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A bond by any other name

On Monday, September 25, London’s High Court began hearing the case of a $700 million sukuk payment default. The case — which had the potential to upset the $2 trillion Islamic finance industry — went forward even though the courtroom was missing one key element: the defendant.

Dana Gas, one of the UAE’s largest private natural gas companies, stopped making payments on its sukuk in June, claiming that this non-bond instrument, which had attracted international investors with its very bond-like 8% yield, had become a little too bond-like. These “Islamic bonds” were now considered a violation of Islamic law — or at least Islamic law as interpreted by UAE religious scholars, the same body that had previously sanctioned the sukuk’s creation.

Dana Gas claimed that not only was it prohibited from making payments, but its company representatives were also prohibited from attending the British trial. Dana Gas pointed to an injunction against the proceedings issued by a judge in Sharjah, the Emirate in which Dana Gas is based. The judge argued that the matter had to first be settled in UAE courts before a foreign case could begin — a decision the UK judge deemed a stall tactic and the company’s creditors deemed collusion. After months of negotiations between the company and its international creditors, including Goldman Sachs and Blackrock, Dana Gas was now claiming that a financial instrument issued under British law, denominated in U.S. dollars, and sold to U.S. and European investors was a purely domestic matter.

Holders of conventional bonds issued in the emerging markets are used to dealing with various types of risk: default risk, rate risk, market risk, and even J risk, the risk arising from the uncertainty of judges’ rulings. But exegetical risk is a new one. And it’s a risk few of even the most iron-stomached investors are likely to take because disagreement between religious scholars is less a risk than a certainty. You don’t become a religious scholar if you dislike critiquing other scholars’ interpretations of religious texts, no more than you become a creditor if you dislike interpreting balance sheets. But when religious law and securities law conflict, whose interpretation counts?

Sukuk have always been controversial. Based on sak, a 7th-century IOU issued by Muslim traders, the modern sukuk was designed in 1988 specifically to help Islamic banks work around prohibitions in Islamic law, specifically the supposed prohibition against collecting riba, or interest. Islamic law traditionally considered gold and silver stores of value, not assets, so it was thought that a lender collecting interest on gold or silver could potentially distort this value, while benefitting society no more than a common gambler. Bernie Sanders would evidently have found common cause with scholars in 7th-century Damascus.

But I say “supposed” prohibition because classical Islamic legal scholars and financiers believed Sharia law prohibited interest on gold or silver, not fiat (i.e., paper currency). Interest on fiat was acceptable because fiat was not considered an actual store of value. But according to conservative 20th– and 21st-century Islamic legal scholars — who, like all conservative legal scholars, tend to sacrifice nuance and historical precedent for purity — all interest is forbidden.

This prohibition left modern Islamic banks with a serious problem. Sharia-compliant financial institutions grew rapidly throughout the Middle East in the late 1970s and early 1980s, as petro dollars began flooding the region following the 1973 Oil Crisis. Conservative scholars were buoyed by a backlash against western powers who had installed local dictators, exploited the region’s resources, and, most importantly at the time, supported Israel in the Yom Kippur War. These conservative scholars considered conventional banking un-Islamic, so they promoted the creation of financial institutions that could manage the region’s newfound wealth while upholding Islamic law. But these scholars argued that not only could Islamic banks not buy or sell interest-bearing bonds, they also couldn’t borrow on the interbank market because this practice was considered excessively risky and, therefore, also not Sharia compliant. Islamic banks were, consequently, left with highly illiquid balance sheets and a much less stable business model than their conventional counterparts — a high price to pay for scrupulous rule-following.

Enter the sukuk. These instruments — although technically not bonds — are structured almost exactly like bonds. A sukuk-holder agrees to provide a corporate or sovereign entity with cash for a set period of years in return for a guaranteed stream of payments that look suspiciously like interest, with a final payment that looks suspiciously like a principal repayment. But, in theory, a sukuk isn’t a debt; it is a temporary ownership stake in an asset, normally a profit-generating tangible asset like a building. In theory, the semiannual payments that the company makes to the sukuk-holder represent a share of the asset’s profits, not interest. And, in theory, the final balloon payment represents the issuer’s repurchase of the investor’s stake in the asset, not a principal repayment.

In a stroke of financial ingenuity that even the most secular investor would have to admire, Islamic financiers had created an instrument that appeared to avoid interest prohibitions as well as prohibitions against trading debt at a discount, while simultaneously offering all the benefits of a bond.

In theory.

Since the early 2000s, Islamic finance has grown from a nascent subset of global finance into a $2 trillion industry, with the sukuk market alone representing over $300 billion in outstanding instruments. Even non-Muslim-majority countries, like the UK, have issued sukuk — a 2014 issuance by the British government was 20 times oversubscribed. And the market has only been growing in recent years. In 2016, $16.7 billion of investment grade USD-denominated sukuk were issued, and 2017 eclipsed this mark with over $19 billion in issuance, as low energy prices drove supply, and the global hunt for yield drove demand.

This growth, especially the growth in the international market, has depended on issuers’ willingness to structure sukuk to be as bond-like as possible. If a U.S. hedge fund is going to buy a sukuk, the instrument better be issued under UK law, it better be denominated in hard currency, and it better guarantee the payment of profit and principal. But these guarantees are precisely what trouble many Islamic scholars, who believe issuers are sacrificing fidelity to Islamic law in their attempt to woo global investors.

No single governing body exists to oversee the creation of sukuk or address conflicts surrounding differing interpretations of Sharia’s financial proscriptions. Religious scholars in different Muslim-majority countries are free to develop and change their interpretation of what constitutes a Sharia-compliant financial instrument, just as modern scholars were free to expand the riba prohibition to include interest on fiat. So conservative religious scholars created the original problem, the solution, and the new problem — and the only thing they agree on is that they agree on essentially nothing.

But when religious interpretation is used to justify the nonpayment of hundreds of millions of dollars, you can be sure that no creditor is going to allow the defaulting company to simply point to a scholar and say, “He says I can’t pay you.” Because finding a legal scholar or judge to support a heterodox interpretation is rarely difficult. Just as secular EM companies are often able to find local judges willing to interpret securities law to benefit local shareholders — regardless of the merits of the case — companies in religious countries often have little trouble finding scholars who will sanction their use of religion to justify even the most absurd, and most secular, of claims.

Which brings me back to Dana Gas. The company doesn’t appear to be have stopped making payments on its sukuk because of rigid religious scruples. It appears to have stopped making payments because of its very profane lack of cash.

In Dana Gas’s 2016 annual report, published months before the sukuk payments ceased, the company repeatedly noted that capital preservation was its primary near-term priority and that maintaining sufficient liquidity would only be possible if the company could swap its existing sukuk for a new instrument with a later maturity date and a much lower profit rate. But, under UK law, the company couldn’t force its well-funded creditors to accept this swap. And these well-funded creditors had no intention of accepting a swap with a significant net-present-value haircut.

So this debate isn’t really about doctrine; it’s about liquidity.

But even the severity of the company’s cash crunch is up for debate. Dana Gas’s creditors argue that the company is entirely capable of meeting its payment commitments, despite the evidence to the contrary. While it’s true that the company received a welcome infusion of cash following a lengthy — and expensive — legal battle with its delinquent partners in the KRG (i.e., the Kurdistan Regional Government in Iraq), it’s also true that the company still has almost $1 billion in receivables and is still struggling to compel its delinquent Egyptian partners to pay. The company also faces a future of depressed natural gas prices — something it did not anticipate when it originally issued its sukuk. And, perhaps most importantly, when your company’s cash position is dependent on the ability of ISIS, Donald Trump, Vladimir Putin, and Recep Tayyip Erdogan to act in a measured fashion, your capacity to pay should be considered somewhat less than secure.

But the creditors are continuing to claim that the company has the ability to pay because it’s in the creditors’ interest to interpret the company’s financial statements in this manner, just as its in Dana Gas’s interest to argue that the numbers tell a completely different story. Whether we’re discussing ancient religious texts or a balance sheet audited by KPMG, interpretation is everything.

Even though conflicting interpretation has enabled Dana Gas to avoid payment thus far, conflicting interpretation could also box the company into an unpleasant corner. The company’s excuse for nonpayment was, unsurprisingly, dismissed by the British courts, but the company is appealing the decision with the support of courts in the UAE. The company may then have an unpleasant choice: it can either pay its creditors, publicly admitting that it’s acting in violation of religious law, or it can continue not to pay and dramatically increase the cost of accessing the public markets at the precise moment when the company is most in need of cash.

Who knew interpretation could be this complicated?

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We Need to Talk about SoFi’s Business Model

On this week’s Slate Money podcast, I argued that SoFi’s frat house culture isn’t the only problem plaguing the marketplace lender. SoFi may claim that its disruptive business model is as bulletproof as its members’ resumes. But, if economic conditions change, this model could turn out to be about as stable as a drunk couple balancing on an office john.

SoFi likes to remind everyone that they don’t have customers: they have members. But, I’d like to remind everyone, that SoFi’s borrowers aren’t really customers or members: they’re the product. And this could become a problem if Sofi’s true customers — the hedge funds and institutional investors purchasing their loans and loan-backed securities — stop buying.

To understand the flaws in SoFi’s business model, it’s important to understand how this model differs from a traditional banking model. So let me give you a Cliff’s Notes version of banking finance. I know this isn’t as exciting as tales of sex in office parking lots, but please bear with me.

Why old-fashioned banks are magic

Traditional commercial banks take deposits and make loans. If you imagine a balance sheet with assets on one side and liabilities on the other (plus shareholder equity, but we won’t worry about that for now), deposits represent the liabilities: banks borrow depositors’ money, which is why banks must pay interest and ultimately return the cash. Loans represent the bulk of a bank’s assets: banks use deposits to make loans that pay the bank interest. Banks are only required to keep a fraction of their deposits either on hand to satisfy withdrawals or with the central bank to satisfy reserve requirements. The remainder can be lent out. Boring, perhaps. But this is how banking enables the economy to thrive. I loan the bank $100; the bank loans someone else $90. My $100 just became $190, hooray! Fractional reserve banking is a beautiful thing.

Now, in reality, banks have other funding sources. There’s public equity and debt financing: stocks and bonds. Large banks can borrow short-term from other large banks, giving us such delightful terms as LIBOR and the federal funds rate. NPLs can be offloaded. Available-for-sale securities can be sold. Structured securities can be made. Suffice it to say. Banks have options. Which is important because banks have short-term liabilities that must be met. Which is why banks are also required to maintain sufficient equity or equity-like capital so that they won’t have to impair senior bondholders or depositors — or require government assistance — during an economic crisis when the bank’s market value declines, access to liquidity disappears, and depositors demand to be paid.

Okay, so, if you’re still with me, you might ask yourself. How does a bank make money? While many assume it’s from the overdraft and credit card fees everyone hates, the bulk of a bank’s profits actually come from a bank’s net interest margin — the difference between the interest banks have to pay their depositors and the interest they receive on the loans they make with the depositors’ money.

Which brings me to SoFi. They have none of this. Okay, that’s not exactly true. They have raised over $2 billion in private debt financing and venture capital. But what they don’t have are deposits, or, for that matter, many loans.

Lack of predictable funding

SoFi loves to remind everyone that they’re not a bank. And this is true. They are a marketplace lender (MPL). So they can’t rely on deposits to fund their loans, and they don’t have reserve or capital ratio requirements. They must constantly offload their balance sheet to make room for more loans, so they can generate more fee income. SoFi may have raised over $2 billion in capital, but they’ve originated over $10 billion in loans.

SoFi’s original plan was to rely on the kindness of university alumni: wealthy investors would fund the loans and thereby help recent graduates from their alma maters, making a nice profit on a can’t-lose investment. Everybody wins. But SoFi quickly discovered the limits of school spirit. Which meant they had to find new buyers. So they began to sell the loans and loan-backed securities to hedge funds and other institutional investors who were attracted by higher yields and eager to give money to an innovative fintech pioneer.

So what’s the problem?

The problem is that if appetite for these loans and securitized products declines, the company can’t simply rely on stable deposits and interest income. As Todd Baker of Broadmoor Consulting has noted, the company must keep making and selling new loans, or the model doesn’t work. While Baker admitted that SoFi is in a slightly safer position compared to other MPLs because of its $2 billion capital position and because they hold some of their loans, he has also pointed out that this “safety” is marginal. Cagney himself has admitted that the industry is facing “balance sheet problems,” with too little money chasing too many loans. And, even more frighteningly, he’s been quoted as saying, in reference to a loan product offered to investors at a rich yield: “In normal circumstances, we wouldn’t have brought a deal into the market, but we have to lend. It’s a problem in our space.” When a financial professional is forced to engage in market activity despite the investment climate and the metrics of the deal, it’s time to worry.

Investor interest in consumer-focused fintech has declined over the past few years as investors have expressed concerns about the sector’s ability to scale and sustain rapid rates of growth. While no one can predict whether investor appetite will increase or decrease tomorrow, that’s just the point. It’s unpredictable. Unlike a traditional bank that has deposits, holds reserves, collects interest, and let’s be honest — has the de facto support of the federal government — online lenders are dependent on their ability to attract borrowers and buyers. And they can sometimes get ahead of themselves. In 2012, SoFi lied to investors about securing $90 million in financing for a loan product. As the NYT reported, they subsequently bought the product back from investors, and paid out the promised returns. They claimed no investors were harmed, but this is not the behavior of a mature, ethical company. This is the behavior of a company that will do anything to survive — even when this behavior borders on illegal.

Lack of funding diversity

Let me repeat: SoFi’s borrowers aren’t the customers; the investors are the customers. So you might think that SoFi would avoid directly competing with its customers— i.e., its lifeblood. But this is Silicon Valley. And they don’t play by the rules. In 2016, SoFi set up the SoFi Credit Opportunities Fund, a hedge fund intended to purchase SoFi’s bonds, as well as those of other lenders. SoFi also discussed setting up a REIT (real estate investment trust) to buy SoFi’s mortgages. Why did they do this? Because, in theory, they could raise money from investors who weren’t interested in buying their loans and securities directly, but who would be interested in investing in a fund that invested in loan-based products. In theory, this could diversify their funding sources. In theory, they could trade in derivatives to offset their rate risk. And, in theory, they could raise $1 billion. But, as other commentators have noted, there are a few problems with this theory: (1) investors might be concerned that SoFi, who has an obvious informational advantage, might select the best loans for its own fund; (2) although SoFi was targeting a raise of close to $1 billion, the fund had extremely modest beginnings ($15mm); and (3) if an economic correction led to a slowdown causing investors to shun direct exposure to these products, it would likely also cause investors to shun indirect exposure. They’re the same investments, and likely the same class of investors. Calling this diversification is a stretch.

Underwriting problems

SoFi might argue that its products will perform better during a downturn because of the strength of their underwriting model. But this is only true if they don’t degrade this model to accommodate faster loan growth. Up until now, SoFi has seemingly only lent money to the most credit-worthy investors. But, again, SoFi is an MPL, and MPLs must keep making more and bigger loans if they want to survive. SoFi’s recent movement into mortgages — which are, on average, significantly larger than student loans — has already proven challenging. The NYT reported that Sofi was approving mortgages without including appraisals or verifying incomes. They also reportedly began to allow customer service representatives to approve loans. While SoFi claims they have stopped these practices, these growing pains are more than a little concerning when the lender’s entire raison d’être is the quality of its loans.

Prepayment risk

When you’re dealing in loans or bonds backed by loans, you not only have to worry about default risk; you also have to worry about prepayment risk. If I buy a bond that will pay me interest and maintain its value based on the cash generated from an underlying package of loans expected to pay interest over a set number of years, I will be pretty pissed if all of the borrowers suddenly decide to pay off their loans immediately. There goes my cash flow (and much of the net present value of my investment). Prepayment can refer to literally paying off a loan faster than required (i.e., paying more than you owe each month or paying off the entire loan early), or it can refer to refinancing your loan. When SoFi refinances a student loan, it is prepaying the original loan with the new loan it just made to the graduate.

While SoFi loves to tout their low default rates, I’ve heard little about their prepayment rates. Millenials are known to be more debt averse than previous generations, and millennial graduates from elite universities are reported to prepay loans at higher rates than average borrowers. I myself am a millennial who graduated from an elite university, and I paid off my undergraduate student loans within one month of graduation (I was lucky; I know). So SoFi is lending to the most attractive borrowers, who are both those most apt to be in the position to prepay their loans and those most apt to receive refinancing offers from other lenders.

SoFi can obviously mitigate this risk by securitizing loans and offering higher returns to investors who purchase tranches of loans with higher prepayment risks. But, as with any structured product, the risks are only properly accounted for if the underlying assets behave as expected. The Wall Street Journal reported that borrowers of SoFi’s initial crop of loans were paying off 30% more than required, but prepayment rates had only been anticipated to be 10%. While this rate was not large enough to significantly impair the bonds, the WSJ also noted that some of the bonds backed by these early loans had fallen in value as of 2016, likely because of prepayments.

Excessive risk tolerance

Going back to the sex scandal for a moment, let’s remember that Cagney allegedly sexually harassed his assistant after he hired his wife to work at the same office. This suggests that his tolerance for risk is, how shall we say, high. Now, all entrepreneurs need to have a fairly high tolerance for risk. Otherwise, we’d all still be talking on rotary phones. But there’s risk, and then there’s running-your-company-like-Animal-House-while-seeking-to-IPO risk. And Cagney appeared to have a fondness for the latter. In 2016, about one month before the Brexit vote, Cagney told the Financial Times that he would be happy to originate mortgages in London at 90% loan-to-value because of the value of London real estate – which certainly would never decline significantly. I bet the company is now happy that he couldn’t legally make these loans, as the value of London real estate has, in fact, declined, with the most significant declines occurring at the higher end of the market. Investors who don’t understand that high prices can, it turns out, come down tend to become cautionary tales.

Now, Cagney is out, and a more reasonable CEO is likely to be appointed. SoFi is currently at little risk of failing. Investor demand may have slowed, but it hasn’t disappeared. Default rates have increased, but remain relatively low. And SoFi is still valued at $4 billion and will likely IPO once the dust settles. But its business model — as well as its business practices— remain questionable.

And no one knows how SoFi or other MPLs will perform if central banks become more hawkish, if the U.S. economy slips into recession, or if Chinese growth slows significantly. What seems like a can’t-lose proposition during an economic upswing can often become a must-lose reality during a downturn.

It’s telling that before the scandal, SoFi was seeking a charter that would allow them to start acting more like a real bank, including enabling them to accept deposits. Which suggests that the bad boy of fintech is coming to terms with the limits of disruption.

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Is Harassment Okay If It’s Not Sexual?

Another day, another Silicon Valley start-up sex scandal. SoFi, the darling of American fintech, began with such promise as a start-up offering Ivy League graduates cheaper options for refinancing their student loans. In the process, they forced us all to consider the human tragedy that is an HBS grad paying 7% interest. SoFi has since raised over $2 billion and broadened into personal loans, wealth management, and mortgages. They have even set-up a hedge fund to buy their own loans – as sound a business strategy as ever I’ve heard. But, alas, just as SoFi was inching toward an IPO, they fell victim to the plague of Silicon Valley: middle-aged men with hands.

One would think that, in 2017, most managers would know that you probably shouldn’t send lewd texts to assistants, comment on a female job applicant’s breast size, or touch employees without their consent. But you’d be wrong. When asked about the accusations of unwanted touching, former SoFi CFO Nino Fanlo responded, “I would have said, ‘Geez, I’m sorry’ had those gestures been interpreted in that [sexual] way.” So problem solved. Clearly, any woman who received unsolicited shoulder rubs from Fanlo had no reason to feel uncomfortable: the man would have said “Geez.”

While the accusations against Fanlo have been damaging, as have employee reports of a “frat house” office culture, what has truly shaken the company is the ouster of CEO Mike Cagney following the release of details related to alleged sexual harassment. SoFi’s Board of Directors, which demanded Cagney’s resignation, had long known about the allegations against him. But Cagney had previously assured them that his behavior hadn’t been sexual. And the Board was satisfied with this oh-so-convincing explanation until details of the allegations were made public, suggesting that the Board has about as much ethical compunction as Cagney.

But what is more interesting than the story of yet another tech bro (or, in Cagney’s case, tech grandpa) abusing his power is the excuse that Cagney and Fanlo both used when confronted with accusations of workplace malfeasance: if their behavior wasn’t sexual, it wasn’t a problem.

Both continue to deny all allegations of sexual harassment (despite the mounting evidence), but they freely admit that they regularly screamed at employees, kicked trash cans, and threw telephones – behavior they consider the inevitable result of start-up stress. Now, if you saw a friend’s husband repeatedly scream at her or trash furniture in a fit of rage, you would probably consider calling the police. You probably wouldn’t consider it the inevitable result of daily stress. But somehow this type of behavior is not only tolerated in start-up culture; it’s celebrated. It’s just a sign of how much these men care.

Descriptions of working at SoFi make it sound like a nightmare. Not only were employees allegedly uncompensated for significant overtime, but they were also expected to willingly take part in a collective panic disorder. Cagney is quoted as having said of his employees, “if they’re not waking up in a cold sweat twice a week, they’re not working hard enough.” I imagine he left that detail out of his job postings.

When asked about the high stress, verbal abuse, and general hellishness, Cagney claimed that the only thing that mattered was the company’s mission to serve its customers. Let’s remember that this company isn’t eradicating a disease, increasing crop yields, or developing an innovative product. They are securitizing loans made to successful graduates. If they went out of business tomorrow, nothing would change, except that a Yale Law School graduate might have to refinance through CommonBond instead. I think we’d all survive.

What underlies many stories of start-up excess is the belief that broken telephones, harassed assistants, and panic-stricken 24-year-olds are all part of a “hard-charging,” results-driven culture. This is Stockholm syndrome as company policy. First, there is no evidence that abusing employees results in superior performance – and plenty of evidence that turnover and burnout can negatively affect company growth. Second, this argument should make one ask what this suffering is for? Saving millenials a few dollars here or a few minutes there?

Is anything likely to change at SoFi? I doubt it. Although Cagney has resigned, he will, like Travis Kalanick before him, probably remain a significant behind-the-scenes presence at his former company. While the new CEO might change the frat house environment, the company’s tolerance for alpha male excess is likely to persist as long as employees are taught to expect it. And while I wouldn’t be shocked if investors abandon SoFi, it will likely not be because of concerns about the company’s culture so much as concerns about the company’s tendency to lie about its capital levels and underwriting practices.

Although the Trimalchio-on-the-Bay story is currently garnering attention with its lurid details of bathroom hookups, this focus is likely to shift as soon as the next start-up founder behaves badly. And if SoFi is able to solve its funding issues, investors and the public will probably forgive and forget. So little is likely to change.

But there’s no need to worry. Because even though the cortisol levels of SoFi employees may remain high, Ivy League graduates’ interest rates are sure to remain low. And what could possibly be more important than that.

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How to Anger Absolutely Everyone: Notes From a Passionate Centrist

Simultaneously occupying the roles of Milton Friedman and Emma Goldman is no mean feat, but, somehow, I’ve managed it over the past few years.

During the day, I worked in emerging markets distressed investment, where I would frequently battle with my friend about his love of Mitt Romney and voice my support for Obamacare and Dodd Frank. I became the team socialist.

But at night, when I went home to my English-major friends, my interest, and, I’ll admit it, my love of markets rendered me suspect. It didn’t help when I pointed out that Benny really had a point in Rent.

To be a liberal feminist today – at least to be one on the Internet – one must hold the following to be true: (1) all rich people (who are not entertainers) are inherently evil; (2) everything is superior in Europe, or better yet, Scandinavia; and (3) everyone who works in finance is an amoral alpha male who thinks The Catcher in the Rye is about baseball. Heresy may not be a popular stance, but I’m a liberal feminist who prefers many finance bros to France’s 35-hour workweek.

Now, I don’t support laissez-faire economic policies, I don’t believe “tax cuts” are always the correct answer, and I agree that income inequality (and climate change) are the most serious problems we currently face. But I also think high corporate income tax rates and strict labor laws often backfire, and I don’t think investment bankers are dementors with pitch decks. I would vote for Bernie Sanders or Elizabeth Warren if my only other choices were Donald Trump and Gary Johnson. But I wouldn’t be happy about my options.

In short, I tend to anger everyone, and never more so than when I try to defend finance. Although I often hear people say “investment banker” like it’s an ethnic slur. few of these people have any idea what an investment banker does. Or a commercial banker, for that matter, as evidenced by the fact that my reference to NIM is normally met with blank stares. And this is a problem.

First, it’s a problem because the vast majority of people employed in finance are not masters of the universe who commute via Teterboro. The vast majority are men and women who commute via New Jersey Transit. This is not John Meriwether playing “liar’s poker” with John Gutfreund. This is Marc in compliance telling you about his 3-year-old’s birthday. Marc is not the enemy.

More importantly, this lack of knowledge is a problem because finance is the backbone of the global economy, and, a decade after the start of the financial crisis, finance is still a backbone with many fractures. And the industry won’t be fixed in the current climate, with Gordon Gekko on one side and Bernie Sanders on the other. The right has monopolized the financial conversation, leaving centrist Democrats in the bizarre position of having to apologize for the unspeakable sin of understanding comparative advantage. When Hillary was forced to defend capitalism in the first primary debate, you could almost hear her thinking, “Really, we’re having this conversation again?”.

Having this conversation isn’t going to advance the cause of economic justice or minority rights. It’s going to make purists feel good about themselves and leave the greedy comforted in the knowledge that the opposition is still stuck somewhere in 1968. Debating how best to bring back the past is not only useless; it’s dangerous. We’re accomplishing nothing while the far right — which is currently the entire right — is unwinding the New Deal and the Civil Rights Act.

Centrism often gets a bad rap, either because it’s considered mealy-mouthed or because it’s embodied by David Brooks. But centrism isn’t about finding a compromise between positions: it’s a position all its own that prizes pragmatism over ideology. While it may never be as fun being a centrist as it is being a firebrand, firebrands burn out. Centrists are left to clean up the ashes.