Now that the bank lobbyists are nearly finished neutering the financial reform bill, it's time to face reality: our financial world will continue to be run by the very financiers who crashed the system two years ago. The bankers' arguments ricocheting through the halls of Congress make it seem as if our financial system is basically rational and sound -- that only a few flaws need fixing. That's lunacy. Our bright bankers may be rational as individuals, but collectively they perpetuate a fractured system gone utterly mad... and getting madder every day.
So the financial insanity will continue, with such psychotic outcomes as these:
1.Our pensions and 401ks will continue on their roller coaster ride, driven by market chaos and high-speed computer cacophony. Last week, the automatic trading programs our financial geniuses invented sent the Dow into a one-hour, 1,000-point freefall. Thank goodness it was only one hour. Two would have set off a global panic. No one is sure what happened or why. But don't worry, we're told. The glitches will be fixed and all will be well. (Just as a little technological tinkering is sure to prevent another offshore oil disaster too--not a problem!) In a saner world we would be asking the obvious: Does that high-speed trading serve the needs of our people, or is it just another high-risk strategy to enrich the largest and most connected investors?
2. Big financial institutions, now fully assured that they are indeed too big to fail, will continue to dominate both finance and politics. Anyone in their right mind knows that allowing five or six banks to control our entire financial system is a recipe for disaster and a major threat to democracy. What's the excuse for this form of madness? Well, we're told, during the Great Depression 4,000 banks failed (including lots of little ones), which proves that size doesn't matter. Please help me with this logic: Many banks failed and caused the Great Depression. A few big banks failed and caused our recent Great Recession...Therefore big banks are better? (Somebody flunked their Logic 101 class.) Here's what our experience tells us. Banks, both big and small, when left to play out in the street unsupervised, often end up at the casino tables-- gambling with our money. Big banks are an even bigger risk, because they have the power to gamble with our democracy as well.
3. We'll continue to pay top hedge fund managers 26,000 times more than we pay teachers. This goes back to a question I asked in an earlier post: Are 25 hedge fund managers worth 658,000 teachers? Apparently they are, since that's what they netted in 2009 during which they enjoyed the benefits of our $8 trillion (not billion) bailout. We rescued every hedge fund and bank, but left more than 30 million Americans scrambling for full-time work. This soaring unemployment caused tax revenues to tank, touching off fiscal crises in nearly every state. So governments dramatically cut spending and axed tens of thousands of teachers. The ultimate losers? Public school kids all over the country who were hoping for a good education. The winners? The bankers who caused the crisis. Even during the worst year since the Great Depression.--the sun was still shining on Wall Street, with a $150 billion bonus pool and a billion dollars each for the top 25 hedge fund managers. We put no windfall profits taxes on those billions, even though the money came directly from the U.S. treasury in the form of bailouts. We even allowed that income to be taxed at lower capital gains rates. That's rational?
4. Little countries that falter, like Greece, will continue to put the whole global economy at risk. We're told that the Greeks have only themselves to blame: They retire too early, drink too much retsina and often break into dance without warning....all on borrowed money. Yes, they broke the EU's debt limit rules. But they had a bit of help from Goldman Sachs, which made hundreds of millions of dollars in fees for creating complex derivatives to "help" the Greek government hide their debt. And yet Congress still refuses to regulate these scary financial items because they are "customized." Of course it was the global crash begun by our big banks that sparked the Greek fiscal crisis in the first place. In a sane world, the largest banks and the wealthiest investors in Greek debt (who caused the crash in the first place) would be forced to make reparations for the damage they caused. Instead, we have to make the Greeks stop dancing? Sicko.
5. The deficit hysteria drumbeat will build to a deafening crescendo. Forget about taxing the super-rich--we've got to cut benefits for working people instead. Respected journalists like New York Times columnist David Leonhardt warn us that we're all living beyond our means. It's time to tighten our belts or we'll end up like Greece. No more tax breaks for health and housing. We've got to retire later, with less money, and cut our medical expenses. And our wages have to become more "competitive." But who is "we"? Where are all these high-living people? The average non-supervisory production worker in America (about 75 percent of the workforce) has already seen an 18 percent drop in real wages since the mid 1970s. Meanwhile productivity increased by more than 90 percent. Yet now we've got to tighten our belts? Where did all that money from the higher productivity go, if not to us? No surprise here: into the hands of the few.
It all goes back to that most glaring symptom and cause of our psychosis: our insane maldistribution of income, which gets worse and worse every year. The richest 1 percent of Americans now earn more than the bottom 50 percent. Back in 1973, the richest 1 percent of earners collected 8 percent of the national income. By 2006, the top 1 percent got nearly 23 percent of the national income -- the highest proportion since 1929. Or look at the pay gap on the job: In 1970, the top 100 CEOs earned 45 times more than their workers, on average. In 2009 the ratio was 1,071 to 1.
Here's an example of what this maldistribution is costing us: The top 400 richest Americans have a combined wealth of more than $1.3 trillion. And that's enough money to endow every public college and university in the country so that students could attend tuition-free in perpetuity. (Hopefully some would decide to graduate before then.)
We need to return to Eisenhower era tax rates: 91 percent on those earning over $3 million in today's dollars. The money would roll in, and the deficit hawks would sound like parakeets.
The ultimate insanity of our current moment is that the richest investors and the largest bankers in the world just crashed our system, got bailed out by taxpayers, grew even larger, and now are back to earning record profits and bonuses. They caused the biggest jobs crisis since the Great Depression and drove the entire global economy into a ditch--and they could do it again any minute. And now they're telling us to tighten our belts and act more responsibly?
Here's the good news. The American people sense something is really wrong. They're angry at Wall Street and anyone in its pocket. It's taken a while, but the truth is seeping in. The angry public forced Congress to bring those squirming bankers into their hearing rooms. Unfortunately, Congress caved when it came to actually passing a strong reform bill that would bust up the biggest banks, end windfall profits and curb the gambling. Too bad the average citizen has no way to register his or her anger except to vote the "ins" out. Since. both parties are largely in the pocket of the financial industry (and other industries), it's hard, if not impossible, to be optimistic about the new "ins."
Imagine if we could vote for something like a jobs and environment party, free from Wall Street's money, that was dedicated to putting ALL of our people to work building a truly sustainable economy? Now that would be really insane.
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.