Fear and Looting in America: Are We Really Out of Money?
"Well, we are out of money now..." President Obama, May 25, 2009
Depends on the definition of "we".
We got into this crisis because Wall Street invented and pedaled fantasy financial instruments that turned out to be junk. While their party lasted, those complex derivatives were a gold mine for the largest financial institutions. According to the New York Times, the profits from the nine largest commercial banks "from early 2004 until the middle of 2007 were a combined $305 billion. But since 2007, those banks have marked down their valuations on loans and other assets by just over that amount." In other words, the profits weren't real.
When the fantasy finance bubble burst and all the fictional profits disappeared, the banks headed straight for mass bankruptcy. Had the government not intervened, many, if not all of them would have gone under, taking the world economy with them. To prevent a total meltdown, we've forked over several trillion dollars in bail outs, loan guarantees and stimulus funds.
But let's back up a bit. What happened to the $305 billion of 2004 through 2007 bank profits that have since vanished from the banks' balance sheets? About half were paid out in compensation to executives, managers and traders. Yes, amazing as it may seem, when you work for a large financial institution you can be paid massive sums even if your work ends up producing nothing -- not even just nothing, but a negative result. All those autoworkers who are being blamed for the miseries of GM and Chrysler? They actually did make cars that are still transporting people. But the Wall Street players, who took home billions for supposedly making valuable financial instruments, were actually making economic weapons of mass destruction. And you can bet that much of their billions are safely parked in off-shore accounts and other low/no tax investments. In a sane and fair world, we would be thinking about how to get it back to help pay for the costs of cleaning up the toxic financial mess.
In a more general way, the bubble boom produced by those fantasy financial instruments helped create a slew of billionaires. As Obama likes to point out, "This is America. We don't disparage wealth. We don't begrudge anyone for achieving success." But is there some limit beyond which success spills into obscene accumulation? At the very least we should be careful not to lose sight of how much money billionaires possess. In researching The Looting of America we tracked the wealth of the super-rich.
In 1982, the top 400 individuals held an average net worth of $604 million each (in 2008 dollars). By 1995, their average wealth jumped to $1.7 billion. And in 2008, the 400 top winners averaged $3.9 billion each.... The total for the 400 high rollers adds up to a cool $1.56 trillion. That's equal to about 10 percent of the entire gross domestic product of the US...
We certainly could have a heated argument about how much of this wealth derived from the derivative-driven boom that just went bust. A case could be made that much of this money is ill-gotten since it came from artificial financial instruments that were rated improperly, or came from artificially leveraged transactions that now have crashed the system as a whole. An even more contentious fight would break out if we discussed whether there is any justification for allowing that such sums to accumulate in the hands of the few, no matter how worthy any of these individuals may be. And we could have us a row asking whether or not a democracy can really survive with so much wealth in the hands of so few people. But surely we can all agree that those top 400 are sitting on a huge pile of money, while our country is going deeply into debt to fix a financial system that has contributed mightily to their enrichment.
Here's a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to "only" about $100 million each? You wouldn't be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.52 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.
Maybe we're not so out of money after all.
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)
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The rich and super rich are the prime beneficiaries of our government and economy, therefore, as a matter of simple fairness, they should pay the the primary share of the bills. They are also the primary cause of the economic meltdown, and should therefore be subject to -- dare we say it ? -- confiscatory means to get that money back.
This is not violence, nor is it robbery. It is justice and fairness. If you get a benefit, you pay for it. If you make a mess, you clean it up.
In fairness, the wealthy SHOULD pay more than the middle and poorer classes to support the government and clean up the mess. They don't do any of the filthy, dangerous jobs necessary to protect our neighborhoods and country -- no soldiers, policemen, or social workers among that crowd. They by and large do NOT "earn" their wealth -- their parents and grandparents did that. There is no good argument for not stripping the top 1% down to size as Les suggests.
The reason we haven't done it is fairly simple -- as an electorate we believe comfortable lies that the wealthy buy for our consumption. As long as we have "big government" and the "lazy poor" to despise, we'll buy anything they are selling, even when it takes food out of our children's mouthes and college out of their reach.
Les I was wondering if you had written a article about oil price manipulation in the futures market.
I just wanted to give you my 2-cents: Let us talk about the history of oil prices for the last 21 years. Amazing thing is that the average monthly oil price of a barrel of crude never went over $30/barrel from 1987 to 1997. In 1998 the average monthly price was $10.72/bar
Sorry, I haven't written about oil price manipulation or researched it. I wouldn't be shocked to learn it was going on. But this time we've got problems that are much larger. The entire financial structure collapsed and fixing it is going to be really tough. thanks for your comment...
Yep and one of the first things president Obama did was bail out the investment firm of Goldman Sachs. The investment bankers are right back at it driving up the price of crude and gas. Our inventorys of gas and oil are so high now they are having trouble finding storage space. That sure goes against the grain of the free market. An easy way to stop this monipulation would be to Only allow futures sales to those who have a stake in selling the product retail. bankers dont need to be buying gasoline. Gasoline prices will go up 90% if cap and trade gets put into law. massive inflation is on its way. if gas is 4.00 dollars like last year the new cap and trade inflated price will be 7.20. Cap and trade is the trojan horse that will bring Down America.
To help ease into this new wealth tax, how about eliminating the tax deduction for salaries over $18 million a year?
Thank you Les for your article. You are a true American Patriot and savior of REAL CAPITALISM.
I am going to go to Amazon and buy your book. Thank you so much for SPEAKING TRUTH TO POWER.
Astounding, right? Nice and concise.
However, this situation we're in absolutely points on the FLAW of capitalism. Which is: those who make the most begin to create their own rules.
Of course, when we try to create rules to rein this in, it's SOCIALISM. Such a naughty word.
How about these words?
Obscene wealth.
Exploitation.
Creative accounting.
Financial rape.
Cock-sure.
Blubbering.
Failure.
Collapse.
UNBELIEVABLE! But the true enemy is the lowly homeowner, right? The one who thought they were doing a smart thing by investing in real estate, even if they went over their heads a little bit?
Certainly not billions of dollars' worth, but still....
"Animal Farm" was written as a disclaimer against communism. However, in some ways, I think it applies to capitalism as well.
Eliot Spitzer was crushed by these people. No one else in the whorehouse was even close to being a threat. Patrick Fitzgerald for Financial Criminals Prosecutions Czar ! All lawyers involved straight out of Public Law Schools. No statute of limitations. Now that, together with legalizing drugs is the cash cow that might turn the blood red tide.
Thank you for the overwhelming response . I’m very grateful to those who supported the basic themes and who watched my back. I also want to thank those who challenged me every step of the way. But, I think even my fiercest critics will find a very cogent and carefully documented argument in "The Looting of America". While you may not agree with the progressive prescriptions at the end, I’m confident you’ll welcome the new information and analysis found throughout the book.
The polarized debate is a bit troubling. For some, any mention of income taxes on the wealthy is the equivalent of Stalinistic socialism. And for others, market society by definition is an abomination. We need more nuance. We won't get very far if all we see are good guys and bad guys. Vilifying this or that financial leader or politician won’t help us understand a systemic collapse. (ok, except maybe Phil Gramm.)
Finally, I think we need to face one clear-cut reality: This financial crisis was not caused by government interference, or by home buyers who got in over their heads, or by those with high credit card debt. Deregulated financial free-markets blew up due to flaws deep within them. That’s what we need to face up to and what I hope to address this in upcoming blogs.
Again thanks for the ride and let’s try this again soon.
I believe that the situation is quite bad in the USA, and it's only going to get worse. The most common suggestion is to open an offshore account and to keep your money safe and secure over that. While looking at the web I saw several sites that offers these solutions in countries such as Cayman Islands and Switzerland. If you are not looking to hide your money I think Switzerland would be a good solution, http://ope
Did Mexico ever pay back a dime of the 50 billion from Bill Clinton's slush fund that he sent to bail them out when Congress refused?
And so, if we are running out of money, the presses can run 24 hours a day, its only paper.
Well uhm, yeah, they did. And it was 20 Billion, not 50. And they also paid back 500 Million in interest:
http://www
It is dangerous to spout an opinion when you do not know the facts.
Funny, when it comes to waterboarding terrorists you libs want to follow laws that don't even exist (Al Qaeda, Taliban, etc. aren't signatories). When it comes to private property, such as owning bonds in GM, you folks think it's fine to stomp all over laws that have actually been voted on and ratified.
And you wonder why we believe you are either fools or worse?
And, btw, we're not out of money. Not even close. As long as Ben and Timmy are willing to "monetize" debt, there's an infinite supply of money.
Purchasing power? That's a different story.
Do you know what's funny? Obama's monetization initially will drive up interest rates. All of those billions you mention will inflate, since capitalists - people far brighter and more industrious than you - will (note the word choice) "capitalize" on the moment.
Then, when the inflation monster re-awakens they (me? you never know...) will cut over to foreign-based instruments and commodities like steel and nickel - things that will keep up with inflation.
The ultimate reason that this pathetic social experiment will fail is philosophical. Socialism has been proven to be a fools errand so many times that it's not worth the phosphors to list them.
Thanks for the butt-whoopin that you're about to unleash on the poor. Regardless of how the inflation/interest rate catastrophe plays out, the poor are going to be completely lashed.
Nice work, gang.
That's not a philosophical proof, but more an attempt at an empirical one. You won't make your commodities investments in socialist economies will you? The US is nearly alone in its pursuit of extreme capitalism. You might have a hard time investing in capitalism outside the US.
Socialism has been proven false? Really? I guess that's true if you pretend Sweden, Denmark, France, Germany, England & Canada don't exist. Their current economic woes are due to the same cause as ours--the failures of capitalism.
Yes, I'm sure capitalists will "capitalize" on the moment. People as morally bankrupt as you have always been happy to profit off the suffering and want of others.
And capitalists do care so much for the poor. They taste great.
You are so smart. Please run for office and fix everything for us, OK?
Capitalists are not always far brighter and more industrious - they are often opportunists and schemers.
ENRON???
Oh, and since you are so good at predicting exactly how everything will unfold, did you know we were going to go through the current financial crisis? Do you go to Vegas and capitalize on your psychic abilities? What number am I thinking of?
Variations of socialism are in play as we speak all throughout Europe, with varying degrees of success. Our country has been run by capitalist corporations for a very long time and look where that got us.
Trickle me this.
Enjoy the view from your high horse. Don't get down in the mud and try to help, or anything..
Repeat after me, Les: S-W-I-N-D-L-E-R-S.
That's it. That's all. That is the beginning, and the middle, and the end.
The massive amounts of money accumulated by a fraction of the US population could not have happened in a democracy. Such a concentration of wealth requires control of the governmental apparatus and manipulation of the law; the tools of oligarchs. No human being is so talented that he can acquired so much without exploiting others.
There is no such thing as an honestly and morally acquired fortune. I think that is was Voltaire who long ago said, "Behind every fortune is major crime."
Rob a gas station go to prison, rob 90% of the populous and they name streets and buildings after you.
Check me out, BBackSoon, at: http://lew
Thank you for your welcome analysis, Les Leopold - I look forward to buying your book.
Thank you, JohnConservative here for your cogent, accurate and detailed info
Please look up Foreclosure Phil - Senator Phil Gramm, the Texan snapping turtle of the right wing who blithely and knowingly pushed through misleading legislation (in the dead of night) that gutted the laws from the Great Depression, kissing those real estate derivatives and fantasy finance schemes into full blown madness. Nobody knows who holds most of those mortgage papers on bundled and sold, re-sold, and re-sold loans. Gramm then swiftly exited the U.S. Senate to a seven figure job with Swiss financial swindlers. We all rode that wave of inflated, exploding financial chaos in real estate markets (benefiting only the fabulously wealthy) for the next eight years.
Usury has been a serious crime since the Babylonians, because it destroys the lives sucked into the debt vortex. The financial 'wizards' can no longer hide behind their flimsy curtains. Their world of greed, lies and fear has imploded and is crumbling down.
Our work now is to envision and rebuild ALL of our systems from the bedrock of our basic values. With compassion and vision, we can imagine, re-weave and re-create our communities and our lives, based in innovative creativity, love and the deep wisdom that guides us to plan ahead for seven generations on this blue green jewel planet. See http://tra
Think of it this way: if your boss has 8 subordinates, should the boss net 91% of the income? How long would you work for him?
I work for a guy that wants me to start up and build a new division of his company.
I'll work on commission. Half for me, half for him.
I get to do all the work, make all the effort.
He says he needs the new division to generate enough money to support itself.
In the meantime, there's no office for me to work from. Not even a desk. I'm supposed to work virtually.
How's that?
I'm supposed to start and build a business with no outside resources in exchange for half the profit. I kid you not.
Needless to say, I'll be giving 2 weeks notice quite soon. If I'm gonna start a business, I might as well do it for myself.
This is how rich guys ( and he is) get richer.
Well said, Les Leopold, and I do like your suggested solution at the end of your article.
We are not out of money, our money is being held hostage by the super rich.
"whether or not a democracy can really survive with so much wealth in the hands of so few people" is the key question here. I say that it cannot.
The super rich, a minority group of about 1% of the population, control vast amounts of our money and power - to the point that our democracy is being ruined. We need a new revolution to kick these folks out of power, and re-establish a sound and fair financial system for all. They are not going to go willingly, or nicely. They will have to be forced out of power, and forced to open their purses allowing the money to flow through our economy as it should.
We can do that violently, or with legal taxation and regulation
You must decide.
It isn't anything BUT violence to use the police authority of the state to confiscate property from the citizen. You may want to tax the rich, but don't do so under the banner of 'legal taxation' or any other canard. What is proposed is STRONG-ARMED ROBBERY.
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