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William S. Lerach Headshot

Blame the Wall Street Bankers and Corporate CEOs for the "Jobless" Recovery

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Now that President Obama's "recovery summer" has fizzled and it's clear we are in for a "jobless" recovery, it is worth examining who bears the responsibility for this predicament -- near 10% unemployment (with millions more so discouraged they have given up looking for work and are not even counted anymore) despite a trillion-dollar stimulus. The manufacturing jobs which were once the backbone of the American economy and fueled the job growth that pulled America out of prior recessions just aren't here anymore. In the name of "free trade," millions of those jobs got shipped overseas to unregulated markets where cheap labor is abundant, environmental restrictions are lax and working conditions are abysmal -- making the costs of corporate production there much lower.

Who bears the responsibility for this structural impairment of the American economy? The Wall Street banks and the multinational corporations, along with those who have done their bidding in Washington for the past few decades are responsible. The Republican politicians that these financial interests own -- and the corporate Democrats they have "seduced" with campaign money -- have been their willing instruments. While millions of ordinary Americans cannot find a decent job and our nation's economy sputters, the Wall Street bankers still make gobs of money, the multinational corporations are as profitable as ever and their political friends in Washington sit on top of stuffed campaign coffers.

Capital is liquid. Without restrictions money flows to where it can earn the highest returns, regardless of any burden its flow inflicts on those left behind, or the hardship inflicted upon the humans who will toil to create the return on that newly placed capital. If a corporation can build a factory in a Third World country where workers are not organized, wages are low and the cost of worker safety and environmental protections are nil and still sell its products here and in other wealthy countries, it will do so. The executives who decide to take capital to remote locations suffer no personal hardship from the fact that a factory that could have been built in America won't be -- or a factory that was in America will be closed and replaced by a Third World site.

This is equally true of Wall Street bankers. It makes no difference to them if a factory in Iowa is closed and the lives of the well-paid workers there are destroyed so that their multinational corporate client can build a replacement factory in Bangladesh. The rapacious bankers pocket the same huge fees for raising the capital required to fund the replacement factory regardless of where it is built, the new workers are located or what happens to the American workers left in the dust. Over two million American manufacturing jobs have been lost to overseas sites in recent years. No one can count how many jobs that could have been created here have not been.

Over time a nefarious bargain was struck between the politicians and financial interests that helped lead to our present predicament. Republicans -- doing the bidding of Wall Street and their corporate masters -- pushed relentlessly for "free trade" agreements, the real purpose of which was to facilitate replacement of American manufacturing facilities with cheap overseas production. It happened with steel and auto workers and their supply chains; the clothing and carpet manufacturers -- the garment workers -- you can go on and on. The Americans who held these good jobs were thrown away. But the Wall Street bankers and corporate executives enjoy even better lives than before. They benefit from goods being manufactured in Third World countries. That boosts the profits they use to pay themselves excessive salaries and outlandish bonuses.

Unfortunately, Democrats who were in a position to prevent the actions that gutted our manufacturing base did not do so. The "enterprise" Democrats who serve Wall Street and corporate interests went along with these disastrous policies. Republicans in turn tolerated the massive growth of the Democratic favorites Fannie Mae and Freddie Mac. This furthered the Democratic goal of fostering increasing home ownership by lower income people and had the convenient impact of benefiting the bankers who made gargantuan profits by packaging up tons of dubious mortgages being generated by the housing boom and peddling them to pension funds all over the world. This arrangement also benefited the corporate-financial complex as the gigantic housing bubble masked the true negative economic impact of America's diminishing manufacturing base resulting from the globalization they wanted. The bankers made gobs of money from financing industrial relocation to the Third World and home mortgage securitization. The campaign coffers of their political enablers were kept filled.

But then the music stopped. There were only so many houses to be built and sold with 100% mortgages to under-qualified buyers. When the house of cards collapsed the financial system imploded and came to the edge of a complete collapse. The United States and most of the world plunged into the worst economic decline in the past 50 years. Unemployment here skyrocketed to 10%. Over eight million jobs were lost. Unemployment is really over 20% when the millions of other workers who are so defeated they have given up looking for a job are figured in. The Wall Street banks, of course, were rescued by their Washington allies who funneled hundreds of billions of taxpayer dollars to them to save them from the "free market" consequences of their own greedy folly.

The world's central bankers also responded by flooding banking systems with liquidity - "free" money in unlimited amounts to the bankers. The economic decline was stabilized -- at least enough to prevent a repeat of the Great Depression of the 1930s -- for now. But look at the end result. The "bailed-out" Wall Street banks are making tons of money again - but not by lending to American businesses to stimulate economic recovery here -- but by arbitraging the money "loaned" them by the government at near 0% into interest-paying government bonds -- pocketing billions of dollars in risk-free profits and then paying themselves gargantuan bonuses. Multinational corporate profits are back at record levels. The politicians who arranged for the bank bailout and serve these again prospering financial and corporate interests are having no difficulty filling their campaign chests. But where are the jobs? Where are the new factories? What about ordinary people?

America remains a great nation and the vast majority of its citizens, even though they vehemently disagree with each other on many issues, love their country. Their allegiance is unquestioned. But I don't think that's true of a great many of the masters of capital that reside here. Their real allegiance is not to any country, but to mammon.

These bankers and corporate CEOs are "men and women of the world." If the legal and economic rules of the game permit them to make more money for themselves at the cost of ordinary Americans, they will do so. While they may sit in office towers here, their ultimate economic commitment is not to our country or its workers -- their loyalty is to lining their own pockets, regardless of the impact on ordinary Americans. To be fair to them -- they are really the obliging tools of capitalism's "invisible hand" -- if the incentives permit, indeed favor, the flow of capital to places that hurt the American economy -- then so be it. It's the incentives as much as the people.

These harsh words only reflect the reality of raw capitalism. Capitalism was never meant to be pretty or kind. Unregulated, it allocates capital -- and the jobs and the wealth that flow from capital -- in an efficient (ruthless) manner, inexorably seeking the lowest cost of production so as to obtain the highest return. The enormous improvements in computer technology, transportation and communications that have "shrunk the globe" in recent decades have served to greatly emphasize this aspect of under-regulated capitalism -- and accelerate its harmful impact on our developed, regulated economy, with its attendant worker and environmental protections, i.e., costs.

For many years, we created buffers to protect our people from the impact of unregulated free-market capitalism. And, in the not-too-distant past, we had countless numbers of manufacturing facilities, which employed workers who received good wages and benefits - either because they were organized or were collateral beneficiaries of a large, organized American workforce that "raised the bar" for all. And it was those factories and those workers who time and again helped the American economy recover from inevitable periodic economic downturns. But no more.

Often major trends unfold in front of us but we do not recognize them. America is stagnating -- at the tipping point of heading toward becoming a Second -- even a Third World country. Much of the anger we see among people in our country is because they sense it. Bad news for them -- and their children. But grieve not for the financial and corporate elite - even in the worst Third World countries, the economic elite survive -- they thrive -- behind gates and guards in enclaves of luxurious wealth. So it may be in the post-industrial America.

Our factories are gone. Our recovery is anemic. Our economy has suffered structural damage in the name of globalization, which has benefited only the economic elite. But what do they really care if America is in decline? These "people of the world" will continue to profit, no matter that the economic policies they use their power to achieve come at the expense of millions of loyal, ordinary Americans, who are but pawns in a bigger game of international economic exploitation.