About 40 years ago an elderly man approached me after an economics class we had put on for a group of oil and chemical workers at Rutgers University. With a thick New Jersey accent he said, "I'm telling you, those new IRAs are a plot to get rid of social security. Once we start to invest our retirement funds, we won't give a damn about the public good." I remember thinking this guy was some kind of socialist throwback to the 1940s, looking for a capitalist plot around every corner. Now I'm not so sure.
But I'm thinking about a different variation of his plot, one that has us tied to Wall Street's fortune no matter what it costs our country. I'm worried that we've locked ourselves into the stock market to such a degree that we'll allow nearly anything to happen on Wall Street as long as our pension funds and invested savings recover.
So far we've allowed quite a bit.
First many of us drank the deregulation/free market Kool-Aid which led us to support the idea that unfettered financial markets were always and everywhere good and government regulations were always and everywhere bad. After all, we saw the stock market and the value of our housing assets rocket as Wall Street built up an enormous fantasy finance boom (For the full version, see The Looting of America.).
We believed what they told us: that the stock market always goes up more than fixed investments and we'd be fools not to play the game.
Then when the entire financial game crashed, we went along with a Wall Street raid on the national treasury to the tune of somewhere from a trillion to thirteen trillion dollars depending on what you count (see excellent data by Nomi Prins here). Not that we had much of a choice: had we not bailed them out the entire economy would have been pushed into Great Depression II. Even with the unprecedented bailouts and stimulus efforts, unemployment is the most severe since the 1930s and nearly 25 million of us are unemployed or underemployed.
At that point, we had Wall Street on the ropes. For the first time the American public became aware of the astronomical sums bankers and traders had been paying themselves during the fantasy finance boom, and a clear sense that the bankers and traders hadn't been providing anything of actual value in exchange. There was a growing understanding that the economy had collapsed as a direct result of the riches amassed on Wall Street. The pressure was rising for serious wage caps, and some caps (with considerable loopholes) were indeed slapped on the firms that were basket cases.
Then the big boys -- Goldman Sachs, Morgan Stanley, JP Morgan Chase and company -- miraculously bounced back in no time flat, turning stunning profits while the rest of the economy remains in a deep recession that's still getting deeper. Actually, this shouldn't have come as a surprise since the US taxpayer was totally propping up the financial system, virtually guaranteeing every kind of toxic asset and by providing money at no cost to these firms. Of course they quickly paid back their TARP money so that they could go back to paying themselves more than the pharaohs. (To get a feel for the latest casino game see Bob Kuttner's piece, "Wall Street on Speed".)
Plain and simple, we gave them the keys to our economy they cracked it up. Now we're giving them back the keys and asking that they drive more carefully.
At this point, one might expect an enormous uproar from the public. I'll bet the big firms were paying for polls and focus groups to find out how far they could go. (My editor is less generous. He writes, "Really? You think they track public opinion? They seem to me to just not give a rat's ass about public opinion. They know they're hated and they chalk it up to jealous resentment from the lumpen-loser-ariate. Then they take their money and go laugh about it all with their well-heeled friends. Why would they blow money on public opinion research they don't care about?)
Clearly, a wind-fall profits tax and wage caps on the entire sector are in order. But except for a relatively small number of bloggers and columnists, there is no mass outcry against these obvious rip-offs. (Please, prove me wrong. Tell me I'm missing some enormous groundswell of resistance and organized fight back.)
Sensing our weakness, bankers have gone on the offensive to undermine any and all regulations coming out of Washington. They even have the gall to use our TARP tax dollars to pay for the lobbyists to fight against the proposed Financial Consumer Protection Agency, claiming that it will stifle innovation. Give me a break!
So why isn't there more outrage?
Maybe our New Jersey old-timer understood us better than I had realized. It may be that most of us have noticed that what's good for the big banks makes the stock market go up. After all, when the big investment firms posted their recent outrageous profits, the DOW crossed 9000 and seems headed higher -- which means our 401ks are on their way back to the Promised Land!
But as a wise friend recently reminded me, we shouldn't be surprised by our continued subservience. After all, Moses knew it takes several generations of wondering through the wilderness before his people would be worthy of entering the land of freedom. First the habits of slavery had to be broken.
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.