Bankers must think we're stupid. How could they expect anyone to buy their performance at the recent White House/Wall Street confab during which, with hands on hearts, they swore allegiance to the American people? They want us to think they're Boy Scouts instead of rapacious profiteers who crashed our economy?
Meanwhile, Wall Street is the direct beneficiary of bailouts which represent the largest transfer of wealth since slavery. Only this time the money is going from a struggling middle class to the super-rich. The fundamental problem is clear: Too much wealth in the hands of the few.
Bankers, however, are betting that we will reject any call for redistributing wealth. After all, most of us, like Joe the Plumber, view the accumulation of wealth as an inalienable right as long as it's earned fair and square.
But do the super-rich really earn their wealth?
Financial wealth is a slippery concept especially as it slithers through a mountain of bailouts now running somewhere near $13 trillion. (TARP is a small part of the panoply of taxpayer financial guarantees for Wall Street.) Given that virtually every large bank would have gone under without our bailouts, how do we calculate who "earned" what?
For the three years prior to the crash, the 19 largest banks and investment houses "earned" about $300 billion, half of which went to bonuses. We now know that these profits came primarily from creating and trading financial instruments that turned out to have little or no value.
Supposedly, Wall Street's financial engineers "earned" their massive bonuses because they invented new ways to eliminate risk from complex securities layered on pools of incredibly risky debt. Wrong. When the risk returned with a vengeance, the $300 billion in profits turned into $300 billion of losses. The entire financial system froze and began to collapse a la 1929, causing trillions of dollars to disappear from our economy. At this point the billionaire bailout society revealed itself as did the modern meaning of "earned wealth." When the financial sector imploded, the government bailed it out with our money. Obviously the earlier profits were phony as were the bonuses of the previous three years. (Did the bankers give back the bogus bonus money based entirely on fictitious profits? Hell no!)
It gets worse. After we poured our trillions into the financial system, the banks became profitable again, even as the rest of the economy suffered record unemployment. The banks, in fact, still are refusing to lend, which further drives up unemployment. Instead they are returning to risky trading practices, knowing the government will back them. To get free of pay restrictions, even the most troubled banks are quickly repaying their TARP money through a series of Ponzi moves. (See "Wall Street's Latest Ponzi Scheme: Bailout Repayments?")
Ok, you tell me: Who earned what? What value was really produced on Wall Street as our bailouts prop up the entire financial sector? Are bankers are actually "earning" anything at all? More to the point, are you really worried about redistributing wealth that derives entirely from this casino/bailout scam?
Our distorted wealth and income distribution, the worst since 1929, poses a clear and present danger to economic revival and to rebuilding a solid middle class. Here's one statistic from The Looting of America that still stuns me: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one! We didn't get there by accident.
Did these CEOs earn it fair and square? According to economic theory, that jump should reflect an enormous increase in their human capital. Did someone alter their genes to make them that much smarter? Does this reflect a miraculous jump in entrepreneurial skills?
The reality is much simpler. The rules changed.
From 1930 through the 1970s we understood that the key to America's well-being was a relatively compressed wealth and income distribution. Millionaires did not disappear, but during the Eisenhower years the marginal tax rate on those earning more than $3 million (in today's dollars) was 91 percent. Yes, there were loopholes galore, but the 1950s and 1960s are considered the most egalitarian years on record and working people developed into the world's largest middle class. This defined the American dream and it came about by design, not by accident.
During the deregulatory 1980s, the top tax rates dropped from 70 percent to 28 percent, while much of the New Deal's financial controls also were dismantled. You want to mint billionaires? That's how to do it.
Once the billionaire class was off and running, we faced a mounting series of booms and busts - from the savings and loan fiasco to the housing bubble. There was so much money at the top that the wealthy literally ran out of investments opportunities in the real economy. Wall Street, now unchained, did its job: It created fantasy finance securities to meet the unfulfilled investment demand.
If we don't get a grip on the demand -- billionaires' excessive wealth -- the casino will blossom again as Wall Street comes up with ever more sophisticated fantasy finance instruments. With billions of dollars at stake, they will find a way around the new regulations. You can bet on that.
This leaves us with two very problematic propositions:
First, the income distribution is so out of whack that progressive income taxes alone won't correct it. We also need wealth taxes on those with more than $500 million in net worth. (It's hard to make a case that anyone needs more than half a billion dollars.) Taxing 5 to 10 percent of this group's wealth each year would generate about $200 billion a year to help finance jobs programs and our growing debt. Also, it would help dry up demand for speculative investments
Second, we need to end casino banking: Instead of relying on a failed banking system and a new set of Rube Goldberg-like regulations, we should transform the 19 largest Wall Street firms (which control more than 60 percent of the nation's banking) into tightly regulated pubic utilities.
This is a frightening vision for libertarians, free-market ideologues, anti-government activists, Wall Street bankers and Joe the Plumber. But, if we truly value free enterprise in the real economy, we must seriously consider wealth redistribution and bank nationalization.
The alternative is more of what we already have: a billionaire bailout society with a hollowed out middle class.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
Rep. Edolphus Towns: Are Bank Executives Really Stuck in the Fog?
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The whole problem is that there is no 'value' against which any of the banks performance can be measured. Even the money itself has no value intrinsically. Things only have 'value' when they are compared with something else. A service or goods produced, for example. Or when compared against something that is sufficiently rare as to be considered 'valuable' (which does not include Diamonds, as they are so truly abundant that if allowed to move to market as available, they would cost about $1 a karat) The money the banks are flipping around has no intrinsic value. Nor do services rendered that provide no actual value to anyone either, save as a means by which to artificially inflate the already zero value attributed to the money itself. Money is valued only against money. When we need more, we print it, and even the zero value it already has, slips below the waterline. In my mind, these 'failure" efforts are aimed at devaluing the dollar enough so we will be forced to either move to a new currency (The Amero perhaps) or (what should eventually happen) we come to realize that the concept of the currency as it exists today is non-supportable, and is merely a form of slavery from birth.
Read about the coming neo-feudalism. http://emptywheel.firedoglake.com/ Americans will make the perfect serfs, largely ignorant of the world around them, distrustful of education, superstitious, the need to feel protected by a higher authority and willing to tolerate suffering and deprivation as merely the natural order.
I tend not to be a conspiracy theorist, but...the rank and file of both sides hate Tim Geithner, that is ignored by the media and the President, the rank and file of both sides are disgusted with the huge bonuses, and felt the bank bailouts were a ripoff. Yet, we have elements in both parties and in the media fanning the flames of right America versus left America hatred. Who needs Fox News more than the Huff post and MSNBC, and vice versa? What about the NRA, where would they be without the far left? Where would the far left be without the far right? We can point fingers all we want, but ultimately this nation is a democracy, and far too many of us take our responsibilities as voters too lightly. We want it all, now, and we vote for people who say what we want to hear. Churchill promised something like "blood, toil, sweat and tears" to the British people early in the war. Fat chance a US politician getting elected making a comment like that. The middle class is worth saving, but the middle class has to fight for its own existance, and not rely on somebody else to do it for them. Becoming smarter voters and holding those we elect accountable is the first step, even when they are on "our side". The polarization of America is part of the plan I fear, divide and conquer.
Been observing this for years. Lots of Americans, mostly Conservative "middle" middle class, hold hard to the idea of "earned" wealth, that old "Prosperity Gospel". Since they are sure that they will eventually, by working hard and being godly, also become prosperous, they are willing to tolerate other's hoarding of wealth while they await their turn. I am sad to say, that for the average working person, wealth even on a relatively modest scale compared to Wall Streeters, is not merely difficult to achieve as in the past, but today almost impossible. Example: One of my students worked for her brother's house cleaning company. He set up the jobs. She cleaned. One day she realizes that although she is the one beating herself to death to get these huge houses clean as fast as possible -- brother takes 60% of the earnings for sitting at a desk selling appts. When she complained to her mother, a Prosperity Gospel, Limbaugh dittohead fundi Christian, Mom says, "Now, honey, don't be mad. That's just GOOD BUSINESS. Wait 'till you're the boss, then you'll understand." We understand right now, without being "the boss". It's called being ripped off. American capitalism. Yay. Longest running pyramid business scam in history.
Yours is a point I consider sacred... the "bosses" did not break their backs to earn their billions. They profited from the harships endured by their workers. Seems few recognize that their fortunes were earned through sweat and effort of low paid employees. Rather than reward them fairly and gratefully, their pay was kept artifically low while the bosses pockets bulged. Don't even get me started on trust fund babies!!!!!
Here's an idea, suggest to your student that is she has saved enough to throw up a shingle and has good enough relationships with other cleaners to recruit them and understands the need for insurance and so forth, that she spin off her own team! If her brother is really taking 60% of her billed cost, there's probably at least a few points of margin in there that your student my be willing to forgo for sake of the mix of risk and upside of being 'the boss.' If she works in the US, she has this option, even though she will still have to go through a certain amount of red tape to start a business and pay some government fees and so forth. (Guess this depends a bit on which state she lives in). Not sure what you teach this student, but this sure seems like an option to add to your syllabus, no?
They may not think the American public is stupid but they do see them as chumps and marks to be fleeced by the captains of finance and industry. The passivity of the American public gives the banksters a big advantage.
Bingo.
Only when they are "physically" threatened it seems will they take notice.
Screw the middle class. Let them just get their lazy arses back to work...
Being "lazy" has nothing to do with the collapse of the middle class. It is the result of unsustainable home prices, costly health insurance and weakening leverage in negotiating raises due to offshoring jobs. Wish it was as simple as work harder!
Even if I agree with you- good luck with that. One of the "benefits" to the rich by killing off the middle class is that they also take away power from the middle class and poor by various means. As it has been said, "I agree wealth should be redistributed. But I am not going to give it to you. You'll have to take it from me." In essence, you gave yours away but I am not going to give mine; that makes me smarter. If you want it, come get it. What will the US people say to this challenge?
It is my understanding that credit default swaps were bets ON collapse...on the failure of the US credit markets. If I'm wrong here, someone please tell me. If someone I don't know buys "insurance" that will only pay off if my house burns down, it stands to reason they want the fire department shut down, the hydrants removed, and they might even store some gasoline close by. They created this situation in order to increase their profits. We need, family by family, to proudly live in ways that deny them profit.
Great post! I especially like the line about banks becoming "pubic utilities".
The difference between common criminals and the CEO from a bank is even a common criminal would give a buck to someone down on there luck!
As Woody Guthrie said, "Some people will rob you with a six shooter and some with a fountain pen."
For folks who want a balanced perspective, not poppycock http://www.realclearmarkets.com/articles/2009/12/15/dont_be_fooled_main_street_was_bailed_out_97549.html
Yep, that was real clear. You know it was because its called "Real Clear". Just like "Honest John's Used Cars".
Do you understand that these financial 'leaders' have INVENTED wealth out of thin air? That the vast majority of the value of the TRILLIONS-dollars-worth derivities market is simply 'vapor value'? It (such 'value') was generated simply by using finanacial shemes (tools) - invented over just the last few years - that in pretty much no-way benefit the overall economic / financial system. There is nothing tangible behind these Trillions. NO discovery, production, management, delivery, buying/selling of tangible goods or services!!! The Billions of dollars that most of / the rest of the 'free market system' (main street) works with / creates, to some degree, is but chump-change to these Too-Big-To-Fail institutions.
As you say, this "invented wealth" were actually pumped-up fictional values treated as tangible and real. Once this evaporates..................which could have been foreseen.........the pain is extensive. Only the few that saw the "game" for it's transcient nature and timed involvement made out. Of course, with the cooperation of gov't, lenders seem to be doing just fine.......too fine!
While I am a free marketer and to the right of Attila the Hun, this current class of classless upper class has gone too far. The new financial products do not do what they should be doing and that is to be an instrument for greater investment for the growth of the economy. I would love to see a huge surtax on all earnings regardless of source over $10 million. Repealing the Bush tax cuts would only bring in about $350 to $400 Billion per year and even in 2011 we have over a $1 Trillion deficit so more needs to be done. More than 60 million taxpayers pay no income tax and as unfair as it might seem we need to broaden the tax base to bring the budget into balance or our grandchildren will be choking of debt
"Only" 350-400 billion. That's 35-40 %, so after 3-4 years of that we've gotten a handle on the deficit. How do you "broaden the tax base"? Tax all of those people making less than 25K per year? Or force the mega millionaire class to pay on ALL of their income, offshore stashes, maybe RAISE Capital Gains tax to same as EARNED income? That would certainly bring in enough to erase the deficit.
Closing loopholes and creating a more simplistic tax structure while still holding capital gains accountable and responsible is a major step. Too bad its been held out as a carrot for voters to follow for 25 years.
Obummer and the democratic congress have sold us down the compromise river
You can't lay all the blame at Obama's feet. This started long before his inauguration. The Reagan presidency, for sure, possibly even earlier: Nixon. When deregulation became the watchword of the moneyed class, the protections put in place after 1929 to prevent another Great Depression were whittled away in the name of deregulation. "Get government off our backs." "The free market will always do the right thing." The creation of the Libertarian party with their naive assumption that the free market is always a level playing field and no person or corporation would ever stoop to backstage manipulations. Don't let that knee hit your chin when it jerks...
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