Wednesday morning February 15 began with U.S. President Donald Trump embarking on another Twitter blitz. This time though he wasn’t leading the conversation, he was mainly reacting. The day before, he’d been forced to fire Michael Flynn as his national security adviser after the media revealed that the retired general had been less than forthright about his conversations with Russia’s ambassador to Washington.
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Trump’s tweets reeked of panic, one in particular involving two contradictory versions of events – claiming that the reports on Flynn were “fake news” while blasting intelligence sources for leaking a confidential report on Flynn. Well, leaks aren’t fake news – a lot of the news business is based on them.
Even though most of the fake news before the U.S. election came from the right, Trump has increasingly used the phrase because ramming it into the American mind serves his purposes. And his minions and allies are helping him achieve that end, bringing up “fake news” nonstop.
The fact is, the fake news disseminated on Facebook is still a very tiny part of the news consumed in the United States. Most studies and analyses conclude that it probably had little effect on the election.
Well before fake news on Facebook, in fact from the beginning of the media business, the press has been pressured to skew reporting in favor of the economic or political agenda of owners, shareholders, advertisers, sources and editors.
The media’s biases, its reluctance to challenge the status quo, the way it completely ignored the middle class’ collapse in recent decades, and the way it handled the economic powers with kid gloves – all these are weapons in Trump’s hands. The president doesn’t want to fix the media, he wants to crush it.
Trump didn’t invent this method. American presidents have typically tried to tame the media. Many, concerned for their place in history, have been obsessed by it. “Public sentiment is everything,” Abraham Lincoln said.
Like Richard Nixon and Lyndon Johnson before him, Trump could well try to use antitrust powers to mute the media outlets he doesn’t like. Before the elections, he threatened Amazon boss Jeff Bezos, who also owns The Washington Post, to investigate Amazon’s monopolistic status. His cronies keep tying approval for Time Warner’s acquisition by AT&T to coverage by CNN, a Time Warner subsidiary.
Stoking outrage at so-called fake news is convenient for most people in power, whether they’re politicians, bureaucrats or managers of giant companies. For them, the media is mainly a nuisance. They’d love to do what Trump does and deliver their message directly to the people, through Twitter, Facebook or advertising. And when a journalist ups and discovers something inconvenient, they can rise and scream: fake news.
For whom the fiduciary rule tolls
The travel ban from seven predominantly Muslim countries preoccupied America last month, leaving little room for two other orders Trump signed that week: to reexamine or possibly repeal the Dodd-Frank Act, which had been enacted following the 2008 financial crisis, and to suspend the fiduciary rule applying to American investment advisers.
Canceling the fiduciary rule may be the canary in the coal mine warning us about the kind of economic policy Trump will be pursuing and who it will really serve.
The fiduciary rule is another result of the 2008 economic crisis. The most astonishing thing about it is that it’s needed. According to the fiduciary rule, all investment advisers in the United States must give their customers the best advice they can.
Shouldn’t that be taken for granted? Hadn’t they been doing just that?
No they hadn’t, and most people in the financial industry loathe the fiduciary rule. Banks and other financial institutions use investment advisers to aggressively market their products, mainly their more dubious and expensive ones.
Although Trump is the one who suspended the fiduciary rule, if it dies Barack Obama also deserves some blame. For more than six years his administration delayed the crafting and pushing-through of the rule because of the pressure of the financial lobby, to which Obama was especially mindful.
Trump explains his attacks on both Dodd-Frank and the fiduciary rule based on the notion that businesses need relief from regulation. He says banks are having trouble lending, but he hasn’t provided any statistics to back that claim.
The rule that investment advisers have a fiduciary duty to their customers is being attacked on the grounds that the investment world is competitive and Americans have the right to “choose.” According to this thinking, the competitive dynamic will shake out the lousy players.
But in finance, especially in the market for retail investors, investment advisers are an example of a colossal failure by American economic policy. Decades of experience prove that competition doesn’t work in an industry where so few deliver the goods.
Here are some things that Trump, the man who vowed to drain the swamp and protect the middle class, doesn’t know or is hiding from his supporters about competition and “choice” in American investing.
Investment advisers are driven by monetary incentives. They may well recommend an investment that’s good for them but not good for you. This fact is shown in any number of studies.
Again, the mutual-fund industry is riddled with conflicts of interest that drive some fund managers toward strategies that maximize their profits at the expense of the customer. Competition should have eradicated that problem, but research shows that success was partial because a lot of fees are hidden. The figures are rife with “noise” that prevents customers from realizing just how the fund is doing.
Transparency. Many people in the financial world where lousy products can be sold for top dollar to uninformed customers claim to be transparent. But in this world, studies have shown disclosure and transparency to be ineffective. Sometimes transparency achieves the opposite end; it makers managers and advisers feel comfortable with their bloated fees.
Behavioral economics shows that when there’s a conflict of interest and an economic incentive to sell expensive products, even if a financial adviser wants to be purely professional, he’ll unwittingly hawk services on which he earns more.
Fraud among investment advisers in the United States is all too common. A 2016 study showed that out of 650,000 advisers, 7.5% were involved in fraud, lawsuits or arbitration with customers; 38% of these were “serial repeaters.”
If you think the mechanism of competition and a good name solve the problem, you don’t know the figures. According to the study, 44% of the investment advisers fired because of fraud, rule-breaking or customer complaints are hired by another investment company within a year. The price of corrupt behavior is low.
These claims are backed by research and surprise nobody in the financial industry. Trump supporters aren’t just threatened by job losses in manufacturing but by the fact that many will face penury in the coming decades. Their savings are dramatically below the level needed to sustain their quality of life at the level when they work. The weaker they are, the more likely they are to fall victim to an investment adviser who makes their situation even worse.
Trump doesn’t care about any of that. Slogans about competition and choice are etched into the American ethos, and most of his voters still think they did the right thing to choose the guy spitting in the establishment’s face.
Just as free markets fail because of the vast information gaps between the customers and the financial-service companies, democracy fails when the public doesn’t understand which regulations are designed to block competition and help the big companies and interest groups, and which regulations are necessary to protect the little man and the taxpayer.
Yuval Steinitz wasn’t the best finance minister in Israeli history, but he was a decent politician, insofar as that isn’t a contradiction in terms. But as energy minister, he’s another story entirely. Steinitz has taken too much from his master and mentor, Benjamin Netanyahu, and isn’t about to let the facts confuse him.
Earlier this month, Steinitz stated that given the extraordinary success of his energy policy, Israel will supply 10% of Europe’s natural gas needs in the coming years.
So how is Israel with its not-that-enormous gas reserves supposed to supply 10% of Europe’s needs? For one thing, it would have to hugely ramp up production. For another, how Israel would do it without running out of gas in no time is a mystery. But Steinitz didn’t seem to feel any explanations were in order.
He offered his 10% spiel apparently because the previous slogan he and Netanyahu had dreamed up got stale. They had promised a windfall for Israeli taxpayers – “tax income of hundreds of billions of dollars” for education, welfare and so on.
Four years after commercial gas deliveries began, the royalties that the state gets from the Tamar gas field amounted to 820 million shekels ($221 million) last year. The public has no information on the profits the gas companies will make. Whatever taxes the gas companies pay, clearly it will be a fraction of the promises made, and securing the gas fields costs a fortune that the taxpayer is shouldering.
No wonder people who promised us hundreds of billions of dollars are now selling us a fairy tale about Israel as the new queen of gas, competing with Russia to sell energy to Europe.