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The humorist Calvin Trillin had a recent column in the NY Times advancing his theory as to what changed on Wall St. that led to the orgy of greed that both came close to destroying our economy and continues to this day. Because he is a humorist, “Wall Street Smarts” is funny, but its premise is probably, sadly, true. He argues that in his day the smart kids became relatively-low paid professors, judges, etc., while the kids who went on to enter Wall St. careers were from the lower end of his college class, often from families that had long histories of such work and such money (perhaps that is why they didn’t feel they had to work so hard in school). They expected to be rich, but more in the “big house in Greenwich and a sailboat” than the “second oceangoing yacht” rich. But when the “smart kids” entered Wall St. they no longer worked “bankers’ hours” nor were satisfied with the “products” that financiers had long purveyed. They lobbied successfully for changes in laws and regulations and developed new products such as derivatives that nobody understood[1] and made, well, oodles.
And now they are still doing it. We stood at the precipice of global financial collapse and were pulled back only by massive public investment into the finance and banking system. Even “progressives” argued that these institutions, like Goldman Sachs, were “too big to fail”. So we bailed them out and they are now back to making billions of dollars (like Goldman’s most recent quarterly profit) while too many Americans are out of work, and out of hope. The fault lies squarely at the feet of Congress, who is, as on healthcare, totally influenced by the contributions of the wealthy corporations that they continue to do their bidding, and on the administration of President Obama, which has appointed so many insiders that we can’t tell who is actually going to regulate them. The “revolving door” is certainly not new; it has characterized every recent administration, both Republican and Democratic, but we had hoped it would change with this new president.
It hasn’t. Treasury Secretary Timothy Geithner spends all his time on the phone with the executives of Goldman and CitiBank. Chief economic advisor Lawrence Summers comes from Goldman via Harvard. Goldman chief and former Clinton Treasury Secretary Robert Rubin is the current “guru” of financial advice to the President. We keep hoping that the President will, on this issue, on health care, on Afghanistan, take a bold leadership position, but we keep being disappointed. Sunday, Oct 18, 2009’s papers are full of depressing insights. In the NY Times, Maureen Dowd describes in depressing detail President Obama’s history of compromising so much that the baby is lost and the bath water leaks away (“Fie, fatal flaw!”). Frank Rich has a detailed column on the excesses of Goldman Sachs (“Goldman, can you spare a dime?”), comparing them unfavorably to JD Rockefeller’s Standard Oil and the administration’s attempts at regulation unfavorably to Teddy Roosevelt’s. Steve Breen, in his syndicated cartoon in the Kansas City Star, depicts Wall St. at a bar drinking from a bottle labeled “Risk” and saying “I keep drinking ‘cause I have a designated driver”, while a car with the license plate “Bailouts” and Uncle Sam at the wheel idles outside.
This has to stop. The administration needs to fire all the Summerses, Rubins, and Geithners, and get some hard-nosed prosecutors with no sympathy for these folks, like the legendary Ferdinand Pecora of the 1930s, in to reign in these folks. And Congress, with the urging of the administration, needs to pass laws that take these stolen profits away through both a windfall profits tax and limitations on executive income. How much should they be allowed to make? $50,000? $500,000? $2 million? Some amount, and take the rest.
And do what with it? I have said many times that we – represented by the government that is supposed to be ours – should take all that money so that these Wall St. financiers are reduced to living in surplus FEMA trailers. The President has taken some flak because he just made his first trip to New Orleans since taking office (although he traveled there several times since Katrina as a Senator and a candidate) for a visit that lasted only a few hours (and had to end so he could make a fund-raising event in San Francisco). Let’s use the money to rebuild New Orleans. Then this wealth would be used for a good purpose, channeling it back to the people from whom it was stolen.
We are told by Wall St. that limitations on the income of financiers would make it difficult or impossible for them to lure the “best and the brightest”. Maybe Calvin Trillin is right, and having the “best and the brightest” working on Wall St. is part of the etiology of the problem. Maybe they should go back to being professors, judges, doctors, scientists. Solving real problems that the world faces in the environment, human rights, and health. I can’t see any downside.
[1] That’s because they don’t really exist. They are a Ponzi scheme which, through repackaging, sells the same stuff over and over again. And, like a Ponzi scheme, customers who don’t understand it are happy as long as they are making money, but it always collapses. However our new Wall St. tyros learned one thing from traditional brokers – whether the customer is winning or losing, you always take your cut!
1 comment:
Why did the economy fail? The common explanation ascribes it to bad investments, short sighted risk taking on the part of big banks, hedge funds, and all that.
But that's only a part of the story. Since the early 1970s the real wages of workers were flat. Then with the new century, employers went beyond that and actually cut real wages. Most Americans had less and less money to spend.
But the well being of the economy depends on the consumer market. How could consumption be kept up if working Americans earned less and less? Simple, the banks offered to lend them the money--at usurious rates to boot.
Today many families of hardworking, responsible citizens owe more money than they earn in one year. There's no way they can pay that back. The whole system was bound to collapse.
This story shows that the problem is not merely lack of bank regulation or lack of ethical back bone on the part of bankers and investors. The problem is inherent in the economic system.
In pursuit of profit, employers cut wages. Once wage earners have less money they buy less. The economy produces more than consumers are able to buy and the economy implodes.
The same thing happened in 1929. Since then economists told us that they had figured out how to prevent this sort of collapse by "fine-tuning" the economy. Funny no economist has said that lately.
Richard Schmitt
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