"Wall St. Smarts"? Maybe the smart people should be doing something productive

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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!

Masters of the Universe: They need a long fall

The Sunday (February 8, 09) New York Times had an (as usual) excellent column by Frank Rich, “Slumdogs Unite!”. It addresses the issues of tax problems, conflict of interest, especially in the financial sector, and confidence of the public in the new Obama appointees. I would add only one thing: when I read the sentence “Most ‘ordinary Americans’ still don’t understand why banks got billions while nothing was done (and still isn’t being done) to bail out those who lost their homes, jobs and retirement savings.”, I initially misread “bail” as “jail”. Maybe that was wishful thinking. I suspect most “ordinary Americans” would think, as do I, that jail would be a good place for these financial “titans”!

Some of this suspicion is highlighted by an even more pointed column by Eugene Robinson, a member of the Washington Post Writers Group, which appeared in my local Kansas City Star on Monday, February 9, 09. Quoting liberally from Sen. Claire McCaskill’s “These people are idiots,” speech (referring to the financial executives who have been paying themselves billions from the federal (read: your money) bailout, Robinson cautions them to “…pay attention to those citizens outside, the ones with the pitchforks and torches.” Going beyond, but not missing the opportunity to discuss at length, the horror people feel at the arrogance and greed of our “masters of the universe”, including the craziness of the average CEO making 344 times what the average worker makes, Robinson adds the following:

“No longer does it make any sense to reward those who work in the financial industry so lavishly compared with the way we compensate those who, say, build tractors or write software or teach our children. Salaries should be reasonable and bonuses – much more modest ones – should be reserved for those who actually, you know, make money. If some of Wall Street’s vaunted “talent” balks and flees, terrific. It was “talent” that got us here.”

Couldn’t say it better. Maybe, if we insist on not jailing them, and not taking away all their money and using it for balancing the national debt and having them live in surplus FEMA trailers (all of which I advocate), they can learn an honest trade doing something truly necessary. Like collecting trash. But maybe they don’t deserve such a good job.