. An argument over whether that system or the failed health care system is the worst seems a futile argument. Both have become destructive. We should all become as angry as you and Steve. But how do we channel this anger constructively?

Comments are closed.