"Hedge Funds Rebound, Gaining 5% in a Month" (NYT June 8, 2009)
"Long-Term Unemployment Rate Hits Record" (NYT June 5, 2009)
What's wrong with this picture?
How can hedge funds have a banner month of May (a 60 percent annualized return) while unemployment hits 9.4 percent? In fact it's even worse than that. According to broader measures, the jobless rate is between 15 and 19 percent with 25-30 million people out of work or forced into part-time work.
Clearly the fantasy finance world of the super-wealthy is gearing up again, thanks to our largess. In that world it seems perfectly normal for hedge funds to secure 60 percent returns while the entire world teeters on the brink of a global depression. Hey, that's what being wealthy is all about. It seems perfectly natural to "earn" financial profits through a variety of sophisticated trading schemes while industry after industry in the real economy struggles to stay solvent and is forced into shedding workers right and left.
I'd like someone to explain how these hedge fund profits will help produce real jobs in the real economy. All of us have a right to know, especially the jobless. They didn't gamble on Wall Street. They didn't speculate on derivatives. They didn't move money to the Grand Caymans. But they're paying the price because of those who did.
The New York Times, two years ago, provided what is arguably the clearest statistic to see how our country has split apart. According to a review of 2006 IRS collections: "the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980."
What's even more galling is that the recent hedge fund profits come directly and indirectly from saving Wall Street through our trillion dollar bailouts and asset guarantees. Had we not propped up the financial system, they'd be toast.
Unfortunately, we didn't have much of a choice: Letting the financial markets collapse and then letting them resuscitate on their own through laissez-fair policies would have shot us directly into another Great Depression. We tried that after 1929 and it didn't work. If we tried it again we'd have 50 million jobless instead of 30 million.
Can we do anything about these galling inequities? Of course we can. It was policy, not an act of god that widened the gap. Starting in the late 1970s we embarked on a deliberate set of "reforms" designed to enrich the few. That wealth was supposed to be invested wisely and then trickle down. Instead it gushed into the fantasy finance casino on Wall Street -- first the savings and loan fiasco, then the dot.com equity boom and then the derivative-and-housing bubble. Meanwhile, average real wages stagnated and now the entire system has been thrown into a deep and dangerous recession.
It's clear what we need to do: 1) invest in a massive job creation program to rebuild our infrastructure including retrofitting every building to save energy; 2) place reasonable controls on globalization to promote jobs creation at home, protect the environment, and enhance human rights; 3) close corporate tax loopholes that encourage jobs to shift elsewhere; 4) enact steeply progressive income taxes like we had during the Eisenhower years; 5) set a higher minimum wage indexed to inflation; 6) encourage unionization to increase average real wages as FDR did in the 1930s; and 7) enact progressive, annual taxes on accumulated wealth (see my previous post on the topic).
Oh there's one more: We need a small excise tax on each and every financial transaction -- about 1/3 of a penny per dollar. That means that every time a hedge fund or a Wall Street investment house zings billions in, out, and around the markets, ka-ching, we get a piece. (HR 1068, "Let Wall Street Pay for Wall Street's Bailout Act of 2009" is a damn good start.)
And now a word from my editor, "This isn't about retribution -- though Lord knows they deserve it. This is about reforming the economy so that it works for all of us, not just the elites. This is about making sure that the working people of America don't exist entirely and exclusively as cogs in the corporate money-making machine. This is about getting us out of the current recession and preventing the next one. The financial rulers of the world have taken us for the ride of the century, maybe the ride of all human history. It's time we changed drivers."
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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