What a great year for Wall Street: profits up, bonuses up and, best of all, criticism down, especially from Washington. Somehow Wall Street has much of America believing its lies and rationalizations. We're even beginning to forget that Wall Street is largely responsible for the economic mess we're in.
So before we're completely overtaken by financial Alzheimer's, let's revisit Wall Street's greatest fabrications for 2010. (For the full story, please see The Looting of America.)
1."Honest, we didn't do it!"
Two years ago Wall Street's colossal greed crashed our economy. Our financial elites created and spewed highly leveraged toxic assets around the globe. These poisonous "innovations" pumped up the housing bubble and Wall Street grew insanely rich in the process. When it all burst, we learned that the big Wall Street institutions that had caused the crash were far too big to fail -- and too connected. High government officials came to their rescue with trillions in cash and guarantees -- underwritten, of course, by we taxpayers. Everyone knew this at the time. But if you asked just about anyone on "The Street" they denied all culpability and pointed the finger everywhere else: Fannie, Freddie, the Fed, the Community Reinvestment Act, tax deductions for home buying, bad regulations, not enough regulations, too many regulations, too much consumer debt, the rating agencies, the Chinese -- and on and on. Sadly, their blame-shifting strategy worked, bamboozling the media and people across the political spectrum. The GOP members of the Financial Crisis Commission are so drunk with this Kool-Aid that in their minority report, they refuse even to use the words "Wall Street" or "speculation" in assessing the causes of the crash. Hypocrites? Crooks? Morons? Take your pick.
2."The overall costs will be incredibly small in comparison to almost any experience we can look at in the United States or around the world."
Ever since Treasury Secretary Timothy Geithner screwed up his tax returns we knew he was numerically challenged. But his statement to Congress on December 16, 2010, on the cost of the bailout shows a willful inability to count. Yes, Wall Street has paid back most of our bailout funds. Whoopee! Our economy is in shambles, and millions of people are suffering. With his offensive "no big deal" analysis, Geithner glosses over all this human misery, and sidesteps the hidden costs of the bailout, including the financial insurance we taxpayers provided to every giant financial company in the country via the Fed. On the open market, that insurance -- which guarantees trillions of dollars in toxic assets -- would come at a very steep price. We coughed it up for free. But that's still chump change compared to the human costs of the worst employment crisis since the Great Depression -- the lost income, the depleted savings, the ravaged neighborhoods. Then there's the capsized state and local budgets, the public service reductions, the laid off teachers, firefighters and police officers -- all resulting from a plunge in public revenues caused by Wall Street's crash. Why aren't these costs on Geithner's balance sheet? A cynic might think Tim was priming us to accept the latest round of Wall Street bonuses. Hey -- they paid us back, so why should we care how much they earn?
3. "It's a war. It's like when Hitler invaded Poland in 1939."
Steven Schwarzman is supposed to be brilliant. After all, he made billions as head of the Blackstone Group, a private equity company and hedge fund. But last August, as some members of Congress mulled about eliminating a very lucrative tax loophole, he suffered a mental meltdown and saw an impending Nazi invasion. But the awful attack never happened. Schwartzman and his fellow hedge fund honchos all held onto their unbelievable tax break: Hedge fund and private equity income is still only taxed at 15 percent rather than at the top income tax rate of 35 percent. (That's because, inexplicably, it's considered "capital gains," not income.) Taxing Schwartzman's income as income would cost him hundreds of millions of dollars -- and the prospect of this apparently triggered a shock spasm that catapulted his foot into his mouth. I'm sure my IQ isn't high enough to keep up with the genius logic behind Steve's analogy. But just who is Hitler and who is Poland in his scenario? Maybe in his grandiose conceit, his firm is as big as Poland? Or it would require a Blitzkrieg to wipe out his tax loophole? In reality, even if Schwarzman had to pay a 90 percent tax rate (as he would have under Eisenhower), it would hardly have been a hardship -- let alone World War 3. He'd still have more money than he could ever spend in his lifetime. Schwarzman should be proud though: He gets 2010's Dumbest Wall Street Quote of the Year Award. Bravo! (In 2009 the honor went to Lloyd Blankfein, CEO of Goldman Sachs, who claimed he was "doing God's work.")
4. "The hard truth is that getting this deficit under control is going to require some broad sacrifice, and that sacrifice must be shared by employees of the federal government."
But not by Wall Street. President Obama words of November 29th came only days before he "compromised" with the Republicans to continue the Bush tax cuts for the super-rich and to bestow an enormous estate tax gift to the 6,600 richest families in America. Mr. President, the "hard truth" is that you're slapping around public sector workers because you don't have the nerve to take on Wall Street. If you had the guts, you could raise real money by going to war with Steven Schwartzman and eliminating the hedge fund tax loophole. By the way, closing that loophole for just the top 25 hedge fund managers would raise twice the revenue than you'll get by freezing the wages of all two million federal workers! (See "The Wall Street Tax Debate that Never Was" )
5. "25 hedge fund managers are worth 658,000 teachers."
Nearly everyone on Wall Street sincerely believes that they are "worth" the enormous sums they "earn." You see, their pay is determined by the market, and markets don't lie. They reflect the high value our skilled elites bring to the economy. So we shouldn't be shocked that the top 25 hedge fund managers together "earn" $25 billion a year, even at a moment when more than 29 million Americans can't find full-time work. The outrageous economic logic of Wall Street compensation has those 25 moguls taking home as much as 658,000 entry level teachers (they earn about $38,000 per year). How can that be justified? It can't. These obscene "earnings" are the product of 30 years of financial deregulation, as well as the tax cuts and tax loopholes that our government has just extended. The hedge fund honchos get most of their money by siphoning off wealth from the rest of us, not by creating new value. I dare Wall Street to prove otherwise.
6. "To bolster the economy we need .... an improvement in the relationship between business and government (the current antagonism, even if not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior)."
In this op-ed, Peter Orszag, Obama's former budget director, parrots the Wall Street line that employers aren't hiring because of "regulatory uncertainty." Mother of God, how much more certainty do they want? The Republicans and Blue Dog Democrats aren't about to let Obama seriously regulate Wall Street, even if he wanted to, which he doesn't. The truth is that employers aren't hiring because there's insufficient consumer demand for goods and services. But at least Peter Orszag is a man of his word. He personally plans to "improve the relationship between business and government" by tapping his government contacts at his new fat job at Citigroup, the nearly failed mega-bank that he helped to save at taxpayer expense. Orszag could have landed a coveted professorship at just about any university in the world. But apparently the 42-year-old wiz kid prefers Citigroup's multi-million dollar compensation package. Any bets on how long it takes for Larry Summers to cash in?
7. "Lengthened availability of jobless benefits has raised the unemployment rate by 1.5 percentage points."
You see, the unemployed cause their own unemployment, at least if you believe this assessment from a March 17th research note from JP Morgan Chase. (Next, Wall Street will call for a return of the Poor Houses.) The theory is simple -- you give people money not to work and they won't look for jobs. Still, it takes chutzpah for JP Morgan Chase, the beneficiary of billions of dollars in taxpayer largess, to criticize the unemployed for not finding jobs that aren't there, precisely because JP Morgan Chase helped to destroy them! Dear JP Morgan research staff: Five to six workers are now competing for every available job. If that's too complicated for you quants to grasp, maybe you should try a game of musical chairs in the trading room.
8. "Private employers, led by our revitalized financial sector, will create the jobs we need -- that is, if the government would just stay out of the way."
We now need 22 million new jobs to get us back to full employment (5 percent unemployment). In addition, each month the economy must generate another 105,000 jobs just to keep up with new entrants into the workforce. To get to full employment, the private sector would have to create about 630 firms the size of Apple (35,000 employees each). These numbers don't lie. Does anyone on Wall Street really believe that the private sector alone can pull off this miracle? But really, why should they care? They've got theirs, thank you very much. The painful truth that both Wall Street and Washington refuse to face is that if the big, bad government doesn't fund or create millions of new jobs, we'll face crippling unemployment for decades to come.
9. "Tim Geithner extolled 'the benefits of financial innovation' to the American economy." (Wall Street Journal, August 4, 2010)
Sorry to beat up on Tim again, but it's sometimes hard to tell who he's working for. Whenever you hear the phrase "financial innovation" put your hand on your wallet. That's the phrase Wall Street uses to justify its casinos and its outlandish profits and bonuses. People who talk about "financial innovation" are either getting big bucks on Wall Street, want more bucks on Wall Street, or hope to get a job on Wall Street the nano-second their public service ends. My question for Tim is: If Apple creates iPhones, what does Wall Street create? Warren Buffett says it creates "financial weapons of mass destruction." Paul Volcker, Reagan's Fed Chair, said there is not a "shred of evidence" that "financial innovation" is beneficial. Volcker also believes that the economy "was quite good in the 1980s without credit-default swaps and without securitization and without CDOs." Volcker gets the Smartest Wall Street Quote of the Year Award: "The most important financial innovation I've seen in the last 25 years is the automatic teller machine." How could Tim get it so wrong?
10. "I'm shocked, shocked to find that gambling is going on in here." Okay, okay, Claude Raines said that in Casablanca, not on Wall Street. But Wall Street and its defenders say exactly the same thing about their opaque derivatives games. Louise Story's excellent piece in The New York Times shows how a handful of banks have cornered the market clearinghouses for derivatives - entities that are supposed to make derivatives less risky. The big banks are limiting competition, according to Story, because they "want to preserve their profit margins, and they are the ones who helped write the membership rules." Meanwhile, Wall Street is quietly pushing to exempt its most profitable derivatives from even these rigged exchanges. So don't be "shocked, shocked" when Wall Street crashes again and we're asked to foot the bill. And that's when, not if.
*****
Dear Readers, here's to a Happy New Year and a more just 2011. Many thanks for all your support.
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. He is currently working on a new book, How to Earn $900,000 an Hour: The Rise of Wall Street Billionaires and the New Class War, (hopefully to be published in 2011).
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
1. The people who bought mortgages they could not afford created the problem.
2. The recovery that never was.
3. The unemployment numbers
4. Quantitive easing will solve the problem.
What is it about you that's OK with bureaucrats and regulators pushing you around, rather than being left to make decisions for yourself? Wouldn't you rather have full disclosure and the freedom to make up your own mind, or you OK with unleashing the corrupt, inefficient police power of government into your life, whenever and wherever it wants, restrained not by you, but by your local politician, who WORKS FOR THE GOVERNMENT!
Blows me away, why'd we fight the revolution if "progressives" want to hand back hard-won freedoms to the tyranny of the few, Big Government?
Want your government back? Then get it to BACK OFF OUR BUTTS, we've let politicians run amok with government, running the show in our private lives and business, NOT what the founders envisioned for a LIMITED government. After all, they fought a war for INDEPENDENCE, not DEPENDENCE!
Your diatribe against Big Business and Big Finance needs a whole lotta perspective: I agree we got problems, but much of it happens because WE LET GOVERNMENT STICK ITS NOSE IN RUNNING THE SHOW: FNMA and FHLMC federally chartered a politically protected to run home mortgages, and cover for the disastrous No Cash Down and Subprime MOrtgage fiasco (Hello Barney Frank and pals?), which NEVER woulda happened to the huge extent it did without their cover, and selling the crappy high-risk loans to the unsuspecting public under their GOVERNMENT-COVERED AAA CREDIT RATING (hey, they're federally chartered, think politicians are gonna let them fail? NO WAY, POLITICIANS ARE ALREADY LINING BOTH UP FOR A HALF-BILLION BAIL-OUT, WHAT A SURPRISE, no wonder private investors bought their loans, THEY KNEW POLITICIANS WOULD BAIL THEM OUT!).
C'mon, think it through, sure we need government to set standards, but NOT run the show. EG, San Carlos, a town nearby me in Northern California, is cutting its budget deficit by OUTSOURCING POLICE SERVICES to private agencies! Same can be done with half all government jobs in this Big Union state, that would balance the budget by bringing parity to pay grades, and cut back the outlandish pensions paid by Big Government to Big Government unions, all on our taxpayers backs, of course.
Very simple, if you think it through.
Let's try some real research in place of hyperbole. Please take a look at this: http://www.demographia.com/db-xsales2005-6.htm
If you care to notice, those states that had heavy regulations regarding the financing of homes dropped off their sales dramatically by 2005. Those that didn't have such regulations continued to pump out sales at dramatic increases.
Since the banks were lobbying for lower rates and fewer regulations so they could dump high interest loans into their various mortgage backed securities, which do you think they preferred?
And I've been in the collateralized mortgtage backed securities business since its inception in the 90's, NO banks "dumped" high interest rate loans into mortgage backed securities pools, high interest rate loans were generally HIGH RISK and rated, priced and sold as such, in separate tranches, so that margins for banks weren't any higher at the securities sales than for "A" quality low interest rate loans. The Wall Street bubble happened because FEDERALLY CHARTERED AND POLITICALLY PROTECTED FNMA AND FHLMC, both of which have DIRECT ACCESS TO TREASURY FUNDS COURTESY OF THEIR FEDERAL GOVERNMENT CHARTERS, and which own about half of all residential mortgages in the country, set up the overpriced market for high risk No Cash Down and Subrime Mortgages, all protected by FNMA and FHLMC "A" Credit ratings when bonds sold to the unsuspecting public!
Sure we would've had a small spike in these risky mortgages, until real world experience caught up with them; but GOVERNMENT COVER, INTERVENTION AND COVER-UP MADE THE WHOLE EXPERIENCE EXPONENTIALLY WORSE, as it always does!
It's not about government employees: it's GOVERNMENT ITSELF, beholden to politicians, too big to fail, like the 500 lb. gorilla. No anti-trust laws or consumer competition, like companies, to keep it in line. Government running the show, if unchecked, is misery and disaster, as show in history: Hitler's Germany, Mao's China, Lenin and Stalin's Russia, Fidel's Cuba, Kim's North Korea, Robert Mugabe's Zimbabwe, Islamo-fascist, Iran, over a hundred million people dead!
Get rid of "heavy regulations", keep our individual freedoms, let people decide for themselves.
If I can't pay the mortgage, then I'll rent until I can own again. What's the problem with THAT?
"Reed estimated that the financial deregulation proposals contained in the Dodd-Frank bill and other reforms of the Obama administration represent only 25 percent of the change needed.
The failure to provide serious regulation of the financial industry to avoid future downturns is documented in devastating detail in that Dec. 28 Bloomberg report, written by Christine Harper:
"The U.S. government, promising to make the system safer, buckled under many of the financial industry's protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives."
The reason for that failure is obvious from the president's choice of advisers featuring Rubin acolytes from the Clinton years. Harper writes: "While Obama vowed to change the system, he filled his economic team with people who helped create it," referring to, among others, Timothy F. Geithner, who had gone from the Clinton Treasury Department to head the New York Fed, where he presided over the salvaging of Citigroup and AIG. As Obama's treasury secretary he was quick to appoint a Goldman Sachs lobbyist as his chief of staff. Geithner's subservience to Wall Street was reinforced by White House top economic adviser Lawrence Summers, Rubin's deputy and then replacement in the Clinton administration who pushed through the repeal of Glass Steagall and fought against the regulation of derivatives."
Les Leopold's blog, like Scheer's, points the direction this country is headed and soon there will be no criticism allowed of the system where wealth in any form is considered THE acceptable definition of an American citizen. As Krugman said, in an op ed piece today, welcome to the banana republic.
Inserting Big Government into running the financial markets with TOO MANY REGULATIONS, PANELS, MANDATES, AUDITS, ETC. results only in...cronyism, politicians getting involved, payoffs, protection, etc.
Government's role is set standards, NOT "let a thousand regulators, regulations and politcians bloom", didn't work for Mao, won't work here.
We're a government of LAWS, not men; throw regulations and regulators in our face, government and the rule of the few takes over.
That what "progressives" want? If so, then why'd we fight the revolution? What does life, LIBERTY and the pursuit of happiness, mean? Are our unalienable rights not endowed by our creator, part of our basic human nature, but instead granted by a panel of self-anointed experts running the government?
Now bankers are only fined for crimes such as laundering drug money:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=asU.b_fCjHTE
Wachovia's Drug Habit - Bloomberg.com
"...The bank didn’t react quickly enough to the prosecutors’ requests and failed to hire enough investigators, the U.S. Treasury Department said in March. After a 22-month investigation, the Justice Department on March 12 charged Wachovia with violating the Bank Secrecy Act by failing to run an effective anti-money-laundering program.
Five days later, Wells Fargo promised in a Miami federal courtroom to revamp its detection systems. Wachovia’s new owner paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009..."
R.I.P., Lady Justice.
http://www.kaptur.house.gov/index.php?option=com_content&task=view&id=502&Itemid=86
November 3, 2009: Kaptur Introduces Legislation to Beef Up FBI Anti-Fraud
'The bill is known as the Financial Crisis of 2008 Criminal Investigation and Prosecution Act.
“Due to crippling personnel limitations, the FBI has been unable to assign sufficient agents to investigate the current global financial crisis, despite having identified the ‘epidemic’ of fraud in the mortgage markets as early as September 2004,” Kaptur said.
The bureau had substantially more personnel and resources to investigate the savings and loan crisis in the 1980s, Kaptur said, even though the 2008 crisis is significantly larger and more widespread.
“Given the magnitude of the current crisis, the resulting job losses, and the billions of taxpayer dollars spent to keep the financial system from collapsing, the FBI should have no fewer than 1,000 agents to attack fraudulent activity, uncover any crimes committed, and bring the perpetrators to justice.” '
To end regulatory capture, regulators need to be incentivized by a "bounty system" that provides lavish rewards for regulators and whistle blowers.
2. Without the bailout (which most banks paid back...with interest), the situation would be much worse
3. Agreed, idiotic comment. However, rich Americans love skirting taxes. If you increase the tax rate on the ultra-wealthy, they will just find away around it and/or take their taxable assets elsewhere.
4. Again, the more the gov't tries to tax the ultra-wealthy (which pays the largest share of tax revenue), the less net taxes the gov't will take in. It will be counterproductive
5. If a hedge fund manager can make his/her clients $2 billion in a year, why should he/she not be compensated with 20% of that? The clients are still $1.6 billion better off than they would have been.
6. The more expensive it is to run a business in the U.S., the more businesses (and jobs) we will see moved to less expensive jurisdictions.
7. I largely agree with the author on this one.
8. I also largely agree - gov't jobs aren't necessarily bad. In the end, they are jobs.
9. Mostly agree. Some financial innovations were good (eg original concept of mortgage securitization). But innovation went too far.
10. Undecided on this one. There will arguably be less spread to make in derivatives when they are exchange traded. In that sense, big banks will make less.
You like so many others don't seem to understand that the "Bailout" was more than just the $700 billion spent on TARP. What about the trillions of dollars the FED spent overpaying for toxic assets from failing financial institutions to keep them solvent? What about the trillions of dollars the US Treasury has spent overpaying for preferred shares from failing financial institutions to keep them solvent? Through TALF, TARP, PIPP, and all the other programs that were created to insure the banks debts are totaling close to $20 TRILLION DOLLARS!!!!!
The institutions like Goldman Sachs, Bank of America, General Electric, etc are no where near paying it all back with interest. They would have to buy back all the toxic assets from the FED at the same price the FED purchased them and some interest. If congress passed legislation to force this, the large banks would be screaming "Nationalization" and all the dummies would buy into it like the already have. What a shame....
You complain about evil Financial companies, ever think how they got in as big trouble as they did? Because of GOVERNMENT CRONYISM, government meddling is so pervasive Big Banks, GE, GM, etc. figured they'd get bailed out, so WHO CARES about shoddy business practices, selling GM's future out to greedy Big Labor, selling cars 25% higher than consumers will pay then financing the purchase, figuring again the government will bail them out of their receivables mess. Ever count the number of Wall Street bankers working in government?
The solution: GET GOVERNMENT OUT OF REGULATING THE CRAP OUT OF BUSINESS, set standards sure, but NOT monthly audits of bank loan files, let banks comply, if they violate the law they're accountable. Also, no GOVERNMENT insurance for deposits, PRIVATE insurance only, that's ANOTHER reason we've got Big Government cronyism with banks.
Very simple, if you think it through.
We keep on ELECTING professional, lobbyist-controlled, dual-loyalist politicians to US Congress and to our State governments. Moreover, we allow the MSM to do the thinking for us. Lastly, if voting does not work, how about peaceful rallies, demonstrations, just like the civil rights movement rallies in the 60's, anti-war demonstrations in 60's, etc.
http://www.amazon.com/Golden-Rule-Investment-Competition-Money-Driven/dp/0226243176
Golden Rule: The Investment Theory of Party Competition and the
Logic of Money-Driven Political Systems (American Politics and Political Economy Series
"To discover who rules, follow the gold." This is the argument of Golden Rule, a provocative, pungent history of modern American politics. Although the role big money plays in defining political outcomes has long been obvious to ordinary Americans, most pundits and scholars have virtually dismissed this assumption. Even in light of skyrocketing campaign costs, the belief that major financial interests primarily determine who parties nominate and where they stand on the issues—that, in effect, Democrats and Republicans are merely the left and right wings of the "Property Party"—has been ignored by most political scientists. Offering evidence ranging from the nineteenth century to the 1994 mid-term elections, Golden Rule shows that voters are "right on the money."
Independent and third-party candidates have a BIG obstacle: ballot access laws that are written to protect the two-party duopoly:
http://www.freeandequal.org/videos/free-equal-ballot-access-movie/
Free & Equal Ballot Access Movie
http://rangevoting.org/Strangle.html
RangeVoting.org - Stranglehold of 2-party domination
There was more turnover in the Soviet Politburo than in the U.S. Congress
The remaining populous (the 98%ers, if you will) have a distinct advantage in the only other possible alternative. I am, personally, not a big fan of France, but at least on one occasion, they got it right.
Now THERE's a nation of "producers", busting their butts so half the country can cash checks for doing nothing.
It'll work well here, too, won't it? Good luck convincing the producers to stick around.
The article however does not tell us what are the solutions. What should be done to restructure the American economy, end the too big to fail corporations, and put the millions of Americans back to work?
Fortunately, the answer is simple, too simple: the breaking up of the corporate structure: once a corporation reaches a given size, it needs to be broken up to small pieces. But since America is ruled by corporation, to carry out the above prescription would be impossible without massive upheaval and displacements.
Get over the concept of government killing liberty.
Wall street bought government years ago (sometime during the Reagan regime years) and have yet to relinquish the reins.
But, maybe that will come to an end.
Meanwhile, you seem to agree with 25 hedge fund people earning $25 Billion being a good thing even though people who REALLY work for a living, produce something of REAL value are broke and being passed on by those higher ups.
I suppose you are also one of those dolts who think that the rich shouldn't pay any more taxes than they do, even though they have access to and use way more resources than poor people.
Your moniker is a misnomer.
You're not for Liberty.
You are for something much worse.
"Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible. When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers. This truth is well known among our principal men now engaged in forming an imperialism of Capital to govern the world. By dividing the voters through the political party system, we can get them to expend their energies in fighting over questions of no importance. Thus by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished." USA Banker's Magazine, August 25 1924
Of course the key to this operation was espoused in 1790 and realized in 1913 with the formation of the privately owned and operated FED.
"Permit me to issue and control the money of the nation and I care not who makes its laws." Mayer Amsched Rothchild
http://www.globalresearch.ca/index.php?context=va&aid=22395