We have virtually no bandwidth to deal with anything other than the pandemic, do we?  The marches of every conversation begin with “you’re okay, I trust” and end with “take care” and now we really mean that.  It’s exhausting, isn’t it?  It’s hard to even remember the “time before.”

We are certainly entering uncharted waters, where much, if not everything, will be considerably different for a time.  For a while this spring and early summer, I thought that the market might be picking itself up by its boot straps and, after a bumpy ride down the runway, would again take flight as we returned to a semblance of the regular order of things.  That at least seems to be what the stock market was saying and indeed continues to say.  On the other hand, perhaps due to my daily immersion under the firehose of the 24 hour news cycle (containing news and that which passes for news), now it’s more than an annoying anxiety that we may be on the edge of a long, painful and damaging recession, a business downturn which will rival the Great Recession 1.0 and perhaps be even worse.  Good or bad? A Schrodinger’s cats dilemma?  Maybe it’s best not to look.

But whatever it might look like over the next several months it will end, right?  This year, next year, the year after?  We seem to be taking comfort from the fact that it will end and then it will all be good.  Indeed, this pandemic has an “End of History” sort of feel.  We say to ourselves, if we could just get through this thing, and we eventually will, it’ll be clear sailing on the other side.  It’ll be just like before.

If this is the End of History, it seems rather mean spirited, in fact churlish, to even raise the prospect that there remains significant risks out there for our market, entirely exogenous of the squiggly bugs of COVID-19.  Right now, worrying about the next big risk feels rather like carrying on about jury duty while contemplating heart surgery.  But we must.

I’m not talking about asteroids strikes, zombie apocalypses or even geopolitical risks.  Let’s put the China-India border dispute, South China Sea conflicts, Hong Kong mainland-ification, Putin and his manifest nefariousness, the Loon on the Korean Peninsula and the ongoing Mideast follies aside (and, perhaps more critically, the loss of the 2020 college football season).  These are elderly black swans, still surely with the capacity to frighten, yet they have, for the moment, lost their ability to agitate and alarm in the here and now.  Background noise as it were.

What I’m talking about today is a black swan hatched right here at home.  A black swan which is already flapping its ugly little wings towards us as we speak.

Yes, of course, I’m talking politics, but, head fake alert, not our upcoming presidential election.  The “coarse” of the electoral process may however bear on the story.

The outcome, whether we have a blue wave or whether the Rs and the Ds split control (frankly the only two possible outcomes), will certainly be consequential and meaningful for our business.  If the Democrats gain broad control over the levers of power, which seems increasingly likely, we should expect a classically aggressive and energized first hundred days of signature progressive legislation.  We will see higher taxes. We’ll see a raft of fairness initiatives (or at least chest-thumping gestures toward fairness), immigration reform and some climate change legislation (in the latter case, I’m sure it will be dramatic, but given the vicissitudes of the upcoming recession and the budget, probably mostly in the future – Oh, dear Lord, make me chaste, but not today).  We’ll see a different set of apparatchiki in key regulatory seats, and a much more regulatory-minded government.

If the past were prologue, we could have reasonably expected the fever of a new administration to begin to burn low after a bit, as the denizens of our new elite got comfortable in their seats, enjoying the perquisites of power, and begin to deal with the painful realities of ruling, not carping.  Then the pendulum would begin to lose energy and ultimately dangle, blessedly listlessly, fairly close to the middle.

What I am worried about is the foundational question of whether the hoary pattern of centrifugal force nudging our more outré initiatives, from both left and right, back to the middle, will continue to work.   I’m worried about what happens when the underlying mores of our political class, the substructure of our political process, the unwritten rules of the game, however tattered, break down.  Are we on the cusp of something new and dark?

What could unravel all this?

The real and increasing risk that playing the game will land you in jail.

Over the past decade or so, the rules of the political game have been eroded.  Only by way of example, Senate cloture and filibuster rules have been eviscerated to eliminate the Senate as a counterweight to more radical ideas of both left and the right.  And according to Mr. Obama, whatever’s left of them will be jettisoned in the next administration.

Civility in politics, at almost every level, has virtually vanished.  The toxic mix of rapid demographic change and gerrymandering has hollowed the center of our politics, at both the federal and state levels, leaving the left and right to yell at each other across the abyss of an empty middle.  Moreover, the realities of the never-ending reelection campaign means that our political class spends less time actually talking to each other and more time with their bases defending themselves from even more radical competition from the left and the right.  Congressman Rostenkowski and President Reagan having a chat over a beer is almost inconceivable today.

At the outset, we should really ask before getting too excited, is this different?  Is it really worse today?  I suggest it is.  We’ve all seen pictures of senators whacking each other over the head with their walking sticks back in the middle of the 19th century and, of course, without Mr. Burr we wouldn’t have Hamilton (assuming Broadway ever reopens) and there was that civil war thing, but ultimately the center held in those early days because of the commitment of powerful constituencies committed to the mores of the young republic.  Maybe the Great Man Theory was right and leaders make a difference.   Or perhaps we just got lucky.

What appears to make it different in the here and now is the increasingly easy acceptance of the notion that our criminal code can be, nay should be, tasked with serving political goals.  In this harsh political environment, “lock her up” loses its shock value.  When “you are wrong” morphs into “you are evil,” criminality is easy to see.

Did you know that since the 1980s, the number of criminal offenses created by federal law has exploded from less than 100 to almost 5000?  According to one commentator, there are 300,000 federal regulations that in some way can be enforced criminally.  Our criminal offenses today are scattered over 50 titles of the US Code and 23,000 single spaced pages of text (okay I didn’t actually count all of these, but apparently someone did and even if not precisely right, its impressionistically correct to be sure).  A growing number of these criminal offenses do not require a showing of mens rea (criminal intent), but only that the conduct is wrong because it is prescribed by law.  Moreover, often these statutes were quickly written, tacked on the end of more thoughtful legislation, are vague, and open to a considerable amount of interpretation.

Examples are legend, and particularly in such murky areas as our election laws, RICO and Sarbanes–Oxley.

When one puts one’s mind to it, a crime can be found virtually everywhere.  An example away from politics, which would be funny except that it was not, was that poor commercial fisherman who was criminally charged a while back for a violation of the Sarbanes–Oxley Act.

Okay, the fellow caught some undersized fish, threw them back and got caught.  He probably figured he’d get fined, and rightly so.  However, the poor sod was charged with felony violations of Sarbanes-Oxley.  The crime?  Knowingly destroying records.  Now, he faced years in jail.  The records in question?  Six undersized red grouper.  (Luckily for our fisherman, common sense eventually prevailed and he just paid a fine.)

As our notion of criminality has drifted from things that everyone would absolutely say, “yep, that’s a crime” to something where the elements of the crime are obscure and the prosecution of the crime is somewhat idiosyncratic, one might not know whether he or she committed a crime until the perp walk.  In that case, we are in trouble.

Every day, the papers are full of people from the left and right shouting into the public forum that someone should be charged with a crime for what they’ve done, how they’ve done it, what they were thinking when they did it, or who they did it with.  The proliferation of things that could constitute a crime, together with an easy eagerness to find crimes behind every impropriety, begins to make one wonder if everyone is guilty of something and the only question is whether there’s a prosecutor interested in prosecuting.

Prosecutors across the country seem increasingly “political” and aware that finding criminal offense in the often murky nexus between our complex world and our complex laws is good fun, can be entertaining and can indeed be career making.  Think about all we have learned recently about the notion of quid pro quo. 

How easy it is to charge any politician, acting with mixed motives, with said quid pro quo and charge the perp with bribery. Since every card-carrying member of our political class acts in their own best interest all the time (you knew that right?), criminally charging these admittedly largely reptilian types for acting in their own self-interest, for taking a quid pro quo, for taking something that can be construed as a bribe, is easy.

As our criminal laws proscribe more and more common failings of our political class, who gets prosecuted and who does not, is largely in the remit of our politically appointed prosecutors.  Because of this, the rule of law is in retreat.  When prosecutorial discretion is largely determinative of when an offense is deemed to have occurred (or not), and that discretion begins to serve the needs of politics and polity, we’re in trouble.

This weaponization of our legal code is turning politics and political discourse into a blood sport.  Prosecution can end careers and eviscerate family savings, even if the poor sod in the dock eventually prevails.

The weaponization of our legal code paired with the loss of the center in politics, the loss of civility, the never ending reelection campaign and the need to assembly vast sums of money to run a campaign, is the wind under this black swans’ wings.

When our political class thinks that they can nudge a prosecutor into taking down an opponent, we’ll see politicians behaving very badly.  When our political class begins to think that the loss of control of the levers of power might lead to indictment instead of book tours, Sunday morning talk shows, lobbying and board seats, we will see politicians behave very badly.  Criminalizing the ordinary course of politics means that the commitment of our political class to the rules of the game is in retreat.

What does this all mean to us, besides the obvious fact that we are all citizens here, even if Senator Warren may not think so?  We should pay extraordinary attention now because we will be in play.  We will be fodder. We will be sacrificial pawns as politicians use our industry to score point with their base.

What should we expect?

  • Politicians will increasingly use criminal prosecutions to demonstrate virtue. Mere speechifying at a congressional hearing that CEO Bob acted badly is okay, but meh, not very compelling.  The faithful will brook no quibbling about fairness and balance, the old “ends justifying the means” thing.  Go for the kill.  That CEO is not just wrong, he is bad, indeed you have referred his recent conduct to Justice for possible prosecution (and you will prosecute him in the court of public opinion, courtesy of the faithful and the 24 hour news cycle in any event).  That shows the fighting spirit!
  • Life as a punching bag for those needing an unlovely scapegoat. For the progressive and populist among us, bankers, denizens of Wall Street and the financial markets writ large are an easy target. Unloved, doing things inexplicable to the average voter, producing nothing tangible and all while getting richly paid. Easy to blame for everything from inequality to climate changes, potholes to COVID19. Our industry is at risk of increasingly becoming the stuff of political hit for fun and profit.
  • Pols clinging to office will take more risks to do so. Rules will be broken, conventions trashed, questionable behavior excused. If you think you might get indicted when a new prosecutorial set sympathetic to the other side takes power, then you better keep that office and as you connive, you might as well get hung as a goat than a sheep and take some risks, break a few rules (laws).
  • Compromise is gone for good. If you’re not only right but good and other side is not only wrong but bad, and both sides are shouting “lock ‘em up,” during the evening news cycle then there’s not much room for the belly scratching and log rolling of actual governing, is there?  Less of any real value (and that’s an astounding assertion given where we’ve been the past few years) gets done.
  • Finally, it makes the unthinkable less so. If more and more of our political class concludes that it’s time to get off this increasingly dysfunctional streetcar called democracy, as Turkey’s President Erdogan so eloquently put it, and really accomplish what their base wants them to do, then the end is nigh.  Not a pretty thought is it?

Okay, maybe that’s all a bit over dramatic, but I promise you it’s directionally correct.  It all has a certain frisson of the death of the Roman Republic about it, doesn’t it?  Cicero gone already?  Frankly, I’m not sure what to do about all of this. If the center will not hold, it won’t.

What do we do?  All we can do as business people is not make it easy to become caught in the crossfire.   All we can do in the commercial finance industry is redouble our efforts to make sure that our industry is not vilified in some cartoonish notion of Main Street versus Wall Street and not make us an easy target for the political class looking for scalps who will deploy the criminal code as a weapon to punish the sector and to satisfy their base.  We need to redouble our efforts to build bonds across the political aisle, explain better how the capital markets work and that these markets and those of us who work in it, constitute a powerful source of societal good, critical to the functioning of our economy.  Critical to creating prosperity.  To make sure that we continue to be understood and our opinions at least respected.  We need to make sure that we don’t blithely permit destructive narratives about banking and finance to grow and take root across the polity.  We need to engage.  Hey, that’s all blocking and tackling, but in the age of coronavirus it’s easy to forget.  The virus, the election, the spiraling incivility of our political system is a force multiplier on uncertainty and we need to start thinking about its consequences now.

Enjoy the summer.