Morality and High Finance

By Wade Lee Hudson

One of the best analysts of the financial industry is James Kwak, co-author with Simon Johnson of The Baseline Scenario blog. On February 14, he posted “The Social Value of Finance,” which was a comment on a long paper by Sabeel Rahman, a Harvard Law fellow, on the moral implications of the financial crisis and the question of how to deal with banks that are “too-big-to-fail” (TBTF).

Kwak reported that Rahman “draws a contrast between a managerial approach to financial regulation, which relies on supposedly depoliticized, expert regulators, and a structural approach, which imposes hard constraints on financial firms.” Partly because this distinction resonated with the critique of traditional liberalism that I articulated in “Growing Compassionate Populism,” I read Rahman’s article and was very impressed with his analysis. I particularly appreciated his affirmation of the need for “moral judgments.”

When he granted me permission to quote from his paper, I was working on the submission to Netroots Nation for a panel presentation at their 2014 conference. So I asked him if he would participate on that panel. He said yes, and offered the following description of himself and what he would say:

Rahman (Harvard Law School and the Roosevelt Institute) studies the history of the Progressive movement, and the normative, legal, and organizing dimensions of economic reform. An effective movement for full employment requires a compelling moral narrative of economic progress. Rahman will outline how early twentieth-century progressive reformers faced a similar situation of widening inequality, upheaval, and political dysfunction. These reformers developed a moral view of the economy that catalyzed major progressive reforms in labor, consumer rights, and economic regulation. But progressive discourse in recent decades has largely moved away from this moral vision of the economy. Rahman will build on this historical account to suggest an account of economic freedom for our current moment—one that is distinctly progressive, and which can serve as the foundation for a more broad-based push for full employment, living wages, and an economy that realizes the full potential of all citizens.

Following is the abstract, table of contents, and conclusion of his (draft) paper, which is titled, “Managerialism, Structuralism, and Moral Judgment: Law, Reform Discourse, and the Pathologies of Financial Reform in Historical Perspective.”


Five years after the financial crisis, it remains unclear the degree to which regulatory reforms have succeeded in addressing the root causes of the financial crisis. This paper argues that ongoing policy debates about financial reform are undermined by a tension not between pro- and anti-regulatory views, but rather a deeper tension within reform discourse between two rival conceptual frameworks of how financial regulation should operate. The predominant approach to financial regulation in the United States, especially on matters of systemic risk and financial stability has revolved around a “managerial” approach that relies heavily on the ability of insulated expert regulators to optimize and manage the vicissitudes of the financial system. Although this approach may seem logical, it is nevertheless at odds with a rival reform discourse present today, and historically. In this rival approach, the emphasis is less on expert macroeconomic management, and more on “structural” regulations: reforms that impose strict constraints on the size and powers of financial firms, potentially at greater cost to industry but also more easily implemented.

This paper identifies this disjuncture between managerial and structural approaches in financial regulation discourse today (Part I). It then traces historically how the managerial ethic comes to dominate financial reform law and policy over the last century (Part II). In short, I argue that the gravitation towards managerialism stems from an underlying unease with making moral judgments about the social value of finance, and an overeager deference to financial innovation as an unqualified good. This avoidance of moral judgment in turn has created pathologies in the law of financial regulation, displacing a fundamentally moral and substantive judgment about the value of various financial firms and activities into proxy debates over, for example, agency jurisdiction, centralization, or the quality of regulatory expertise (Part III). These pathologies continue to constrain the effective implementation of financial reform in the United States. The paper then returns to some of the major financial regulation debates today to suggest that addressing issues like “too-big-to-fail” or new financial instruments necessarily requires making a moral judgment about the social value of finance — and that such judgments, once embraced, open up a range of more structural, rather than managerial, approaches to financial reform (Part IV).


I. The Discourse and Limits of Financial Reform
II. From Critique to Deference: A Brief History of Financial Regulation
Populists, Progressives, and the social control of finance
The New Deal Financial Regulation
From Consumer Protection to Financialization: Postwar Regulation
Setting the stage: deregulation
Moral judgment and the social value of finance
III. The Costs of Avoidance: Pathologies in Financial Regulation Law
From moral judgment to technocratic deference
Displacing the moral into the jurisdictionalFinancial regulation as an expertise-forcing inquiry
Financial reform in the courts
IV. Moral Judgment and Structural Financial Regulation
Too-big-to-fail as a moral category
“Speculation” and financial innovation
Finance as a public utility
V. Conclusion



In both the recent history of financial regulation and the post-crisis debates since 2008, there is a common tendency to turn to technocratic institutions as a preferred way to address controversial questions about what kinds of financial firms and activities we as a society ought to permit. But these are not purely technical issues to be resolved by neutral expertise. They fundamentally implicate moral judgments about what kind of economy we desire, and what kind of activities we value as a society. Furthermore, by transmuting these moral questions into technocratic ones to be judged by expert regulators, we do not resolve them. Instead, substantive concerns reappear through proxy debates over the scope of regulatory authority and expertise, creating an additional layer of formalism and contributing to some of the regulatory pathologies that helped fuel the 2008 crisis itself.

In the effort to avoid these moral controversies, policymakers and judges have routinely turned to centralized, national, expert-led organizations. By contrast, a more moralized engagement with the substantive issues of economic regulation calls for a different institutional structure, raising the possibility of more structural, rather than managerial, responses to the problem of TBTF: placing structural limits on the size and powers of financial firms; narrowing the scope for new financial innovations; or, in the extreme, regulating finance as a public utility. The above discussion does not suggest a precise answer to the problems of modern financial regulation—adjudicating between these more structural approaches is a task for another inquiry—but it does suggest three important implications.

First, in financial regulation as in other domains of economic regulation, ideas matter. Our responses to these policy problems depends as much on our normative and conceptual construction of the problems themselves as it does on the state of our technical knowledge.

Second, in engaging complex and controversial policy issues like TBTF, the allure of a purely technical, neutral managerial approach is largely illusory. Regardless of the state of expert knowledge or technocratic institutions, these issues will necessarily require moral judgment. Indeed, the effort to sterilize these questions of their moral controversy is ultimately counterproductive, for it creates problematic policies and institutional structures, and narrows the menu of available policy options.

Third, engaging the moral dimension of these issues more openly points us towards a very different institutional decision-making structure. If a technical understanding of TBTF suggests the need to prioritize and optimize technocratic policymaking bodies like insulated, expertise-based regulatory bodies, a more moralized view of finance suggests something different. Once engaged, such moral debate must be channeled through institutions where all affected interests can engage to voice their concerns, where there is a legitimate procedure through which these moral debates can be argued, judged, and revisited. A moralized understanding of economic regulation thus goes hand-in-hand with a more democratic structure for deciding these moral questions. This democratic structure reverses the features of technocratic governance described above. Instead of centralized, expert-led bodies, this democratic approach points us towards collective decision-making that is based on moral, as well as technical, reasons; that is participatory and representative, rather than expert-led; and that therefore may involve a more decentralized and politicized institutional form, rather than the centralized and insulated technocratic model.

These democratic institutional forms are therefore the other side of the coin of engaging the moral dimension of these policy debates. The ability to have this moral debate is in part a product the kind of moral vision that we as citizens are willing to entertain when we engage these kinds of issues, and partly a result of the institutional structure of policymaking. The purpose of these democratic structures is to make possible a productive, effective—but still moral and substantive—debate over the good economy and the good life. Ultimately, issues like TBTF require us to engage head-on a political project of reforming our democratic institutions—and constructing new ones—as a way to address the substantive concerns more fully.

Rahman, K. Sabeel, Managerialism, Structuralism, and Moral Judgment: Law, Reform Discourse, and the Pathologies of Financial Reform in Historical Perspective (December 16, 2013). Prepared for presentation at the Joint Program of the Financial Institutions and European Law Sections, AALS Annual Meeting, New York City, January 3, 2014, for the panel: “Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation”. Available at SSRN: or


In Bed with Wall Street

DoyleIn Bed with Wall Street: The Conspiracy Crippling Our Global Economy by Larry Doyle,  a former mortgage-backed securities trader, is receiving a strong, early reception. In its first week, each of four reviewers gave it five stars and posted glowing reviews.

On Jan 7, 2014, C-SPAN presented a compelling, accessible 40-minute Book Discussion with Doyle.  Watch and weep. I did.

The book’s publisher posted the following description:

The Wall Street meltdown in 2008 brought the country to its knees, and spawned nationwide protests against the lack of regulation and oversight facing Wall Street. But the average American still fails to fully grasp what was—and still is—happening: that the inmates continue to run the asylum. Doyle has been tracking this story for years through his blog Sense on Cents, and exposes here how Wall Street, our politicians, and the regulators themselves have conspired for personal and industry-wide gains while failing to protect investors, consumers, and the American taxpayer. He details the corrupt nature of Wall Street’s financial police, who are little more than meter maids imposing fines that amount to nothing more than a slap on the wrist. He exposes the revolving door of Wall Street, wherein the regulators are all former or future employees of the very firms they’re tasked with overseeing, and how they routinely serve the interests of the industry itself rather than protecting investors and markets. Recent bombshells—such as multi-billion dollar trading losses at JP Morgan Chase, the manipulation of interest rates via the LIBOR scandal, and money laundering with North American drug cartels and rogue nations such as Iran—are symptomatic of this corrosive culture and the lack of trust and confidence in the system. As the big banks fight tooth and nail to avoid real reforms that would protect the economy, this book is a timely, important, and shocking look inside the Washington-Wall Street conspiracy crippling America and the global economy.

Report: Half of U.S. Families Live on the Edge of ‘Economic Chaos’ (plus more)

cashregister-thumb-640xauto-9805Report: Half of U.S. Families Live on the Edge of ‘Economic Chaos’ 
by Imara Jones

Half of all families in the United States are poor, near poor or face economic insecurity where “one major setback in income could push them into poverty.” That’s the shocking conclusion of a report released today by The Hamilton Project.


Is Pope Francis Leaving Vatican At Night To Minister To Homeless?

…A knowledgable source in Rome told The Huffington Post that “Swiss guards confirmed that the pope has ventured out at night, dressed as a regular priest, to meet with homeless men and women.”


Is Wall Street Too Giddy?
The stock market reaches record highs as incomes stagnate. Tech companies with no revenue are valued in the billions of dollars. More analysts are seeing something unpleasantly familiar.

Are we in a stock market bubble that could soon burst?


‘TipsForJesus’ Is Leaving Thousands Of Dollars For Servers
By Mark Memmot

…TipsForJesus has been chronicling its good deeds on Instagram, saying its mission is “doing the Lords [sic] work, one tip at a time.” Gawker estimates about $54,000 has been handed out in the past several months.


Third Way’s Anti-Populist, Anti-Warren and Deceptive “Dead End”
By Richard Eskow

An almost palpable air of desperation clings to the anti-“populist,” anti-Elizabeth Warren editorial by Jonathan Cowan and Jim Kessler of the corporate-funded Third Way organization. If they’re worried, they’re right to worry. The world is changing.


Rumsfeld’s War and Its Consequences Now
By Mark Danner

A review of:

The Unknown Known
a film directed by Errol Morris

Known and Unknown: A Memoir
by Donald Rumsfeld
Sentinel, 815 pp., $36.00

By His Own Rules: The Ambitions, Successes, and Ultimate Failures of Donald Rumsfeld
by Bradley Graham
PublicAffairs, 803 pp., $18.95 (paper)


’Tis the Season to Be Food-Insecure

It is a strange and ironic truth that in the world’s richest democracy, many Americans are going to work in the morning, but they and their families are going to bed hungry at night.


Homage to the Idols of Idleness

…What could be gained from a single day set free from the clock’s tyranny, one spent wandering or daydreaming the hours away?


The Stem and the Flower

…How much emotional and psychic space should politics take up in a normal healthy brain?… politics should take up maybe a tenth corner of a good citizen’s mind. The rest should be philosophy, friendship, romance, family, culture and fun. I wish our talk-show culture reflected that balance, and that the emotional register around politics were more in keeping with its low but steady nature.


The Families We Invent

…As good as we humans are at division, we’re better still at connection.


The Pope and the Right

…This Catholic case for limited government, however, is not a case for the Ayn Randian temptation inherent to a capitalism-friendly politics. There is no Catholic warrant for valorizing entrepreneurs at the expense of ordinary workers, or for dismissing all regulation as unnecessary and all redistribution as immoral.