Wall Street Still Near Full-Employment: How Can That Be?
Unemployment rose to 9.5 percent of the workforce according to the BLS. But, the effective jobless rate is 18.7 percent, if we use more exacting data formulated by Leo Hindery, chair of the Smart Globalization Initiative at the New America Foundation, with more than 30 million of us out of work or forced into part time work because of the lack of jobs.
We got into this mess because of a gigantic failed experiment that began in the late 1970s. The idea was to deregulate the financial sector and cut taxes on the super-wealthy. The sales pitch in favor of these changes was that we'd create an investment boom and improve jobs and incomes for everyone. Part of the experiment worked: Money gushed to the top fraction of one percent and certain kinds of investing did increase. But average wages after inflation actually declined so that today they are 18 percent lower in buying power than in 1973.
Instead of creating more and more investments in the real economy--the kind of investments that actually promote improvements in living standards--the money accumulated by the super-rich flowed into Wall Street and fueled an enormous fantasy finance bubble. Wall Street created synthetic derivative securities, often based on junk debt, that sucked up the wealth and added little or nothing to the real economy. But the bubble made Wall Street filthy rich. When markets finally realized how hollow the bubble was, prices collapsed and the banking sector froze. The real economy was starved for credit and pushed into a free-fall unseen since the 1930s. (See The Looting of America).
Not only did all boats fail to rise on the way up, but all boats are not sinking as fast on the way down. Contrary to media portrayals, Wall Street is still doing quite well compared to other sectors. We all know about the million-dollar bonuses financial management is paying itself out of taxpayer bailouts, but also consider the unemployment situation. According to the latest BLS data, the unemployment rate for "Financial Activities" was only 5.5 percent--that's the kind of unemployment rate most of us associate with boom times, not deep recessions. Meanwhile, construction workers face a 17.4 percent unemployment rate (and this is the building season), while 12.6 percent of all manufacturing workers were out of jobs. Even the "information" sector is suffering with a 11.1 percent unemployment rate. (Table A-11, http://www.bls.gov/news.release/pdf/empsit.pdf)
So why hasn't the crash devastated employment in the financial sector? One big reason is that we put the entire sector on welfare. We pumped in several trillion dollars of cash and asset guarantees to keep the entire sector afloat. You would think Wall Street would be thanking us all for taking the hit while they roll along. Nope. Instead they are doing all they can to gut each and every regulation that might protect us against their fantasy finance schemes. They are even mounting a full scale attack (using our resources) against the proposed Financial Consumer Protection Agency. (See "Redefining Chutzpah: Wall Street Uses Bailout Money to Kill Financial Consumer Protection Agency" at http://www.huffingtonpost.com/les-leopold/redefining-chutzpah-wall_b_224493.html)
When you step back and look at the arc of this, it makes you wonder about what our nation has become. We give the financial sector the keys to our economy, and they literally crash it so badly that we start to slide into a depression. Our real economy collapses and nearly 30 million workers suffer joblessness to greater and lesser degrees. We then are forced to bail out the financial sector and they are spared not just the worst of the suffering, but almost any degree of suffering at all. Then they take our money and fight against regulations that might protect us.
And yet the biggest protests we've seen so far come from the tea-bagger's brigade, shrilly decrying miniscule tax increases on the very, very rich. What's wrong with this picture?
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
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Thank you all for your comments and kind words. Also thanks for pushing me with some of your critical comments. Our research team is looking more closely into educational levels by sector to see how that might impact the unemployment numbers. Because the BLS doesn't seem to publish that data, we've contacted the agency to obtain the information. We'll keep you posted. If anyone would like to review "The Looting of America" for your web site, blog or publication, please let us know. We should be able to provide you with a review copy. You can contact us at LootingofAmerica.org or at les_leopold on Twitter.
Thank you Les. I enjoyed your article and especially enjoy the healthy discussion. Your feedback on the technoloogy sector versus financial services sector is interesting. I am not sure whether trends such as offshoring of technology jobs may have an impact.
I don't regret supporting Obama, but I am very disappointed in his efforts so far. I haven't benefited by his stimulus package, and I consider all the layoffs and loss of retirement funds/IRAs/Keoghs/401s very serious matters. When facing PAC/wall street-financed congressmen, Obama appears to be a paper tiger. For so many of us who worked to put him in office, hope is not on the horizon.
How can it be that W.S. stays near full employment? One minute the system is on the verge of collapse, and the next moment W.S. is swimming in dollars. If I hear one more time that the W.S. bonuses are justified because we must keep "that talent", I'll get physically ill. We middle class taxpayers have been extorted beyond any precedent in history.
Despair appears to be rolling through the country like a fog, and no amount of Hollywood Happy Faces or TV escapism can control it. I keep hearing the voice of Gordon Gekko--the hostile takeover character in the 1987 film "Wall Street." He smiled and spit out his mantra, "Greed is good!"
As an aside, a few years ago when Bush Jr. failed to get his agenda of tying the U.S. Social Security program to the stock market, I believe his W.S. financiers said, "Okay, we'll go to plan B--bailouts for wall street." And so it goes...
Keep up the good work, Les.
Obama, Summers and Geithner are very magnanimous with taxpayer money.
Obama has guaranteed bankster compensation packages.
Obama has virtually abandoned the average middle class family and totally abandoned small business.
I guess that Axelrod and Emanuel figure that either the middle class is too stupid to notice or the Republicans will put forward another duo like the geriatric mariner and Alaskan wingnut instead of a real pair of politicians.
Well said iridium53
I regret supporting Obama, and have never voted Republican.
Obama/Geitner/Summers/Paulson are all in the pocket books of Wall St. and they are helping
Wall St. steal trillions "through the too big to fail and if we dont fail them we'll have total chaos"
con job.
Obama/Geitner/Summers/Paulson are providing protection to the rotten eggs at the top at Wall St. and in exchange Obama/Geitner/Summers/Paulson will get hundreds of millions of dollars in consulting/board positions after their terms are over.
While the Republicans favored different bands of crooks, this current Democratic set of
politicians are in bed with the crooks at the top at Wall St. among others.
typo in my previous post
was .. " the too big to fail and if we dont fail them we'll have total chaos"
should be: "the too big to fail and if we dont *bail* them we'll have total chaos"
What is more galling than the salaries and bonuses of the Wall Street crowd is the way they, and their minions in the teabagger movement, complain about paying their fair share of taxes.
When housing prices skyrocketed, so did property taxes, and Repcons wanted to legislate caps on property tax increases.
Income from labor is taxed as high as 37%, yet income from capital is taxed at only 15%.
One article somewhere said 18000 corporations in the US use a single address in the Cayman Islands to avoid their fair share of taxes.
Obama's stimulus included the largest middle class tax cut in US history, not one Rep in Congress voted for it.
Capitalism is the new welfare and conservatives are the new welfare cheats.
All politics and business are personal. As the long line at the market inched forward (not enough staff, clerks laid off), the gray-haired woman in front of me commented that this would be the first time in her life that our town would have no 4th of July fireworks display. Last January, seemed like the prudent way to avoid police and firemen layoffs. Today, not so much. My kids aren't coming down for the 4th. Traffics too heavy, no fireworks, and my son got laid off last week. When I got home from the store, I found the latest copy of Architectural Digest waiting for me. Glossy pages filled with exotic and incredibly expensive homes. Trouble is, I never subscribed to it, a little too rich for my blood. But when the great magazine, House and Garden, went out of business, they sent me Architectural Digest. Death by a thousand cuts.
gosh..I sooo need to win the lottery. I actually work for a mega financial firm..and am days from "pink slipville". See, I'm not a derivatives trader or a suit that pulls in $600,000 plus a year basically firing people. I'm the little guy..(scared to death as I'm 54 and just completed major cancer treatment...). I've told the suits.."I'll do anything.." and drove to an open position, 40 miles away..and when I arrived, the poor broker wanting to hire had JUST gotten a call "you can't fill the position"..and it's not like I'd be a new hire..I've worked for this firm for 5+ years (well..not this firm..we've been bought twice in the last 2 years...thanks for taxpayers bailout and now..what a mess)... Sadly, the rich will simply get richer..and I (considered middle class)...now face something I never saw coming...yet the CEO still pulls in his high six figures... I do believe Obama is naive in these matters; has NO clue about the inbred greed and manipulation in the big banks/investment firms. Yes..Glass Stegall MUST come back..but that will be a small step. Hell..I'd let Madoff out of prison just to make room for the CEO of Goldman or JPMorgan or AIG....Lehman... I am so angry..and don't like the emotion. I am, however, so proud of the HartMarx workers who took over their plant...and saved it from foreclosure...
why? because we bailed them out.
Indeed. Wish we could do something about this.
We can. Don't invest on Wall Street. Buy Treasury bonds and/or certificates of deposit. Pay off your mortgage, if you have one. And start insisting that state pension funds NOT invest in Wall Street stocks, bond, index funds, etc, but only in Treasury bonds.
i dont want to lend money to my govt !! therefore i dont invest in treasury bonds either !!
Yes, welfare for the wealthy is the only entitlement program left intact. Thank you Democrats! And Republicans. They don't look much different to me these days.
Can't WAIT for that Healthcare "reform" thingy.
Why does a person feel they need all that money? Is it because in this world having great wealth is as close to "godhood" as it gets? What do the liars, looters and murderers on Wall Street do with all that wealth? Do they live lives of total debauchery? What do they talk about when they get together?
I remember the late John Gotti's assistant, Sammy "the Bull" Gravano saying that every waking moment was spent discussing ways to make money. What is apparent is greed has driven out any semblance of a conscience, accountability and even hope out their aging, temporary bodies. After all who needs hope when you have all that money. Their day is coming.
It's a class war. We are losing. If everyone gets angry enough, maybe people will actually do something about it. Whatever that is, it will have nothing to do with politics or voting. The new administration has proven that avenue of recourse to be closed.
This article glaringly avoids a major factor: education.
The Bureau of Labor statistics for unemployment broken down by education level for June, 2009 are as follows:
No high school diploma: 15.5% unemployment.
High school diploma: 9.8 % unemployment.
Bachelor degree or higher: 4.7%
Virtually no Wall Street workers fall into the "no high school" or "high school" categories.
The author has cherry picked some statistics.
http://www.bls.gov/news.release/empsit.t04.htm
You are cherry picking yourself. The unemployment rate amongst college graduates and amongst those over 45 with degrees are higher than your averages posted. Your stats are skewed.
Your argument is flawed. How can you claim I have cherry picked statistics by arguing that my statistics are incorrect.
The link attached from the Bureau of Labor backs up my statistics. Do you have a source that indicates otherwise? I would like to see it.
As are the rates for tech, skilled and engineering in manufacturing - which are also higher than the cherry picking above indicates
How can the college grad stats be skewed? They are right off the BLS data. Talk about cherry picking....
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I tried to address this issue in a comment below. The financial sector caught a huge break that can't be entirely explained by educational levels. BLS Table A11 gives us June to June numbers. Financial activities, which has about 7.7 million employees, lost 176,000 jobs. Information services which is a much smaller sector (2.8 million workers) lost 190,000 jobs. Professional and Business Services (16.6 million employees) also has a large number of BAs. It lost 690,000 jobs. And of course manufacturing got clobbered. It has 16.6 million workers and lost 1,148,000 jobs over the last year. It still seems to me that the disparities have a good deal to do with TARP and the several trillion dollars worth of explicit and implicit federal guarantees of questionable assets.
Furthermore, we're not dealing with a crisis related to skill and education problems. This deep recession was caused by a financial crash that sent the real economy over a cliff. Entire sectors have been hit in ways that can't be explained by education and competitiveness.
I hope you take a look at "The Looting of America." I'd appreciate your comments
"Furthermore, we're not dealing with a crisis related to skill and education problems. "
I disagree strongly. There's a very specific relationship between the current crisis and certain kinds of "skill and education."
See "Enron: The Smartest Guys in the Room".
This whole crash was rigged by MBA's and accountants - just like Enron, just like the dot.com bust, just like the mutual funds market timing/late trading scandal,
... the savings & loan scandal, the BCCI scandal, the NASDAQ scandal, Drexel Burnham Lambert, Long Term Capitol Management
... the list is endless, but all of them have the same common denominator - MBA's and accountants, all men with certain types of "skill and education" conspiring to defraud anyone and everyone.
Our government did not sleep while this happened, we did. Alan Greenspan and George Bush are Ayn Rand followers. Her basic premise was 'only self interest is important.' Compassion is a fault.
We also need to place a significant amount of blame at the feet of Christopher Cox, the head of the SEC through this debacle. He believed in non-regulation.
We need to realize that people who say "Government is the problem" are lying to us. Government regulation is only a problem for Wall Street Privateers. It is not a problem for the middle class. It is the solution for the middle class.
There are six changes/regulations we need now.
1. Dismantle the big Wall Street firms. No more too big to fail.
2. Reinstitute Glass-Steagel
3. Completely reform the SEC. They have proved themselves incompetent.
4. Require Wall Street to carry more reserves so they can fail without huge repercussions.
5. Place all owner occupied mortgages in the hands of Fannie Mae and Freddie Mac.
6. Lower 30 year fixed interest rates to 3%. That will stop the falling housing values, put some cash in the hands of the middle class, and start the economy moving again.
who is going to mandate these steps? not the congressmen in office now.
so renumber your list, and make #1: hire trustworthy representatives for every state.
how do we start that movement? is there a website listing which congressmen currently in office are worth keeping, and which must be tossed out? is there a means to identifying people with the ability to represent the working class so we can vote for them??
the first step must be taking Congress back from the elite. the only power the working class has is its size. the ballot is where we must use it, legally. the only other option is revolution.
I think the problem can be boiled down to the fact that the US defines itself solely by Wall St.s success or failure. We are told we can only survive if they are made whole and rewarded for their mistakes. While the average citizen is told to suck it in and take it on the chin with a grin.
We are no longer known for our Constitution or personal freedoms and protections. We sacrificed all that at the altar of Wall St. long ago. Remember Katrina I think we all found out how important the lives of the average citizen were then.
Read the story on Goldman Sachs in Rolling Stone, watch the documentary on Enron. We've been duped and we just keep falling for the same lies.
http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine/print
http://www.imdb.com/title/tt0413845/
It's very simple. It is fairly cheap to buy a few hundred politicans off. Much cheaper than a just society. The problem is, that all parisites suffer when they kill the host they are feeding on. We worker bees are being bled dry. So many have collapsed and fallen while the big wheels roll in money. They think they are smarter than us, and they are, because they get away with it. End of story.
really-- if you think about it a depression like this may just be the rich eliminating the populace it has no use for. they only need so many of us and once enough wealth is concentrated in few enough hands the excess population will be left to starve. it is just the market "working"
I believe the Trilateral Commission already has those plans. Read Stephen King's "the Stand" here lately????
That's why, in spite of of the US going thru economic meltdown for the majority of the citizenry, we still have the good ol' taxpayer funded wars and NASA, ( see: http://www.networkworld.com/news/2009/063009-nasa-moon.html?hpg1=bn) looking for a place to #1 get more energy/maybe water, for the wealthy..or #2 - flee the planet they've killed.
If there really IS intelligent life in the Universe, I doubt they will allow such a killer species into their THEIR neighborhood......would YOU?
Let's talk about our politicians. Start with the 27th Amendment to the Constitution.
No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.
What does that mean?
I'll tell you what it means. It means ABSOLUTELY NOTHING!
You see, Congress doesn't pass laws "varying the compensation" of Senators and Representatives. They don't have to. They took care of that in the "Ethics Reform Act of 1989" that grants Senators and Representatives an AUTOMATIC Cost Of Living Adjustment to protect them from the ravages of inflation.
The interesting thing about the formula is it's NOT the same formula that applies to Social Security and Federal (military) pensions. Those are tied to the CPI which is finagled to REDUCE the official rate of inflation and rise in cost of living.
In addition to CPI data, the Congressional formula also takes into account increases in private-sector salaries.
In other words, those outrageous salaries paid to Wall Street thieves are part of the calculation when it comes time to calculate the AUTOMATIC ANNUAL PAY RAISE for Congress. No wonder Congress was so reluctant to restrain compensation for TARP recipient institutions.
Congress can vote to NOT take the automatic raise. The Senate voted this year to end the practice. The House voted to skip next years raise.
Never the twain shall meet.
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