Bankers must think we're stupid. How could they expect anyone to buy their performance at the recent White House/Wall Street confab during which, with hands on hearts, they swore allegiance to the American people? They want us to think they're Boy Scouts instead of rapacious profiteers who crashed our economy?
Meanwhile, Wall Street is the direct beneficiary of bailouts which represent the largest transfer of wealth since slavery. Only this time the money is going from a struggling middle class to the super-rich. The fundamental problem is clear: Too much wealth in the hands of the few.
Bankers, however, are betting that we will reject any call for redistributing wealth. After all, most of us, like Joe the Plumber, view the accumulation of wealth as an inalienable right as long as it's earned fair and square.
But do the super-rich really earn their wealth?
Financial wealth is a slippery concept especially as it slithers through a mountain of bailouts now running somewhere near $13 trillion. (TARP is a small part of the panoply of taxpayer financial guarantees for Wall Street.) Given that virtually every large bank would have gone under without our bailouts, how do we calculate who "earned" what?
For the three years prior to the crash, the 19 largest banks and investment houses "earned" about $300 billion, half of which went to bonuses. We now know that these profits came primarily from creating and trading financial instruments that turned out to have little or no value.
Supposedly, Wall Street's financial engineers "earned" their massive bonuses because they invented new ways to eliminate risk from complex securities layered on pools of incredibly risky debt. Wrong. When the risk returned with a vengeance, the $300 billion in profits turned into $300 billion of losses. The entire financial system froze and began to collapse a la 1929, causing trillions of dollars to disappear from our economy.
At this point the billionaire bailout society revealed itself as did the modern meaning of "earned wealth." When the financial sector imploded, the government bailed it out with our money. Obviously the earlier profits were phony as were the bonuses of the previous three years. (Did the bankers give back the bogus bonus money based entirely on fictitious profits? Hell no!)
It gets worse. After we poured our trillions into the financial system, the banks became profitable again, even as the rest of the economy suffered record unemployment. The banks, in fact, still are refusing to lend, which further drives up unemployment. Instead they are returning to risky trading practices, knowing the government will back them. To get free of pay restrictions, even the most troubled banks are quickly repaying their TARP money through a series of Ponzi moves. (See "Wall Street's Latest Ponzi Scheme: Bailout Repayments?")
Ok, you tell me: Who earned what? What value was really produced on Wall Street as our bailouts prop up the entire financial sector? Are bankers are actually "earning" anything at all? More to the point, are you really worried about redistributing wealth that derives entirely from this casino/bailout scam?
Our distorted wealth and income distribution, the worst since 1929, poses a clear and present danger to economic revival and to rebuilding a solid middle class. Here's one statistic from The Looting of America that still stuns me: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one! We didn't get there by accident.
Did these CEOs earn it fair and square? According to economic theory, that jump should reflect an enormous increase in their human capital. Did someone alter their genes to make them that much smarter? Does this reflect a miraculous jump in entrepreneurial skills?
The reality is much simpler. The rules changed.
From 1930 through the 1970s we understood that the key to America's well-being was a relatively compressed wealth and income distribution. Millionaires did not disappear, but during the Eisenhower years the marginal tax rate on those earning more than $3 million (in today's dollars) was 91 percent. Yes, there were loopholes galore, but the 1950s and 1960s are considered the most egalitarian years on record and working people developed into the world's largest middle class. This defined the American dream and it came about by design, not by accident.
During the deregulatory 1980s, the top tax rates dropped from 70 percent to 28 percent, while much of the New Deal's financial controls also were dismantled. You want to mint billionaires? That's how to do it.
Once the billionaire class was off and running, we faced a mounting series of booms and busts - from the savings and loan fiasco to the housing bubble. There was so much money at the top that the wealthy literally ran out of investments opportunities in the real economy. Wall Street, now unchained, did its job: It created fantasy finance securities to meet the unfulfilled investment demand.
If we don't get a grip on the demand -- billionaires' excessive wealth -- the casino will blossom again as Wall Street comes up with ever more sophisticated fantasy finance instruments. With billions of dollars at stake, they will find a way around the new regulations. You can bet on that.
This leaves us with two very problematic propositions:
First, the income distribution is so out of whack that progressive income taxes alone won't correct it. We also need wealth taxes on those with more than $500 million in net worth. (It's hard to make a case that anyone needs more than half a billion dollars.) Taxing 5 to 10 percent of this group's wealth each year would generate about $200 billion a year to help finance jobs programs and our growing debt. Also, it would help dry up demand for speculative investments
Second, we need to end casino banking: Instead of relying on a failed banking system and a new set of Rube Goldberg-like regulations, we should transform the 19 largest Wall Street firms (which control more than 60 percent of the nation's banking) into tightly regulated pubic utilities.
This is a frightening vision for libertarians, free-market ideologues, anti-government activists, Wall Street bankers and Joe the Plumber. But, if we truly value free enterprise in the real economy, we must seriously consider wealth redistribution and bank nationalization.
The alternative is more of what we already have: a billionaire bailout society with a hollowed out middle class.
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.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
Perhaps that's the core of the problem: wealth growing wealth, instead of societal opportunity.
Even a robber baron had to create a business that provided jobs, be it a railway system, oil production, or pork belly byproducts.
When wealth generation and accumulation is entirely possible without creating anything that adds to the job market (domestically) then how can that provide for a well-balanced society, economically? There would never be enough to go around.
Joe the Plumber represents the philosophy of middle class dreams. But hey - a plumber is usually a hard-nosed realist so even he must admit that as good as life looks for the winners, when there are too many losers in the picture, the market for a plumber dries up awful fast.
(Considering those empty brand-new subdivisions that will more than likely be torn down before they're ever sold.) The would-be "buyers" are out of jobs.
Good jobs needed to pay back debt, to even qualify for a realistic debt payment margin, the ratio of earnings to debt, assets to liabilities, is so blatantly out of whack, that it makes a complete joke out of our economy.
As Rick Wolff says in his lectures - the four decades of wage "extraction" from the middle and lower classes, then "lent" back to the wage slaves at usurious interest rates, is possibly the crime of the millenium.
I'm not a fan of wealth taxation - way too easy to avoid - what I think we desperately need is high, progressive capital gains taxation.
Laying down heavy taxes on divestment of assets should promote reinvestment - something that, unlike a company cutting low-tax dividends for their stockholders, will actually help the economy by developing infrastructure and creating jobs. Steady growing, stable investments would become more important than fantasy investments, and suddenly it becomes in the interest of the wealthy to help rebuild the ideal society that Reagan and company started to destroy in the 80s.
the author does hit the nail on the head though when he illustrates the ill gotten gains of the wealthy that are in reality subsidized by the taxpayers. if we want to put a stop to wealth inequality, eliminate the implicit government guaruntees. if a bank makes a series of bad decisions that render it insolvent, LET IT FAIL. if we continue to prop up failed institutions, we simply encourage them to take even greater risks the next time around and in turn need larger bailouts down the road, and we perpetuate the root of the problem which is overpriced assets. by letting institutions fall and debt to clear, we make things affordable for regular americans and in turn close the income gap through a natural process rather than through complex taxation strategies that will certainly be corrupted in the legislative process.
I have faith that those of virtue will be rewarded in the end.
The problems with the US economy are pretty simple:
Labor is underpaid, causing consumers to make up the difference with debt, expanding the funny money supply.
Corporations are undertaxed, causing governments to make up the difference with debt, expanding the funny money supply.
Sellers of debt ( which they invent from thin air, using the underpaid labor and the tax-starved governments as the collateral ) use proceeds from sale of debt to buy a whole world of real assets. Then they buy all the politicians and media they need to keep the whole scheme going.
I'm not looking forward to the hyperinflationary phase ahead, when all these people are shocked out of their stupors and forced to learn the 100 years of monetary reality they've been ignoring their whole lives... in a week.
"Wake up, kids! Time to take that red pill. Lesson One: In 1913, an illegal central bank was established, and real money began to disappear from the American landscape..."
People hit with that much cold water in the face all at once are bound to be disoriented, irrational and unpredictable. Hopefully, the types of strikes and demonstrations you speak about will materialize- but we are talking about Americans here, who rally around sports and not much else.
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If anything, they're far too pro-capitalist and pro-business. The stimulus, for instance, shouldn't have taken the form of contracted jobs for private firms, but instead government labor like similar programs during the New Deal.
I realize that for most of us old enough to remember when the middle class was growing in America, there is the fact that we have aged. There is always the tendency to look back on a past through rose colored glasses, that never really existed. But I do not think that my assessment is entirely skewed by the biological effects of aging. The statistics are pretty d@mn clear on what has happened.