Too Big

Hair raising true-crime meets history meets today's news in this firsthand account of events preceeding the collapse of the mortgage markets. I found it very helpful for its perspective on how banking changed when investments banks went public. Plus its full of cussing, high stakes, and intellectual intrigue without getting preachy or conspiratorial.
http://tinyurl.com/66yhto

Also, this worthwhile bit of history from Harvard's Richard Parker, I abridged his intro for quicker reading. Well before Minsky explained the instablity inherent to capitalism, Berle (Harvard's youngest graduate) described the danger of Corporations too powerful to be regulated (in current parlance, "too big to fail")
Full text:http://www.nytimes.com/2008/11/09/books/review/Parker-t.html?_r=1&sq=berle&st=cse&oref=slogin&scp=1&pagewanted=all

[Adolf Augustus Berle wrote “The Modern Corporation & Private Property” in 1932.] The book succeeded in persuading Americans to see their economic system in a new way — and helped set the stage for the most fundamental realignment of power since abolition. [...] Berle used data compiled by his co-author, the economist Gardiner Means, to examine how markets had become concentrated in just a few hundred firms and how senior managers had wrested power from the companies’ legal owners, the shareholders.

No radical, Berle was eager to preserve the corporate system, which he called “the flower of our industrial organization.” But he now believed that new controls would have to balance “a variety of claims by various groups in the community” — not just its managers or shareholders — and assign “to each a portion of the income stream on the basis of public policy rather than private cupidity.”In 1932, as in our own moment of financial crisis, most Americans could see that something needed to be done because these new behemoths — which had turned America from a nation of farmers into the world’s largest industrial power — were on the verge of collapse, poised like Samson to pull the entire economy down with them. Berle’s genius in “The Modern Corporation” was to align his professional insights with the public’s fears, and its anger. As he starkly put it in his preface, “Between a political organization of society and an economic organization of society, which will be the dominant form?”

In Theodore Roosevelt’s and Woodrow Wilson’s era, reformers like Brandeis had argued that strict anti­monopoly and anti-collusion laws could return America to a place of small firms and farms, the beau ideal of Adam Smith’s market model. But Americans continued rushing to the cities, spurring an explosion in mass consumption, financed by a boom in cheap consumer credit and easy home loans. Then, in 1929, the markets crashed.

The crash for a time reinvigorated not only the anti-monopolists, but also union organizers, socialists, agrarian populists and crackpot utopians. It also brought forth “forward looking” chief executives like Gerald Swope of General Electric, who supported progressive corporatism — a world of government-mandated business cartels in exchange for higher wages, improved working conditions, and corporate-based workers’ compensation, pension and unemployment plans. Berle, however, was keen on none of these solutions. In his book, he explained that giant corporations were not “natural” economic institutions but recent inventions of the law, cobbled together on the remains of the medieval corporation, a quite different institution. What the Depression showed, he argued, was that modern corporations had failed not only stockholders, but the public — and would do so again, if left unregulated.

But what sort of regulation was required? On details, Berle was maddeningly but deliberately vague. What he did say clearly was that government needed to bear final responsibility for the economy by using its powers to balance supply and demand. It would also need to require corporate directors to manage the managers, not just for shareholders’ benefit but in accordance with new rules codifying the collective rights of stakeholders and the broader social responsibilities of corporations.

The impact of Berle’s ideas was no doubt enhanced by his decidedly nonradical biography. The son of a reform-minded Congregational minister and his wealthy wife, he had entered Harvard at 14 and finished Harvard Law School at 21 — at the time its youngest graduate ever. (Arrogant as well as gifted, he once showed up in Felix Frankfurter’s class the semester after completing it. Puzzled, Frankfurter asked him why he was back. “Oh,” Berle replied, “I wanted to see if you’d learned anything since last year.”) After a year at Louis Brandeis’s firm, he briefly did public-­interest legal work before marrying well and settling down to a prosperous career in Wall Street corporate law. As clients flocked to him, however, he began questioning the very system that was making them (and him) rich. In 1923, alarmed by the venality, the chicanery and frequently the stupidity of Wall Street, he started writing articles that over the next several years would virtually invent the modern field of corporate finance law, emphasizing moderate solutions. After Columbia Law School offered him a job in 1927, he began cycling between his lucrative practice downtown and his teaching uptown.

But the Great Crash — and the subsequent revelations of market manipulation, fraud and reckless risk-taking — forced Berle to change sides. He was a Mugwump Republican, but the economic chaos of the Depression, and the threat it posed to American democracy, convinced him a new sort of regulation was now unavoidable.

In late 1931, Franklin Roosevelt, then governor of New York, called on the Columbia political scientist Raymond Moley. Roosevelt was weighing a run for president and was looking for fresh ideas. Moley quickly approached Berle and connected the two ambitious Harvard men. A month after “The Modern Corporation” appeared, Berle drafted Roosevelt’s famous Commonwealth Club address, delivered in September 1932. Proclaiming that “the day of enlightened administration has come,” Roosevelt articulated the rationale for much of the New Deal’s financial and corporate reforms, including deposit insurance and securities regulation. He defended the coming government interventions as protecting individualism and private property against concentrated economic power. Calling for a new “economic constitutional order,” he declared it our common duty to “build toward the time when a major depression cannot occur again.”“None of Roosevelt’s speeches,” Arthur Schlesinger Jr. later wrote, “caught up more poignantly the intellectual moods of the early Depression than this one.” It helped assure his landslide victory — and earned Berle a series of ever more important posts in the administration. America began an unprecedented 40-year expansion.

By the Reagan era, however, a new philosophy would take hold, and the public oversight of markets that Berle helped pioneer would over time be swept aside, in confident belief that markets could self-regulate and that government was the problem, not the solution. Today, that era itself seems to be coming to end, and the question Berle posed — will democracy rule the corporations, or will the corporations rule democracy? — seems a profoundly important one worth asking again.

Richard Parker, an economist, teaches at the Kennedy School of Government at Harvard. He is the author of “John Kenneth Galbraith: His Life, His Politics, His Economics.”http://www.nytimes.com/2008/11/09/books/review/Parker-t.html?_r=1&sq=berle&st=cse&oref=slogin&scp=1&pagewanted=all

A Long View on Life: Psychosis to Altruism

actually my heavily abridged version of a rambling article published today in the Atlantic Monthly. The article reports on Harvard’s 72-year-long “Grant Study” documenting 268 “normal” happy lives.

The man who took over and still runs the study, George Vaillant, has an appropriately subtle mind. I like his notion of “distortions of experience” which he likens to our physical defenses against injury such as swelling or clotting. The study demonstrates that we all defend ourselves mentally over time, but Vaillant categorizes them in an interesting continuum from psychosis to altruism.
(the unabridged version on the web site includes a great video interview with Vaillant)
http://www.theatlantic.com/doc/200906/happiness


Is there a formula—some mix of love, work, and psychological adaptation—for a good life? For 72 years, researchers at Harvard have been examining this question, following 268 men who entered college in the late 1930s through war, career, marriage and divorce, parenthood and grandparenthood, and old age.
e, for the first time, a journalist gains access to the archive of one of the most comprehensive longitudinal studies in history. Its contents, as much literature as science, offer profound insight into the human condition—and into the brilliant, complex mind of the study’s longtime director, George Vaillant.
[...]
Begun in 1937 as a study of healthy, well-adjusted Harvard sophomores (all male), it has followed its subjects for more than 70 years. From their days of bull sessions in Cambridge to their active duty in World War II, through marriages and divorces, professional advancement and collapse—and now well into retirement—the men have submitted to regular medical exams, taken psychological tests, returned questionnaires, and sat for interviews. The files holding the data are as thick as unabridged dictionaries. [...] [When] Vaillant discovered the Harvard Study, and his jaw dropped. “To be able to study lives in such depth, over so many decades,” he said, “it was like looking through the Mount Palomar telescope,” (then the most powerful in the world. )
[...]
Arlie Bock—a brusque, no-nonsense physician who grew up in Iowa and took over the health services at Harvard University in the 1930s—conceived the project with his patron, the department-store magnate W. T. Grant. Writing in September 1938, Bock declared that medical research paid too much attention to sick people; that dividing the body up into symptoms and diseases—and viewing it through the lenses of a hundred micro-specialties—could never shed light on the urgent question of how, on the whole, to live well. His study would draw on undergraduates who could “paddle their own canoe,” Bock said, and it would “attempt to analyze the forces that have produced normal young men.” He defined normal as “that combination of sentiments and physiological factors which in toto is commonly interpreted as successful living.”

[...]

As the Grant Study men entered middle age—they spent their 40s in the 1960s—many achieved dramatic success. Four members of the sample ran for the U.S. Senate. One served in a presidential Cabinet, and one was president. There was a best-selling novelist (not, Vaillant has revealed, Norman Mailer, Harvard class of ’43). But hidden amid the shimmering successes were darker hues. As early as 1948, 20 members of the group displayed severe psychiatric difficulties. By age 50, almost a third of the men had at one time or another met Vaillant’s criteria for mental illness. Underneath the tweed jackets of these Harvard elites beat troubled hearts. Arlie Bock didn’t get it. “They were normal when I picked them,” he told Vaillant in the 1960s. “It must have been the psychiatrists who screwed them up.”

[...]

Even as [Vaillant] takes pleasure in poking holes in an innocent idealism, Vaillant says his hopeful temperament is best summed up by the story of a father who on Christmas Eve puts into one son’s stocking a fine gold watch, and into another son’s, a pile of horse manure. The next morning, the first boy comes to his father and says glumly, “Dad, I just don’t know what I’ll do with this watch. It’s so fragile. It could break.” The other boy runs to him and says, “Daddy! Daddy! Santa left me a pony, if only I can just find it!”

The story gets to the heart of Vaillant’s angle on the Grant Study. His central question is not how much or how little trouble these men met, but rather precisely how—and to what effect—they responded to that trouble. His main interpretive lens has been the psychoanalytic metaphor of “adaptations,” or unconscious responses to pain, conflict, or uncertainty. Formalized by Anna Freud on the basis of her father’s work, adaptations (also called “defense mechanisms”) are unconscious thoughts and behaviors that you could say either shape or distort—depending on whether you approve or disapprove—a person’s reality.

Vaillant explains defenses as the mental equivalent of a basic biological process. When we cut ourselves, for example, our blood clots—a swift and involuntary response that maintains homeostasis. Similarly, when we encounter a challenge large or small—a mother’s death or a broken shoelace—our defenses float us through the emotional swamp. And just as clotting can save us from bleeding to death—or plug a coronary artery and lead to a heart attack—defenses can spell our redemption or ruin. Vaillant’s taxonomy ranks defenses from worst to best, in four categories.

At the bottom of the pile are the unhealthiest, or “psychotic,” adaptations—like paranoia, hallucination, or megalomania—which, while they can serve to make reality tolerable for the person employing them, seem crazy to anyone else. One level up are the “immature” adaptations, which include acting out, passive aggression, hypochondria, projection, and fantasy. These aren’t as isolating as psychotic adaptations, but they impede intimacy. “Neurotic” defenses are common in “normal” people. These include intellectualization (mutating the primal stuff of life into objects of formal thought); dissociation (intense, often brief, removal from one’s feelings); and repression, which, Vaillant says, can involve “seemingly inexplicable naïveté, memory lapse, or failure to acknowledge input from a selected sense organ.” The healthiest, or “mature,” adaptations include altruism, humor, anticipation (looking ahead and planning for future discomfort), suppression (a conscious decision to postpone attention to an impulse or conflict, to be addressed in good time), and sublimation (finding outlets for feelings, like putting aggression into sport, or lust into courtship).

In contrast to Anna Freud, who located the origins of defenses in the sexual conflicts of a child, Vaillant sees adaptations as arising organically from the pain of experience and playing out through the whole lifespan. [...] Most psychology [sets] health in sharp contrast to the underworld of illness. “Social anxiety disorder” is distinguished from shyness. Depression is defined as errors in cognition. Vaillant’s work, in contrast, creates a refreshing conversation about health and illness as weather patterns in a common space. “Much of what is labeled mental illness,” Vaillant writes, “simply reflects our ‘unwise’ deployment of defense mechanisms. If we use defenses well, we are deemed mentally healthy, conscientious, funny, creative, and altruistic. If we use them badly, the psychiatrist diagnoses us ill, our neighbors label us unpleasant, and society brands us immoral.”
[...]
The good news, he argues, is that diseases—and people, too—have a “natural history.” After all, many of the “psychotic” adaptations are common in toddlers, and the “immature” adaptations are essential in later childhood, and they often fade with maturity. As adolescents, the Grant Study men were twice as likely to use immature defenses as mature ones, but in middle life they were four times as likely to use mature defenses—and the progress continued into old age. When they were between 50 and 75, Vaillant found, altruism and humor grew more prevalent, while all the immature defenses grew more rare.

This means that a glimpse of any one moment in a life can be deeply misleading. A man at 20 who appears the model of altruism may turn out to be a kind of emotional prodigy—or he may be ducking the kind of engagement with reality that his peers are both moving toward and defending against. And, on the other extreme, a man at 20 who appears impossibly wounded may turn out to be gestating toward maturity

[...]

Vaillant, who had then been following them for a quarter century, had identified seven major factors that predict healthy aging, both physically and psychologically.

Employing mature adaptations was one. The others were education, stable marriage, not smoking, not abusing alcohol, some exercise, and healthy weight. Of the 106 Harvard men who had five or six of these factors in their favor at age 50, half ended up at 80 as what Vaillant called “happy-well” and only 7.5 percent as “sad-sick.” Meanwhile, of the men who had three or fewer of the health factors at age 50, none ended up “happy-well” at 80. Even if they had been in adequate physical shape at 50, the men who had three or fewer protective factors were three times as likely to be dead at 80 as those with four or more factors.

What factors don’t matter? Vaillant identified some surprises. Cholesterol levels at age 50 have nothing to do with health in old age. While social ease correlates highly with good psychosocial adjustment in college and early adulthood, its significance diminishes over time. The predictive importance of childhood temperament also diminishes over time: shy, anxious kids tend to do poorly in young adulthood, but by age 70, are just as likely as the outgoing kids to be “happy-well.” Vaillant sums up: “If you follow lives long enough, the risk factors for healthy life adjustment change. There is an age to watch your cholesterol and an age to ignore it.”

[...]

He also found that personality traits assigned by the psychiatrists in the initial interviews largely predicted who would become Democrats (descriptions included “sensitive,” “cultural,” and “introspective”) and Republicans (“pragmatic” and “organized”).

Vaillant’s other main interest is the power of relationships. “It is social aptitude,” he writes, “not intellectual brilliance or parental social class, that leads to successful aging.” Warm connections are necessary—and if not found in a mother or father, they can come from siblings, uncles, friends, mentors. The men’s relationships at age 47, he found, predicted late-life adjustment better than any other variable, except defenses. Good sibling relationships seem especially powerful: 93 percent of the men who were thriving at age 65 had been close to a brother or sister when younger. In an interview in the March 2008 newsletter to the Grant Study subjects, Vaillant was asked, “What have you learned from the Grant Study men?” Vaillant’s response: “That the only thing that really matters in life are your relationships to other people."

[...]
Vaillant also dramatically expanded his scope by taking over a defunct study of juvenile delinquents in inner-city Boston, run by the criminologists Sheldon and Eleanor Glueck. Launched in 1939, the study had a control group of nondelinquent boys who grew up in similar circumstances—children of poor, mostly foreign-born parents, about half of whom lived in a home without a tub or a shower.

Vaillant also arranged to interview a group of women from the legendary Stanford Terman study, which in the 1920s began to follow a group of high-IQ kids in California.

In contrast to the Grant data, the Glueck study data suggested that industriousness in childhood—as indicated by such things as whether the boys had part-time jobs, took on chores, or joined school clubs or sports teams—predicted adult mental health better than any other factor, including family cohesion and warm maternal relationships. “What we do,” Vaillant concluded, “affects how we feel just as much as how we feel affects what we do.”

Gail Sheehy’s 1976 best seller, Passages, drew on the Grant Study, as well as on the research of Daniel Levinson, who went on to publish The Seasons of a Man’s Life. [In the 1990's "positive psychology"] spread wildly through academia and popular culture. Vaillant became a kind of godfather to the field, and a champion of its message that psychology can improve ordinary lives, not just treat disease. But in many ways, his role in the movement is as provocateur.

“The happiness books say, ‘Try happiness. You’ll like it a lot more than misery’—which is perfectly true,” he told them. But why, he asked, do people tell psychologists they’d cross the street to avoid someone who had given them a compliment the previous day?

In fact, Vaillant went on, positive emotions make us more vulnerable than negative ones. One reason is that they’re future-oriented. Fear and sadness have immediate payoffs—protecting us from attack or attracting resources at times of distress. Gratitude and joy, over time, will yield better health and deeper connections—but in the short term actually put us at risk. That’s because, while negative emotions tend to be insulating, positive emotions expose us to the common elements of rejection and heartbreak.

To illustrate his point, he told a story about one of his “prize” Grant Study men, a doctor and well-loved husband. “On his 70th birthday,” Vaillant said, “when he retired from the faculty of medicine, his wife got hold of his patient list and secretly wrote to many of his longest-running patients, ‘Would you write a letter of appreciation?’ And back came 100 single-spaced, desperately loving letters—often with pictures attached. And she put them in a lovely presentation box covered with Thai silk, and gave it to him.” Eight years later, Vaillant interviewed the man, who proudly pulled the box down from his shelf. “George, I don’t know what you’re going to make of this,” the man said, as he began to cry, “but I’ve never read it.” “It’s very hard,” Vaillant said, “for most of us to tolerate being loved.”

[...]
[Case No.248. The test subject is referred to in the article as “you”.]
" “Probably I am fooling myself,” [wrote a consistently happy-well participant] in 1987, at age 63, “but I don’t think I would want to change anything.”
How can we know if you’re fooling yourself? How can even you know? According to Dr. Vaillant’s model of adaptations, the very way we deal with reality is by distorting it—and we do this unconsciously. When we start pulling at this thread, an awfully big spool of thoughts and questions begins to unravel onto the floor.

You never seemed to pull the thread. When the study asked you to indicate “some of the fundamental beliefs, concepts, philosophy of life or articles of faith which help carry you along or tide you over rough spots,” you wrote: “Hard to answer since I am really not too introspective. However, I have an overriding sense (or philosophy) that it’s all a big nothing—or ‘chasing after wind’ as it says in Ecclesiastes & therefore, at least up to the present, nothing has caused me too much grief.”

[Case No. 47. The test subject is referred as “you”.]
“I’ve answered a great many questions,” [wrote a happy-sick participant] in your 1946 survey. “Now I’d like to ask you people a couple of questions. By what standards of reason are you calling people ‘adjusted’ these days? Happy? Contented? Hopeful? If people have adjusted to a society that seems hell-bent on destroying itself in the next couple of decades, just what does that prove about the people?”

When a questionnaire asked what ideas carried you through rough spots, you wrote, “It’s important to care and to try, even tho the effects of one’s caring and trying may be absurd, futile, or so woven into the future as to be indetectable.” Asked what effect the Grant Study had on you, you wrote, “Just one more little token that I am God’s Elect. And I really don’t need any such tokens, thank you.”

is definition of “normality.” You said you loved The Sorrow and the Pity and that, in the movie, the sort of men the Grant Study prized fought on the side of the Nazis, “whereas the kooks and the homosexuals were all in the resistance.” You told Dr. Vaillant he should read Joseph Heller on the unrelieved tragedy of conventionally successful businessmen.

Your “mental status was paradoxical,” Dr. Vaillant wrote in his notes. You were clearly depressed, he observed, and yet full of joy and vitality. “He could have been a resistance leader,” Dr. Vaillant wrote. “He really did seem free about himself.” Intrigued, and puzzled, he sent you a portion of his manuscript-in-progress, wanting your thoughts. “The data’s fantastic,” you replied. “The methodology you are using is highly sophisticated. But the end judgments, the final assessments, seem simplistic.

“I mean, I can imagine some poor bastard who’s fulfilled all your criteria for successful adaptation to life, … upon retirement to some aged enclave near Tampa just staring out over the ocean waiting for the next attack of chest pain, and wondering what he’s missed all his life What’s the difference between a guy who at his final conscious moments before death has a nostalgic grin on his face as if to say, ‘Boy, I sure squeezed that lemon’ and the other man who fights for every last breath in an effort to turn back time to some nagging unfinished business?”

If you had your life to live over again,” the study asked you in 1981, “what problem, if any, would you have sought help for and to whom would you have gone?” “I’ve come to believe that ‘help’ is for the most part useless and destructive,” you answered. “Can you imagine Arlie Bock—God bless his soul—trying to help me work out my problems? … Or Clark Heath? The poor old boys would have headed for the hills! The ‘helping professions’ are in general camp-followers of the dominant culture, just like the clergy, and the psychiatrists. (I except Freud and Vaillant.)”

Around this time, Dr. Vaillant wrote about you: “The debate continues in my mind, whether he is going to be the exception and be able to break all the rules of mental health and alcoholism or whether the Greek fates will destroy him. Only time will tell.” Dr. Vaillant urged you to go to AA. You died at age 64, when you fell down the stairs of your apartment building. The autopsy found high levels of alcohol in your blood.[...] When asked if there was a death [among study participants] that had affected him, Vaillant mentioned Case No. 47—“Alan Poe”—an inspiring, tragic man, who left many lessons and many mysteries, who earnestly sought to “squeeze that lemon.”

[...]
Distortions can clearly serve a protective function. In a test involving a set of pictures, older people tend to remember fewer distressing images (like snakes) and more pleasant ones (like Ferris wheels) than younger people. By giving a profound shape to aging, this tendency can make for a softer, rounder old age, but also a deluded one. [...] The Harvard data illustrate this phenomenon well. In 1946, for example, 34 percent of the Grant Study men who had served in World War II reported having come under enemy fire, and 25 percent said they had killed an enemy. In 1988, the first number climbed to 40 percent—and the second fell to about 14 percent. “As is well known,” Vaillant concluded, “with the passage of years, old wars become more adventurous and less dangerous.”

At age 50, one Grant Study man declared, “God is dead and man is very much alive and has a wonderful future.” He had stopped going to church, he said, when he arrived at Harvard. But as a sophomore, he had reported going to mass four times a week. When Vaillant sent this—and several similar vignettes—to the man for his approval to publish them, the man wrote back, “George, you must have sent these to the wrong person.” Vaillant writes, “He could not believe that his college persona could have ever been him. Maturation makes liars of us all.”