The Cowardly Lion

Why is moral courage so rare in leaders?

There has been much talk since the election of banks refusing to service customers deemed to be conservative. This included the former (and now current) First Lady and her son.

“In her new memoir, former First Lady Melania Trump reveals that she was abruptly dropped by a bank with which she had a long-standing financial relationship. She also discloses that her son, Barron, was blocked from opening a new account at the same bank, the name of which she does not reveal.

“It’s unclear from the memoir if the bank harbored concerns about the legality of her deposits, or if bank associates were motivated by animus against the Trump family, since banks and not required to alert customers about either of those things. But Melania believes the refusal to open an account for Barron, at least, was driven by political discrimination.”

It’s not happening only in the US. The UK had an amazing case involving conservative gadfly and Brexit advocate Nigel Farage.

‘However, Farage later obtained evidence through a subject access request which he claimed showed that Coutts took action because of his political values, leading to wider questions over whether banks were treating politically exposed customers fairly.

‘The scandal led to the resignation of Alison Rose, the chief executive of NatWest Group, the part-taxpayer-owned lender rescued by the UK government in the 2008 financial crisis, which owns Coutts.’

There is a concept called “moral suasion.”

‘Moral suasion is an appeal to morality, in order to influence or change behavior. A famous example is the attempt by William Lloyd Garrison and his American Anti-Slavery Society to end slavery in the United States by arguing that the practice was morally wrong. In economics, moral suasion is more specifically defined as "the attempt to coerce private economic activity via governmental exhortation in directions not already defined or dictated by existing statute law."^’’

Government doesn’t have the legislative chops to act, so they lean on industry, in this case the financial services sector, to make things happen. This leads to coercing third parties into punishing people for engaging in perfectly legal activities that are out of political favor. Perhaps they are things that people who are not part of the cool crowd do.

‘Most notoriously, the Obama administration’s “Operation Choke Point” targeted specific industries, such as firearms and ammunition manufacturers, by pressuring banks to cut off financial services. The initiative received blowback and revealed how government regulatory power can be misused to limit financial access. More recently, regulators have pressured banks to deny financial services to crypto-related businesses in what is being called Choke Point 2.0.’

It’s a nice bank you have there. It would be a shame if something were to happen to it.

Banks comply because they’re afraid of triggering an avalanche of retribution, principally in the form of expensive and reputation-damaging regulatory investigations. It doesn’t matter if there is any substance to the threatened allegations. The mere investigation has significant costs. All it takes is a swipe of the pen.

Banks will sacrifice their customers before they act against their own interests, all day, every day.

This kind of government power is extraordinary. One of the key vehicles for exercising the nuclear-weapon-wrapped-in-a-sequined-gown is the Consumer Financial Protection Bureau. More accurately, there are those who would think of it as the Partisan Financial Shakedown Bureau. Here’s Marc Andreesen:

‘Marc makes a few distinct and inter-related claims in the episode. He first criticizes the CFPB for being a largely unaccountable “independent” federal agency which can “terrorize financial institutions, prevent new competition, new startups that want to compete with the big banks.”’

At the World Economic Forum, President Trump savaged the CEO of the Bank of America in a surprise rhetorical drive-by shooting.

‘"I hope you start opening your bank to conservatives, because many conservatives complain that the banks are not allowing them to do business within the bank, and that included a place called Bank of America," said Trump, who returned to the White House on Monday.

‘"What you're doing is wrong," he said, in an address at the World Economic Forum in Davos, Switzerland, via a video link. Trump did not cite evidence or specifics of any wrongdoing, in a question-and-answer session with corporate leaders and CEOs assembled on stage.’

Debanking is just the parallel to government-induced censorship via social media. Employees of the federal government leaned on social media companies to “de-platform” voices critical of the administration, citing “misinformation” (whatever the hell that is). Stanford-educated physicians and other public health experts who debated the government’s approach to management of the Covid pandemic were central targets.

“Meta Platforms (META.O), CEO Mark Zuckerberg said the Biden administration had pressured the company to ‘censor’ COVID-19 content during the pandemic, apparently referring to White House requests to take down misinformation about the coronavirus and vaccines.”

Zuckerberg went along with it then. He claims he wouldn’t do it now. Ok, buddy. Whatever you say.

The banks deny debanking conservatives. Or crypto executives. Or pornographers. Or weapons manufacturers. This wasn’t debanking, you see. It was compliance with other rules known as Know Your Customer and Anti-Money Laundering. It’s all a terrible misunderstanding.

They would say that, wouldn’t they?

Government officials coerce private actors into hurting people with the wrong politics. Then, when it blows up, the government officials can say, “I didn’t do that. Those companies are independent actors. They did what they did on their own.” It’s only now that it’s coming out because of the dramatic shift in the winds.

The fundamental mistake the Zuckerbergs of the world made in acceding to these demands for arm’s length political action was to exchange the short-term for the long-term. Meta the company avoids the short-term pain of being targeted by the government for the long-term damage of potential legislation that will curtail their activities. They calculate expected value based on a subjective assessment of bureaucratic probabilities. Nobody said it was easy.

Is it any wonder that he’s coming clean now? Why is anyone surprised about his newfound support for Trump and the Republicans?

If Zuckerberg knew then what he knows today, i.e., that all this mishigas would come to light, would he have made the same decision?

Zuckerberg knew that there was a possibility of a long-term backlash, but he discounted the possibility of a Trump revival. He was agnostic. He likely doesn’t care either way. He just wants to be left alone to print his Croesus like cash flows. If innocent third parties get hurt, well, that’s just the cost of doing business.

The problem with deferring to this kind of ad hoc extra-statutory regulatory pressure is that it can come back to bite you in the face. Nobody has perfect foresight, as much as they convince themselves of the certainty of the immediate picture. For all the rationality the Zuckerberg approach suggests, there is uncertainty about the future probabilities, not risk. Risk is quantifiable; we can know the probabilities. Uncertainty, in the Knightian sense, is unknowable.

In the face of regulatory uncertainty, the better thing to do from a compliance perspective is to stick to principle. Take the short-term pain and do what is right. Censoring people is wrong. Making it impossible for people to have banking services is wrong.

They’ll savage you in the short-term. They’ll sue you. They’ll try to break you in the court of public opinion. They may prosecute you for made-up criminal offenses with allegations that stretch the legal precedent. But if you don’t know what the paths in the tree are, let alone what probabilities to assign them, you might as well sail right through and do what is proper. You know what is correct. It is codified in our founding documents. It’s what is consistent with an immutable human nature. It is what makes up natural law.

If you don’t know, then ask Perplexity to summarize John Locke for you.

To quote Jim Brown, “we made this s*&t real f$!#ing simple.”

That doesn’t mean it isn’t difficult. It is crazy difficult. The world will make it hard for you. But here’s the punchline. It’s going to be tough either way. Pay me now or pay me later.

Imagine if, instead, Zuckerberg or Bank of America’s Brian Moynihan had made transparent all the communications from the government once the feds started investigating them. Something like this.

He might have endured some pain. He might have lost some customers who wanted him to use his power to suppress views they didn’t like. The transparency would have given him some cover. Sunshine is the best disinfectant, as Louis Brandeis once said.

Maybe, instead of training for ultimate fighting or trying to live forever or whatever weirdness they feel entitled to indulge, Zuckerberg and some of these other moneyed technocrats should start reading literature and philosophy. They wouldn’t be the first uneducated technical men to make a bucket of cash based on a vocational skill only to discover their lack of preparation in mid-life. Look at this guy.

I once worked for a man worth hundreds of millions who started taking notes when I made an off-hand reference to Franz Kafka. He felt like he had to start picking up these things now that he had made some money. He seemed to want to grow into his wealth.

Why do so few people who rise to positions of wealth and power possess moral courage?