The state of play:
- One in ten American workers remain unemployed.
- Millions have been evicted from their homes.
- Tensions are erupting in state capitals over budget deficits and threats to terminate thousands of school teachers and other public employees.
- America has a record federal budget deficit, while the real economy continues to struggle.
It's not a pretty picture...but what's one common denominator? Excessive Wall Street pay.
Two weeks ago, the New York Comptroller's office released its annual report, showing that average compensation rose 6 percent for New York City's Wall Street workers. Not surprisingly, bonuses topped $20 billion.
To sustain their endless money machine, Wall Street must constantly attract brilliant young minds from the best academies. And they do this well--the average pay in 2009 for the top 25 hedge fund managers was $1 billion each. And to keep the money rolling, these brilliant minds must discover ways to extract ever greaster fees from the real economy, the one that actually produces food, clothing and shelter.
So the bankers addicted us to easy credit, and went on to convince many Americans to purchase homes beyond their true financial reach. This idea proved a bonanza for Wall Street, as mortgage origination fees swelled bank coffers, and securitization of those loans generated more fees.
And this translated into still more bonuses for bankers.
When eventually many of those expected mortgage payments went missing, the dominoes crashed in the tragic meltdown. As financial leaders calculated they couldn't let another bank fail, they asked Congress for $700 billion in TARP funds to prop up the likes of AIG, although nearly $200 million of this funding of course helped to pay bonuses.
Meanwhile, the Americans who were struggling to make those mortgage payments cut other spending. Since the real economy turns on consumer spending, the economy producing those actual goods and services shrank. This led to unemployment, and even less consumer spending, and more unemployment.
With skyrocketing unemployment, state and local government faced twin problems: less revenue, since income and property taxes are major sources of revenue; and greater demand for services, since the unemployed now qualify for Medicaid and suffer more illness, crime increases requiring greater police protection, and state governments spend more money.
Case and point, Wisconsin. where lawmakers have struggled with a two-year budget deficit of $3.6 billion.
Republican Gov. Scott Walker has proposed to savage the pay of public sector workers struggling to meet the escalating needs of Wisconsin residents suffering a recession brought on by those same Wall Street bankers as his solution to their debt. But consider the $20 billion in bonuses paid to financial executives in the city of New York in 2010. To put it bluntly, for only a 15% cut in bonuses from financial executives in one city, the entire Wisconsin state budget problem would be resolved.
So how do we curb executive pay?
Congress approved the Dodd-Frank Wall Street Reform Act last year which directs regulators to decouple Wall Street pay from risk-generating practices. Regulators must now write, implement and enforce strong new rules to deal with the problem of obscene pay in the financial sector corroding the real economy.
The disparity between regular Americans struggling to make ends meet and billion dollar bonuses has never been more stark.
Bartlett Naylor, Public Citizen financial policy advocate, contributed to this post.
For an expanded treatment, see citizenvox.org.