THE CENTER CANNOT HOLD
Mark Carney is not most people’s idea of a radical. In Ottawa, where he has lived for the past eight years, the trim forty-seven-year-old is known as an uxorious husband and hands-on dad to his four daughters. The Canadian capital is hardly a party town, but even there he has a reputation as a homebody for whom an exciting night out is a school concert. At Harvard, he played hockey (he is Canadian, after all), but he never rose beyond backup goalie. He spent more time in the library than on ice, earning a magna in economics. At Oxford, where he got his PhD, this son of a high school principal and a schoolteacher is remembered by his classmates for his studiousness: Carney always sat in the front row at lectures many of the other students didn’t even bother to attend. From there, he went to Goldman Sachs, spending thirteen years at the firm’s offices in London and New York and Toronto. When Carney decided to go home, his first job was as a highly competent but self-effacing civil servant in the Bank of Canada before joining the finance ministry in 2004. And today, as governor of the Bank of Canada, he devotes most of his time to pondering such wonkish matters as how to measure global liquidity and the need for countercyclical regulation.
But in the fall of 2011, Carney became a protagonist in a central battle between the plutocracy and the rest of us—a crucial fight over the regulatory power of the state. The showdown took place on a Friday afternoon in September in Washington, D.C. It was the weekend of the biannual meeting of the IMF and World Bank, a gathering of the world’s central bankers and finance ministers that takes place in the U.S. capital every fall and spring. The meetings have been on the calendar since these Bretton Woods institutions were first formed, and gradually a number of private sector conclaves have come to be held on their fringes.
In 2011, one of those fringe meetings was organized by the Financial Services Forum, a bankers’ association. Its chairman, Goldman Sachs chief Lloyd Blankfein, invited Carney to address the group of about thirty bankers. They were particularly interested to talk to the Canadian not only because of his strong performance in the financial crisis—Canada was the only G7 country that didn’t need to bail out its banks—but also because Carney was tipped to become the next head of the Financial Stability Board, a body of international regulators that comes closest to being the world’s banking boss. The FSB’s big job at the moment is refining and implementing new international bank capital rules. These regulations, known as Basel III, have taken on particular importance because a lack of capital in many U.S. and European banks was a central cause of the 2008 financial meltdown.
Meetings of bankers are generally pretty dry affairs, and relatively large international gatherings of this sort, whose participants don’t know one another well, are usually even more decorous. But this particular conversation soon heated up.
Jamie Dimon, CEO of JPMorgan Chase, told Carney he thought the proposed Basel III rules were “cockamamie nonsense.” In fact, the bank chief said, the rules ran counter to the national interest. “I have called it anti-American,” Dimon said, according to one participant. “The only reason I am calling it anti-American is because I am American. I also think it’s anti-European.”
Another participant remembered Dimon’s remarks slightly differently. In his recollection, Dimon insisted that Carney’s view was “anti-American,” a phrase Dimon had floated in a newspaper interview a few weeks earlier and which, he allegedly told the Washington group, had resonated with a lot of people, “so I’m going to keep on using it.” At a time when multinationals, including JPMorgan, which earns around a quarter of its revenue outside North America, are increasingly global concerns, explicitly determined to go wherever the money is, it is noteworthy, to put it kindly, to hear a bank boss depict himself as a beleaguered national champion.
At first, Carney responded calmly: “I hear what you are saying. I don’t think it will surprise you that I am taking a different view. These are reasonable responses to the financial crisis.”
As Dimon’s tirade continued, his fellow bankers nervously tried to lower the temperature. Rick Waugh, the CEO of Scotiabank and a Canadian who has had his own disagreements with Carney, tried to intervene in their increasingly heated exchange.
But Dimon was unstoppable and soon Carney got mad. Visibly angry, the Canadian central banker abruptly left the room.
The other bankers, including Blankfein and Josef Ackermann, then the CEO of Deutsche Bank, looked uncomfortable, though it was Dimon’s tone, not his message, that concerned them. Ackermann tried to smooth things over by saying that Carney had left because of a tight schedule. (This was untrue: Carney was late for a press conference.)
After the meeting Blankfein sent Carney—remember, he is a Goldman alumnus—an e-mail to patch things up. Dimon, who stands by the substance of his remarks, realized the tone and forum had been inappropriate, and phoned Carney on Saturday to apologize. He didn’t reach him. Dimon called again when Carney was back home in Ottawa on Monday. This time they spoke and, according to a JPMorgan executive, Dimon said he was sorry. “Jamie knew he messed up,” the executive said. “It wasn’t the right place and it wasn’t the right tone.” He told the Canadian he had the utmost respect for him and thought the world of him.
By then, though, the battle had been joined. The day before the Dimon apology, a Sunday, Carney was the first speaker at the annual meeting of the Institute of International Finance, another international banking lobby group. He was introduced cordially by Waugh, a sparring partner back home who nonetheless told the audience, “He’s my governor and I’m very proud of that fact.”
But neither Waugh’s courtesy nor Dimon’s bellicosity persuaded Carney to temper his message. “It is hard to see how backsliding would help. If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much too soon,” Carney said.
“Everyone is claiming to be a Boy Scout while accusing others of juvenile delinquency,” he said. “However, neither merit badges nor detentions will be self-selected but, rather, determined by impartial peer review and mutual oversight.”
Dimon and Carney were fighting about a lot of money: the Basel III requirements would significantly increase JPMorgan’s cost of doing business and could cut into its profits. But much more is at stake than JPMorgan’s balance sheet. That weekend exchange is a telling moment in the story of the plutocrats’ relationship with the state—more significant, even, than high-profile wrangling over taxes on the plutocracy, like carried interest or the charge on large estates.
Here’s why. Even the most ardent right-winger agrees the state has the right to levy taxes—the fight is about who pays and how much. The battle between Carney and Dimon gets at a bigger and more contentious issue: Are the interests of the state and its big businesses synonymous? If not, who decides? And if they do clash, does the state have the right—and the might—to curb specific businesses for the collective good?
This dispute has been around for a long time—remember the assertion of General Motors CEO Charlie Wilson, controversial from the moment he uttered it, that what is good for General Motors is good for America? And it is being fought everywhere there is private business. Carlos Slim’s relative economic power is so overwhelming that many local observers believe that even if the government of President Felipe Calderon wanted to regulate his businesses more aggressively, it would lack the muscle to do so. In the late 1990s, Russia’s oligarchs boasted that they controlled the Kremlin—a state of affairs that helped Vladimir Putin win public support for a repressive reassertion of state power. China’s plutocrats don’t fight the state because they are the state—and when any of them forget that, they are treated with summary brutality: between 2003 and 2011, at least fourteen Chinese billionaire businessmen were executed.
In the West, particularly in the United States, the rise of the super-elite coincided with a strengthening of the conviction that what was good for business was good for the economy as a whole—and that business was in the best position to judge what worked. As Jed Rakoff, a New York judge and former federal prosecutor who has been pushing the SEC to be more exacting in its policing, reflected in an interview, “In the 1990s, of course, free enterprise, capitalism, and so forth were glorified to a degree. Some of that was political. We had finally won the battle against the Iron Curtain and part of the reason we won was because our economic system was a lot better than theirs. But I think maybe it was an overglorification of capitalism. I don’t mean to suggest that I’m personally for socialism. I’m not. But I am personally for some regulation.”
That glorification extended to the masters of the universe on Wall Street. Donald Kohn, a former vice chairman of the Federal Reserve and a central banker whom Alan Greenspan called “my first mentor at the Fed,”
