Working Paper

Unpacking and Reorienting Executive Subcultures of Modern Finance

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Recent weeks have surfaced an intense exchange of top-level finger pointing, both between Congress and the leadership of the Federal Reserve System, between Fed officials and executives in the private sector and within the Fed between the Board of Governors and the New York Reserve Bank.

This intrasectoral in-fighting responds to a growing concern that post-crisis strategies of re-regulation may be increasing regulatory costs in industry and government, without doing much to increase either financial stability or the flow of real investment.

The analysis presented here interprets the finger-pointing not just as exercises in blame avoidance, but also as evidence of the dysfunctional way in which three intertwined segments of the financial sector “help” one another to carry out their respective tasks. The networks I have in mind consist of: (1) giant financial institutions, (2) federal financial regulators, and (3) advocacy and avoidance intermediaries such as the Promontory Group. Blending ideas presented in Kane (2006) with those of Schein (2010) and Gladwell (2008), the first half of this paper uses the methods of cultural anthropology[1] to develop hypotheses about deep-seated assumptions that these networks share, assumptions that in some respects incentivize supervisory behavior (such as too-big-to-fail capital forbearance) that conflicts with the espoused missions and goals of federal regulators. The second half offers a plan for mitigating this conflict by codifying and servicing taxpayers’ implicit equity stake in difficult-to-fail organizations.