No, it's not a conspiracy. Goldman Sachs and its minions are not plotting to cripple the government. But it is remarkable how our political system freezes shut just when we need to make serious changes to our economic system.
Earth to government: our people are out of work, but we're letting bankers waltz off with $150 billion in bonuses (based on bailout money) as a reward for crashing our economy? Do something about it!
It's obvious to all but the ideologues on CNBC that that financial markets can't police themselves. We tried that over the past three decades and the system crashed. It's also obvious that our financial sector is composed of large institutions that are too big to fail. Those giants have the ability to gamble with other people's money and not suffer the consequences of failure. (Actually, they not only gamble with OPM, but they now are gambling with taxpayer money. How sweet it is!)
The emerging pattern is maddening. The financial sector gambled and won big during the housing bubble by creating, selling and trading a slew of new securities that supposedly removed risk from risky debt. It didn't work but it was the most profitable enterprise in the history of Wall Street. The bubble burst, but the bankers and traders, of course, got to keep their phony bubble profits. Worse still, we the taxpayers, through the bailouts are paying off the bad bets. Instead of going belly up, the largest financial entities are miraculous making record profits and bonuses while still taking advantage of trillions of dollars of federal loans and asset guarantees.
Meanwhile, there are more than 29 million Americans without jobs or who have been forced into part-time work. (The real unemployment rate is about 18.4 percent) Tens of millions are underwater in their homes or losing them. Pensions and retirement accounts are suffering. But the bankers who caused the crash have the nerve to give themselves a record $150 billion in bonuses?
To be sure the American public is outraged and screaming for reforms. But what kind? The Tea Party, the fastest growing political movement in decades, hates big government, hates the bailouts and the stimulus, and detests collusion between government and Wall Street. But its solution is to attack government. It has no way to change Wall Street, except by letting the market take care of it. Good luck. In the end, Tea Partyites would rather see the $150 billion of our money go to the failed bankers than to see a windfall profits tax on Wall Street's undeserved bonuses.
This outrage translated into an upset victory in Massachusetts which took away the Democrat super-majority in the Senate. More Republican victories in the fall are likely to follow, so that we can expect political gridlock for years to come.
So what happens to serious Wall Street reforms during all of this? First off, let's remind ourselves that to date no reforms have taken place. The best time to have acted was when the bankers were on their knees last fall begging for funds. Now Wall Street is using our money to lobby against anything that might cut into their money-machine.
There will be happy talk of bipartisan reform but gridlock will stop any government regulations that might interfere with the next record bonus pool. Banks won't be busted up into smaller units. There won't be a return to Glass-Steagall. The most profitable custom derivatives will remain unregulated. There will be no serious taxes on these unwarranted and outrageous bonuses. And the Financial Consumer Protection Agency is likely to be stillborn.
Also, this gridlock will prevent any serious efforts to put Americans back to work again. The Republicans will block large stimulus bills in the name of deficit reduction (while blocking health care reforms that would lower deficits.) They will prevent direct government hiring in the name of free markets. And let's face it, there are more than enough Blue Dog Democrats who will go along and gladly. Once again, we'll be relying on the miracle of the markets and trickle down from the super-wealthy. It could take a decade or more before we get near full-employment again.
We thought we were living in a country based on democratic capitalism. But the combination of political gridlock and our too big to fail financial casinos should give us pause. We now have a new pattern: Wall Street can make billions by creating bubbles. When they burst, we bail them out. They then can make billions while on government welfare, and lobby to prevent any and all serious reforms. Meanwhile unemployment is crippling millions of Americans -- unemployment that is directly caused by Wall Street. And unemployment is further exacerbated because the financial sector now finds that it can make more money by playing the markets than by lending to the real economy. Rather than instituting serious, lasting reforms like we did during the New Deal, our political system freezes shut. (And this all is happening even before the Supreme Court decided it would be OK for corporations to directly buy politicians.)
That's not capitalism. Welcome to the new billionaire bailout society. And if that doesn't get you angry, please send me your meds.
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.