The Role of Government: Keeping the Wealthy Rich
For some reason most of the discussion in Washington and the media of the bank bailouts is overlooking their central feature: taxpayer dollars are being used to sustain the income of incredibly rich bankers. The public should be furious over this upward redistribution of income.
The basic story here is very simple. If we got the government out and left things to the market, virtually the entire banking sector would be bankrupt. Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and almost all the other big banks, and thousands of smaller ones, would be out of business. (My bet is that even "healthy" banks like Wells Fargo would be in bankruptcy before too long. They hold plenty of bad debts, too.)
Most of the top executives of these banks would likely be sent packing, while those remaining would have their compensation (including "golden parachutes" and bonuses) set by bankruptcy judges who would be running the companies in the interest of the creditors, not the shareholders. The shareholders themselves would be out of luck for the most part. Many bank stocks have already lost 80-90 percent of their value over the last 18 months. Bankruptcy would likely eliminate what little remains.
However the banks are not in bankruptcy because the confused state of affairs and potential lost of creditors' wealth created by large-scale bankruptcies in the financial sector would be a devastating hit to the economy. This is the rationale for the TARP, the various special lending facilities created by the Fed, and other measures to ensure the survival of the banking system.
The government has intervened in a huge way to keep the market from taking its course. But the key issue that has been buried in the debate in the media and political circles is the separation of the interest of the public in a functional financial system and the interests of bank executives in high salaries and shareholders in getting returns on their capital.
At this point, the banks are desperate -- they would be dead without government handouts. This means that the government can set whatever terms it wants. And, for both economic and moral reasons, it has an obligation to set terms that do not reward the bank executives and shareholders.
The bank executives and shareholders took big risks that went bad. If they are rewarded with taxpayer handouts, then the message this sends to the financial sector is to keep taking irresponsible risks. The game becomes heads they win, tails we lose. If the bets pay off, then they are incredibly rich. When the bets go bad, the taxpayer gets the tab.
The moral reason for not rewarding executives and shareholders is that these rewards require the taxation of middle income people, like truck drivers and nurses, to transfer money to some of the richest people in country.
This sort of upward redistribution is difficult to justify. Usually people in the United States like to believe that the market determines the distribution of income. Many get outraged over the idea that a mother on TANF can get a check for a few hundred dollars a month from the government. In this case, the government is effectively handing checks of millions of dollars to bank executives who would be out of work if the market was left to run its course.
We have to keep the financial system functioning, but we can do this without transferring hundreds of billions of dollars from middle class taxpayers to the wealthiest people in the country. If the bailout conditions imposed by the Obama administration and Congress don't effectively eliminate shareholder wealth in the bankrupt banks and bring compensation (in whatever form) of bank executives back down to main street levels then it is can only be explained by corruption. There is no excuse for this massive intervention to redistribute income upward.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
I don't understand WHY the banks that received bail out money already were not given that money with the proviso that they would have to EXPLAIN where it was going and without first agreeing to seriously cap the compensation for top executives. Not only were companies given taxpayer's hard-earned money, but to be given free rein with it seems inexcusable.
If DC wants to save the banking system, they can't waste their time saving the banks. You throw the insolvent ones into the purifying fire of receivership and capitalize the good ones.
Stockholders of the bad ones get wiped out, bondholders take a significant haircut and exces + boards are given the boot. They gambled...
I love the smell of capitalism in the morning
The one good thing that Andrew Jackson did was to keep Biddle (President of the National Bank) from extending the legislation enabling the bank for an additional eight years. Capital just waits for the next opportunity to rip off and control our politicians. Their chance came in 1913 with the Creature from Jekyll Island, otherwise known as the Fed. It is no more federal that Federal Express. Woodrow Wilson and William Jennings Bryan were fooled. Later Wilson stated that "I have ruined my country!"
Why can't we the People throw off the shackles of the fractional reserve system set up by European banks to loot the people of their right to coin money and control the currency, as provided in the Constitution?
Experience has shown that unpayable debt to the banks occurs when the banks usurp Congress's right and duty to control the currency placed in our Constitution by those who saw European governments subordinated to the power of central bankers. The income tax was enacted to pay the interest to these banks for printing our money. We need a government system of credit for infrastructure and citizen loans.
"...Althou
they bought more than $10 trillion worth of goods and services last year. By
contrast, said Roach of Morgan Stanley Asia, Chinese and Indian consumers, who
together account for 40% of global population, bought only $3 trillion worth..."
It's not rocket science...
Too much wealth in too few hands make this kind of economy unsustainable.
Too much wealth in too few hands make this kind of economy unsustainable.
Too much wealth in too few hands make this kind of economy unsustainable.
If we all say to hell with it...let's go back to a feudal economy or slavery economy. Then we're right oon track.
We already have a feudal society. It's just that our king(s) on Wall Street, here in America, leave us a little more in hand than the old Sheriff of Nottingham does in those other countries. Remember, as Bush went off to war he told us all to go shopping.
Some people are "more equal" that others based on money and power. These people don't even have to earn the money themselves. This is one of the contradictions between money and democracy. Money is not democratic. It should be a means of exchange, not an end in and of itself. Instead, money represents wealth to many. The current banking scheme with derivatives acting as "shadow money" for the super elite just proves the point. True wealth is based on production and agriculture, not monetary manipulation.
The US is attempting to run an empire with "full spectrum dominance.
You are right. I put it this way: we have commodified money, making it the primary source of wealth. It is no longer a medium of exchange.
Many will say that this has been true since time immemorial, but it has been "democratically" sanctioned only in the 20th century.
Wasn't a feudal economy when the serfs worked and most of what they created was turned over to the royals? I think we're already there, except that our ruling class is by no means royal.
We do not live in a Feudal society although it is tempting to say so. We keep most of the money we earn. We do not hand it over to the landed gentry (yes, yes, it feels like we do, but we don't).
There was "this wee little problem that we've had," oh, since about 1961. It was a thing that Gen. Dwight D. Eisenhower dubbed, "the military industrial complex." In short, it was a stupendous supply of "easy money" for anyone who wanted to build something ... "brain-wave binoculars" anyone? (No joke.)
Also, we basically got the idea that "money, itself" was an export. We print it (about $1.5 million a minute these days), and we buy all the world's stuff with it. They produce it for us, and we print more of our magic money to pay for it.
"That," in short-short, "is what's now falling apart." We happily dismantled our factories here, and built them "over there" where we could dump as much pollution into the skies of Beijing as we cared to. We looked at "Brazil, Russia, India, and China" ("BRIC countries") as "trading partners" on the grounds that they were "poor, and would love our brand of yankee-cap
Things have gotten so bad that we can't build SHOES here anymore ... we tried.
Why can we build bombers but not shoes? Because there are no thread-factories, no shoelace factories to spin those threads into laces, no molding plants to make the soles ...
... and, none of the WAGES that this tightly-connected, "redundant" system of factories once paid.
The military-i
We need to bring our M-I-C back into rational lines.
Great article, I was just telling my co-worker that, Obama will only make thi economic crisis right, if he bails out the middleclass, and that means helping those who are paying their mortgages on time and those who are on the brink of losing their homes, by giving them tax breaks that will allow them to free up money from their budgets to send their kids to college and pay off those credit cards that were used to keep them afloat during this terrible time. Banks are not going to loan us our money back at reasonable rates and business are not going to create the jobs that will allow the middleclass to get back on their feet and thrive, unless he oversees the money himself.
But is this problem limited to just us? It seems the world over the financial and taxation systems have generally been established to entrench the financial elites. Sure some Europeans have less wage and wealth disparity, but it still exists.
One thing that we must bear in mind is the link we've generally established and accepted between "effort" and "reward". Certain "efforts" have been elevated above others, and until we recognize that all effort has dignity and importance and should be minimally rewarded we won't get anywhere.
.7 trillion could have created quite a few brand new healthy banks.
New banks would have restored credit.
The useful parts of the bankrupt banks could have been sold off to whomever desired them.
If the FED and not the Treasury injects the money, will the taxpayer not be feed from the burden since the FED prints money while the Treasury borrows it?
.
Dean,
What exactly are you proposing and what should WE do about it?
WE, the people?
I believe that we do have options.
But in attacking the result of taxpayers supporting the bankers, you, among others, refuse to address the change that is needed to reverse that situation.
I repeat here is the link to Dennis Kucinich's proposal on monetary reforms.
http://www
Why are progressive economists not addressing the needed reforms that Dennis has put forward?
Why are we not rallying behind Dennis' bold assertion of the right of the American people to control their own economy by controlling their own money system?
We have accepted 100 years of the bankers running our money system, with their hands on the taxpayers' wallets.
We don't need to accept keeping the bankers rich.
The big lie, often repeated on HUFFPO is the 'nationalization of the banks'.
In fact, what we have is the "privatization of the Treasury".
I see little concern being raised by progressive economists about Obama putting the uber-bankers Geithner/Summers on the tiller of that relationship.
When will we get serious about advancing progressive monetary reform ideas, or at least discussing them?
joehed
The all important question..
It's an issue that has plagued opressed peoples from the biginning of time.
Nothing will change until we take on this dragon.
Well it will take some loud voices and a lot of them. well said again Joe
You're so right.
""The issue which has swept down the centuries, and which will have to be fought sooner or later, is the People versus the Banks."" - Lord Acton in 1875
Dennis K is taking on this dragon, it is essential that his comments reach a wide hearing.
"Who" will be buying the TRILLIONS in debts that the GOVUS is proposing.
The American financial services industry is insolvent.
We could loan them the money to loan to us.
Oh, I forgot, we already are.
There will be very few options for funding the IOUs of the American taxpayers.
This will raise the matter of who we want to be dependent on for coming out of this mess.
An essential truism of the money issue today.
Either the American taxpayers can issue IOU's to unknown consortia of public and private foreign corporations for unprecedented amounts of debts that may reach out for generations of repayment,
OR
the American taxpayers can issue their own IOUs to themselves, with Treasury printing United States Notes , the promise being that the money will be used to keep Americans fed, housed and with jobs.
It is a choice that must be forced upon the political process.
And that can best be done now by following the lead of Dennis Kucinich to wake up the democratic party and the financial conservatives to the real issue that is at hand.
Economic democracy.
With the stroke of a pen.
Excellent post joe. But I doubt many here are listening. You have to get left of the Democrats to find anyone "serious about advancing progressive monetary reform". Yes, there is Kucinich, but he has no clout in the party. Whats needed is an American Labor Party. No, not a third party. A replacement for the G.O.P..
"Yes, there is Kucinich. But he has no clout in the party."
ummmm, yeah, but we have the internet.
I see the basic problem on monetary reform, as with most, as one of education, and of information. I also direct people to monetary.o
The great quote by Henry Ford, ardent American capitalist:
"It is well and good that the American people fail to understand the banking and money system in this country, for, if they did, there would be a revolution in the morning.".
"There's something happening here......
What it is ain't exactly clear...".
Among the American working class, more and more people wake up every morning and realize that there is something WRONG with this system.
They want it fixed.
Dennis Kucinich is walking the talk and talking the walk.
He deserves the support of all Americans who truly believe in economic democracy.
The time is NOW !
As for the ALP, well, I'm thinking on it.
Thanks for the link. I have always liked Dennis and his views.
I have known fo ra long time the Federal Reserve Bank was privately owned and I wonderred why. Now I see the FRB is controlled by others, not the US Congress and Senate.
It also dissappoints me to hear Obama's advisors are all wall street incumbants.
We need a clean break and I am uniting with Mr. Kucinich to relieve the power brokers of their grip on the system.
Good luck Dennis and call me if you need me.
DFW
Your point of viewing the bailout as 'privatization of the treasury' instead of 'nationalization of the banks' is rhetorically brilliant - but it is only rhetoric. It's not true.
Nor are Geithner and Summers ueber-bankers. (german spelling requires a letter not available on huffpo).
There are serious and many policy errors committed by regulators, lawmakers and central bankers under republican rule. But to conclude that there is an ongoing conspiracy of bankers lasting into the hundreds of years is simply unwarranted.
Many half- and dimwits believe in the arguments about how bankers pay is so terribly competitive that they simply have to earn millions because otherwise the sun wouldn't rise. This is bs. It is totally false, flawed nonsensical horsepunk. But that doesn't mean you can claim that banking is robbery. There still does exist competition and there are still audits and risk controls. They may not work as they should, but they can always be used to tarnish the reputation of competitors. It's not easy or simple to make a killing in banking. It's not always value created, but it's also not true that it's never value created. And it's never easy. Because, there is: no conspiracy. And there can't be a conspiracy, because there's too much greed for there to be a conspiracy. While I sympathize with your anger, I recommend to try a more balanced view. It's also more effective.
Actually, it is not rhetorically brilliant, but thanks.
You're not so bad yourself, rhetorically speaking, maybe unnecessarily foul.
Wanting to get past that horse-punkey stuff, how about you and I agree right now to work this thing through?
And,let's drop the inane rhetoric and talk facts.
How about that. Diogenes?
Your basic claim is that what I wrote was not true.
But you didn't say what was not true.
You just opined valiantly in favor of the poor bankers who suffer all kinds of human frailties in the face of the greed of their banking brethren.
"it's.....
I never said anything about CEO pay or any of that childish distraction stuff.
I talked about the money system.
I know a lot of bankers don't really understand the money system, so maybe we can talk about that.
The sovereign people of the United States of America granted to themselves the power under the Constitution to have their own money system.
We defeated the world's greatest power so that we could decide what money system could be used to pay for commerce.
It's our money system.
The private bankers of the federal reserve system have had the authority for almost one hundred years to create ALL the money in this country as a debt, the accumulated result of which is an unsustainable level of debt service that is the problem that we have today.
Now, D., is any of that not true?
Part deux. (sp?).
You obviously misunderstand me.
I am not angry.
I believe my views of the banking and money system are fairly balanced, having been a student of its history for over 40 years.
And, if being effective is the mark of success, then other commentors might be offended by your view that we are the unbalanced and ignorant ones.
I didn't say banking was robbery.
Please read: "The Legalized Crime of Banking".
Just because it is legal does not make it right.
You have a point that Summers/Geithner are not the Rothchilds and the Warburgs.
They are the Americanized version of private-banking, federal reserve professionals.
In and out of the banking system, academia, international monetary bodies and the Council.
It's not a conspiracy, it's just damn convenient and enriching.
If it weren't, there would be no complaints from the bankers against an honest people-oriented money system.
I try to be real specific about solutions.
You perhaps think the social credit philosophy is mere foolishness.
Major Clifford Douglas.
Jefferson, Madison, Van Buren, Jackson, Lincoln, Garfield and others supported a public money system, and opposed having the private bankers create the nation's money.
The federal reserve and its debt-money brand of capitalism is dead.
We will achieve a debt-free money system and honest free-enterprise.
And the bankers can get back to lending the real money in their vaults.
A la Milton Friedman.
this is in response to your 10:30 21/01 post
Glad that we agree that I am beginning to understand. After some more thought I realized a couple of things. Mostly about the reserve requirements, but also that it is quite essential to separate various matters: crisis management cannot be done on the same scale of concepts as long-term design of financial oversight and central banking or even 'the money system'. That's what my 'Los Alamos' remarks were about: there may be room for a lot of redesign, but not for the purpose of firefighting.
Ah, the financial market gilded age. I love the smell of bales of bailout money in the morning. Gotta love the catch-22 of being a working-class, American taxpayer ... Not!
Barak Obama's economic team
Rahm Emanuel - Wall Street insider [ worked on wall street 2 1/2 years made $18 million]
Lawrence Summers - Wall Street insider
Timothy Gienther - Wall Street insider [cant even pay his own taxes]
Mary Shapiro - Wall Street insider
Robert Rubin - Wall Street insider [close Obama advisor, made $115 million on wall street]
Steve Rattner - Wall Street insider [named car czar, raised $100,000 for Obama campaign]
This should tell you where the Obama Administration is headed.
I have to agree with you.
Few on Obama's "economic team" are representative of the "change" he promised.
SSDD?
Obama promised to substantially change the way Washington works. He didn't propose any particularly fundamental changes to what Washington actually does. Similar strategy, different tactics. Bush was all about my way or the highway. Obama is all about co-option and precision-guided charm offensives to lure the enemy out of their ideological fortifications and hit them with the hope ray.
I have extremely little doubt that Obama will be a much more effective thought leader than Bush. But let's be honest, the POTUS is like two or three levels below even the Council on Foreign Relations in the grand scheme of the global power structure. He possesses so many of the qualities necessary to be a fantastic figurehead. What more can we realistically ask for?
FDR felt it was a good idea to set a thief to catch a thief when he appointed Joe Kennedy to the SEC.
This man, Obama, is NOT Bush.
A worthwhile read which may calm your nerves about who is getting hired by Obama is here:
http://www
No, it shouldn't tell you where the Obama team is headed.
Obama, determines where the team goes.....
research
What Up?
Let me see... I have to read your comment again... whoa..... no name calling...
So I will respond in kind.....
Goldman Sachs employees gave $884,907 to candidate Obama
JP Morgan Chase employees gave $600,210.
Citigroup employees gave Obama $586,866 during the 2008 election cycle.
Morgan Stanley employees contributed $425,502 to the candidate.
Do you see a pattern hear? Now refrence this to the article we are commenting on.
Anger is not the best consultant.
You are a bit imprecise (sloppy?) about your facts. You shouldn't, because your credibility suffers from that.
Rubin is not part of Obama's economic team. It is true that Summers and Geithner did serve 'under' Rubin in the Clinton administration, so you could call them his 'disciples'. But this is a very loose connection and Rubin himself is NOT part of it.
The mere fact that they have Wall Street or banking or FED backgrounds cannot prove them to be bad choices by itself. Michael Lewis (author of Liar's poker) has a Wall Street background. Other whistleblowers have a Wall Street background. Soros has a Wall Street background, and he isn't among the worst when it comes to workable solutions for financial oversight and regulation.
So you have to be a bit more careful.
Not enough people are angry about our government plundering the taxpayer to save Wall Street / Bankers. You confuse anger with rage. Anger has been one of the greatest motivating factors in history and is usually the catalyst for change.
Robert Rubin is currently advising Barack Obama on the economic - period. That makes him part of the team - period.
Barack Obama's economic team are all wall street insiders and everything they have done in their careers has been in the intrest of wall street....
There are other aspects to consider. When lower- and middle-class people can't help their kids go through
college without working on their left hands the rich 10% or so can get the best educations and jobs even when not too bright. If doing miserably they will be bailed out (again).
Over the weekend a Republican talking head was arguing that what the stimulus really needs is a bigger Capital Gains Tax Cut!!!!!
Now I am not a CPA or an Economist but the one thing I do know is that with housing prices down and stock prices down that over the last year there has not been a lot of Capital Gains going around. This is always the mantra of the right. Cut Corporate Taxes and cut Capital gains taxes. It is like Pavlov's dog. They salivate when they hear the word tax cut except when it applies to poor and middle class folks.
Why on earth should manual labor and wages be taxed at a higher rate then passive income from investing? Maybe it is because those who earn more from investments then they do from labor are the ones writing the tax codes.
BINGO!
Yes, you hit another one. Why my labor as a person who creates paintings to sell, I create my value and get taxed more than a guy who makes money from dealing in money is not fair, I just don't get that one. We the people let this stuff happen.
The tax rate on passive income reeks of FACISM.
The public should be furious over this upward redistribution of income.
We are and it isn't going to work giving them the money and telling them to lend because the more p.o.'d we get, the less likely we are to ask for credit. They killed the golden goose, let them deal with it now. There's not a thing that can't be bartered for or found on the "secondary" market, except maybe health care.
It is just a continuation of Conservative Socialism which subsidizes the rich. I have yet to hear MSM call it for what it is. Conservative Socialism is the most corrupt and allowed to grow unchecked has destroyed the foundation on which it was built. Trouble is the wealthy bankers walk away from this crisis able to maintain their status while the rest of the nation is left with the bill.
Let us hope the new administration will right all the wrongs that have been committed over the past 25 years and put us all on a level playing field.
Are you sure that the belabored taxpayers don't have a single dollar attached to the sinking banks? Have you considered that the regular 'taxpayer' could have been as greedy as the 'shareholders', even if we don't consider the 'unlikely' overlap in the two categories?
There's no doubt that many poorer people have been involved. On the other hand the total amount of money that the middle class and lower could have spent in this is FAR less than the TRILLIONS spent by the uber-rich!
You must be logged in to comment. Log in or connect with
