My wife, a labor economist, is upset with NPR's "The Take Away" (and many other news programs) for reinforcing the myth that somehow the unemployed are to blame for not having a job. We all should be angry as well because the jobs just aren't there. In fact, the latest unemployment statistics show that there are five unemployed workers available for every vacant job. Why blame workers when it's so clear that Wall Street's reckless gambling caused the jobs crisis? By now, you'd think we'd have buried this issue. But like Dracula it refuses to die. And so, I return to the subject with the hope of driving a stake through its heart and giving it a proper burial. Among the claims we need to put to rest: 1. Extended unemployment benefits are causing unemployment. Extending benefits for the long-term unemployed will only encourage them to sit at home on their extended derrieres and let vacant jobs go begging. What jobs? We're down 8 million since the start of the Great Recession. We aren't even creating enough new jobs to keep up with population growth. So what jobs are the unemployed not taking? Every child knows how to play musical chairs. When you take away 8 million chairs, a lot of people are forced to scrounge around looking for seats that aren't there. Providing nourishment for the chairless is not the cause of the disappearing chairs. It's just the decent thing to do. Why is this so difficult to grasp? And why are so many people angry at the long-term unemployed and not at the bankers who actually created this mess? Economist Dean Baker suggests that the Republicans are trying to keep unemployment as high as possible right now because they think that high jobless numbers will spell disaster for the Democrats in November. And if we give the unemployed extended benefits, that money will act as a stimulus, generating more jobs. Well, we can't have that! It's better for the Republicans if the economy stays in the ditch. But what about Obama and the Democrats? Why aren't they at the barricades, fighting for the unemployed? They could be flooding the talk shows with a raucous defense of the jobless. They could be putting ads up all over the country, explaining why the long-term unemployed deserve our support. They ought to be ridiculing any politician or pundit who argues against jobless benefits. Where the hell is their outrage? Instead, even as the unemployment crisis continues, the Democrats are pushing austerity and deficit reduction--the financial industry's pet issue. If the Democrats are so worried about unemployment benefits deepening the deficit they should start plugging that money hole by raising taxes on billionaire hedge funds executives. Just ask the billionaires to pay the same income tax rates as the rest of us, instead of dodging behind the lower capital gains rate. Is that really such a hard sell, Democrats? If the public knew that the top ten hedge fund managers were averaging $900,000 an hour (not a typo) during the worst economic year since the Depression--and paying lower income tax rates than the rest of us--the American public would be outraged. Of course, to push this plan the politicians would need to have the guts to upset billionaires. (Meanwhile, Timothy Geithner is signaling that the Administration will hold down capital gains taxes on the super-rich.) But even the gutless ought to know that blaming the unemployed for unemployment is insane --not to mention incredibly mean-spirited. 2. Unemployment is caused by "structural" problems in the labor markets. Labor markets have to be freed from constraints like decent pensions, a reasonable retirement age, and adequate health care benefits. These public benefits -sometimes known as the social wage -- are keeping employers from hiring. So, sorry, Americans, we'll just have to work longer and harder for less. This chilling proposal, now on the lips of Republicans and Democrats alike, will clearly make the markets happy. But what about the rest of us? Is this grim belt-tightening really going to bring back the 8 million jobs we lost? If we cut the social wage, corporations certainly will save on labor costs and accumulate more cash. But will they productively invest it? Not according to Yves Smith and Rob Parenteau, They argue that corporate America greatly prefers to pocket the cash and use it for gambling on Wall Street:
To develop new products, buy new equipment or expand geographically, an enterprise has to spend money -- on marketing research, product design, prototype development, legal expenses associated with patents, lining up contractors and so on. Rather than incur such expenses, companies increasingly prefer to pay their executives exorbitant bonuses, or issue special dividends to shareholders, or engage in purely financial speculation. But this means they also short-circuit a major driver of economic growth.
3. The only real jobs are private sector jobs. You see, only the private sector can rescue our economy because the jobs they create spring from consumer supply and demand, not the dictates of corrupt or know-it-all politicians. When you work for the public sector, you're practically on the dole because your wages come from tax dollars. That's quasi-socialism. Has anyone noticed that private industry has been on the public dole for decades? We have millions of alleged private sector jobs funded by the Defense Department and through subsidies for industries from sugar to oil, and of course banking. We've given so many tax dodges to corporate America that most companies pay almost no taxes at all. The idea of a purely private sector is pure fiction, a soothing fairy tale for Tea Partiers and faith-based, free-market ideologues. Despite all the perks we've been giving to corporate America, it's not at all clear that the private sector will ever again create enough decent jobs to support a middle class society in this country. Right now the economy is supposedly growing, but employment isn't. So what is growing? Well, the obscene bonuses and pay packages of corporate America and Wall Street --- the only growth that counts for our financial elites. We're at a critical point in the jobs crisis. Nearly 30 million of us don't have jobs or have been forced into part-time jobs. It's not like there's no work to do. We have millions and millions of kids to educate. We desperately need to slash our energy use--and with an army of workers, we could weatherize every home and business in the country. Our bridges and roads will take decades to repair. We need to build an entire national system of efficient public transit. When Wall Street is in trouble, we come to the rescue with trillions in bailouts. We've poured hundreds of billions more into two wars. But when it comes to investing in our people to get needed work done, we can't seem to summon the will or find the cash. There's a one-sided war going on between financial elites and the rest of us. They've engineered the economy to enrich themselves at our expense, with Wall Street taking the lead. The numbers don't lie: In 1970 the top 100 CEOs earned approximately $45 for every dollar earned by the average worker. By last year, it was $1,081 to one. (See The Looting of America.) There is no economic theory that can explain this obscene gap. It has nothing to do with talent or productivity or even luck. It's just raw power. And the only thing that financial power understands is countervailing power in the form of a popular mass movement - a movement that only can start once we stop blaming ourselves for the jobs crisis. We have our work cut out for us. 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.
Take a hard, cold look at June's tragic unemployment numbers. The Bureau of Labor Statistics rate is 9.5 percent, roughly where it's been for more than a year. The BLS jobless rate (U6) is 16.5 percent -- nearly 30 million people are without jobs or forced into part-time work. More than 6.7 million workers have been unemployed for more than 27 weeks. The administration can spin these numbers like a top, but Americans know in their bones that no one in Washington has a real plan to get our people back to work. But Wall Street has a plan and a new logic that is quietly infiltrating the media and policy circles. It's called "structural reform." Although it is likely to involve some additional pain and suffering, it's being sold as the new the magic bullet for our ailing economy. The story goes like this: 1. Banks and consumers took on too much debt during the housing boom (largely because of misguided government policies that enabled people who really couldn't afford homes to buy them). 2. When the bubble burst, the government had to bail out the financial system to avoid a devastating collapse. This essentially moved debt from the books of private banks (and consumers) to the government (mostly the Treasury, the Fed, Fannie and Freddie). 3. But there's a real limit to how much debt the government can absorb. Look how markets and voters around the world have reacted to rising deficits. (Think Greece, Germany, the Tea Party...) 4. This signals that the Keynesian moment is over. The government just can't keep spending its way out of this mess by shouldering bank debt or passing huge stimulus programs. 5. That leaves only one last viable option: Structural Reforms! Structural reform is Wall Street speak for reducing what is often called the "social wage" for working people in every way possible: increasing the retirement age and cutting Social Security benefits, government employment and benefits, funds for public education, defined benefit pensions, and health care expenditures....and of course, extended unemployment benefits as well. (The Senate's refusal, yet again, to extend unemployment for 1.3 million laid-off workers comes straight from the "structural reform" playbook.) Allegedly, the net result of these "reforms" is to reduce public debt while making the labor market more "supple" so that employment and wages can rise and fall quickly in response to shifting supply and demand. This "freer" labor market reduces the employer's cost of hiring workers, which is supposed to trigger a major jump in private sector employment. And if all that cutting doesn't cause a jump in hiring, then cut more. Like Ireland. It hasn't worked yet--but surely someday soon.... Political cannibalism is the new normal. Unfortunately "structural reform" brings out the worst in us, with brothers and sisters turning on each other all across the land ("Don't cut us--cut them!"). And then there are those who've given up the fight altogether and now think austerity is a good thing, as Steven Greenhouse documents in his chilling piece in Monday's New York Times ("Labor's New Critics: Allies in Public Office"). Former labor leaders and labor friends, from LA's Mayor Villaraigosa to New York's Governor Paterson are going to war with unions ...and proud of it. These former allies believe that unions just have to face reality: revenues are down, so we've got to cut public workers' wages, benefits and jobs. Let's all join in the downward spiral, brothers and sisters! In truth, "structural reforms" don't even touch the heart of the crisis--tragically, they'll only make it worse. The real heart of the problem is too much wealth in the hands of the few and too much power and wealth controlled by Wall Street. (Please see The Looting of America.) And unfortunately the new financial reform bill does little to limit this power and wealth. Our too-big-to-fail banks are still with us--and cockier than ever. Very few commentators or policy officials have the nerve to call for restoring taxes on the super-rich to the levels they paid from the 1930s through the 1970s. (Back then, their tax rate was up to 91%. Now they pay as little as 15% because they can claim their booty as "capital gains.") The 10 leading hedge fund managers each "earn" an average of $900,000 an hour (not a typo). Public officials and pundits should be calling such wildly excessive incomes a disgrace to democracy--especially given that without taxpayer bailouts the financial elites would have earned nothing at all. Instead we are told to admire the robbery as if it were a sign of entrepreneurial genius. The fiscal crisis is not an act of God. Nope, it was caused by a reckless Wall Street gambling spree gone bad, and years of lost revenue from super-rich people who should have been paying taxes . Our already depleted public coffers are now running on empty because of bank bailouts and the cost of helping people who lost jobs in the Wall Street-induced collapse. We do indeed need structural reforms, but not the kind that Wall Street is talking about. First, we need to reattach the truly wealthy to planet Earth. Right now the uber-rich live in their own cosmos where they just can't imagine what it's like for working people who struggle to make ends meet--or for jobless people who can't make ends meet at all. The super-rich truly believe that their debts are sacred and must be repaid at all costs, even if we have to bail out every major bank and lay off millions of workers to do it. Wall Street comes first. The investor comes first...always. Equality of sacrifice in hard times? Don't be a chump! We need a structural reform that would make Wall Street pay reparations for the damage it has caused, kind of like the $20 billion compensation fund BP was forced to create, only bigger, much bigger. We allowed the financial wizards to waltz off with $150 billion in bonuses derived from taxpayer bailouts. Instead, we should have used a windfall profits tax to redirect that money into a fund help states and localities preserve and create jobs. But we can't get from here to there unless we dramatically expand our sense of what is possible. We just can't be satisfied with a porous financial reform bill that doesn't even include a tiny tax on the big banks and hedge funds that have just milked us dry. And we can't keep pretending that the private sector is ever again going to provide sufficient, sustainable jobs for all who need them. We've got to face up to the obvious: Wall Street is at war with the rest of us. And the stakes include the most fundamental aspects of the economy and our democracy. It's about how we create and distribute wealth, how we create and distribute costs, and who should decide. Is there a way out? Maybe. But first we have to realize that minor policy fixes won't get us there. Let's stop fooling ourselves with this tinkering around the edges, passing watered down reforms and praying that the private sector will miraculously create millions of new jobs (and green ones!) - all on its own. We'll need something close to a mass upheaval if we're going to get our political leaders to pay attention to us instead of the all-powerful market gods. That financial markets now have an instant veto over any and all economic policies is an insult to democracy. Whenever the politicians hear the distant rumble of unhappy bond markets they rush to the floor to vote for the latest austerity measure. And unfortunately, this isn't just an American affliction. A financial Catch 22 has engulfed the leadership of Europe, Japan and the US: If they fail to cut deficits, the markets will react badly. And if they do cut deficits and drive their economies further into the ground, the markets also will react badly. Escaping from this structural reform trap won't come easy. Americans are growing more cynical by the day as we watch our elected leaders groveling before the gods of Wall Street. So far much of the anger has been channeled by the right, which tries to persuade working people that the no-government, no-taxes approach is actually good for them. But that's going to change. Sooner or later more and more of us will realize that the brave new world of "structural reforms" favored by Wall Street and the right really means that we'll be working longer, harder and for less -- if we're lucky enough to work at all. No one knows when that moment will arrive. But it will. And with it may come a new American progressive movement with the staying power to put our people to work. 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.
"In reality, credit pollutants pose the same kind of threat to our economy as chemical toxins do to our environment. Like their chemical counterparts, they tend to concentrate in the weakest and most vulnerable parts of the financial system, and that's where the toxic effects show up first: the subprime mortgage market collapse is essentially the Love Canal of our ongoing risk-pollution disaster." Eric Janszen, Harper's Magazine, February 2008
We're living through two of the most catastrophic ecological disasters in history. BP's spill is wrecking the Gulf's ecosystem. It slaughtered 11 workers and destroyed the livelihoods of thousands in the fishing and tourist industries. And soon, we'll start hearing about the terrible toll exposure to oil-related toxics is taking on the bodies of clean-up workers. Meanwhile, Wall Street, led by financial giants like Goldman Sachs, JP Morgan Chase, Bank of America and A.I.G., polluted our financial system with toxic assets. The wreckage includes $6 trillion in lost economic value and at least 8 million US jobs destroyed in a matter of months. And like the Gulf spill, the Wall Street catastrophe will have deadly long-term consequences, as hundreds of dislocated workers die prematurely from the economic shock. The Gulf and Wall Street disasters are oddly parallel in many ways, except one: BP is paying for some of its sins. Wall Street isn't. (And what better evidence than the watered down financial reform bill the Congressional conferees hashed out last night, which gives banks plenty of latitude to keep doing business as usual). Both calamities were predictable and preventable. BP--and the rest of the oil industry--relies on very risky technology to operate flawlessly under extreme pressure, in deeper and deeper water. According to the New York Times , Transocean commissioned a confidential study of safety records at some 15,000 deep sea wells. In 11 cases, crews "lost control of their wells and then activated blowout preventers to prevent a spill. In only six of those cases were the wells brought under control, leading the researchers to conclude that in actual practice, blowout preventers used by deepwater rigs had a 'failure' rate of 45 percent." In short, a BP-like disaster was inevitable. But the industry and its allies studiously ignored that study and all other evidence of our offshore ticking time bombs. Drill baby drill! Just make sure you get the cash in your pocket before she blows. Back on dry ground, we had similarly strong evidence that a Wall Street disaster was inevitable. Many thoughtful public and private officials cautioned us that Wall Street had recreated the very conditions that led to the crash in 1929 - financial deregulation plus too much speculative money in the hands of the few. In 1995, Brooksley Born, as chair of the Commodities Futures Trading Commission, warned President Clinton, Alan Greenspan and Congress that the fast-growing Wall Street derivatives casino could collapse at any time, taking the financial system with it. Her reward was to be driven out of government by Alan Greenspan, Robert Rubin and Senator Phil Gramm. The financial industry went into overdrive, creating and selling hundreds of billions of these risky products, which later turned into toxic trash. But till then, let the good times roll...for the elites. In both the deep sea and on Wall Street, regulation was slack or non-existent. At BP, officials fudged or ignored equipment tests for key failsafe drilling systems. Regulators were clueless at best, corrupt at worst. On Wall Street, the financial ratings agencies pretended the toxic assets smelled like roses. Financial regulators from the Fed on down were not just clueless, but collaborating in the scheme. If the Wall Street and BP disasters are eerily parallel, consider this connection between the big bankers and the BP spill. Apparently Wall Street analysts didn't like all the extra time and money it took to conduct tests on deepwater rig failsafe devices. In a conference call with investment analysts, Transocean's CEO virtually apologized for the annoying "anomaly" of having to repair blowout preventers. (New York Times, 6/21/10). It reportedly costs $700 a minute to pull up a blowout preventer for repairs. Investors surely didn't want to see that kind of cash wasted on tests that could be avoided with a little guile and regulatory manipulation. But the many parallels and connections between the Wall Street and Gulf disasters end when it comes to how the government is handling these crises. BP is paying a price for what it has done. Wall Street is being rewarded. (Populist rhetoric aside, the financial reform bill just announced will keep those rewards coming through a myriad of exemptions and loopholes. Too big to fail is here to stay.) The Obama Administration pressured BP into canceling dividend payments and setting aside a $20 billion victims fund that will be administered by a neutral third party. Where's Wall Street's victims fund? The one that will help the millions of people who lost their jobs or homes because of the crash? Instead of paying out, Wall Street is getting paid for its sins. After the crash, both the Bush and Obama administrations showered the perpetrators with at least $10 trillion in taxpayer bailouts, guarantees, toxic asset swaps and liquidity programs. The largest financial institutions were permitted, even encouraged, to become even bigger as they gobbled up distressed banks at bargain basement prices. What aid there is for Wall Street's victims comes from us, the taxpayers, in the form of stimulus money. In the very year in which they destroyed eight million jobs, the finance industry big boys got away with paying themselves $150 billion in bonuses all of which came by way of taxpayer support. In the worst economic year since the Great Depression, the top ten hedge fund managers (who would have earned next to nothing without taxpayer-financed bailouts) awarded themselves an average of $1.8 billion each - that's about $900,000 an hour (not a typo). Why was Wall Street rewarded for nearly destroying the financial system, while BP is (rightly) being punished for polluting the Gulf and killing workers? Blame the Brits?The Brits have one answer: BP is British and therefore easy game for American politicians. The idea makes for a nice rhetorical flourish, but I don't think it accounts for much. My guess is that if a volcano of Exxon oil erupted in the Gulf, our response would be roughly the same. (And I sure hope we won't find out any time soon.) We can see oil but not finance? Another explanation for the double standard is that while Wall Street's financial shenanigans are an invisible abstraction, the Gulf spill is a graphic nightmare - the oil- coated birds, the once pristine marshes covered with goo - not to mention the oil gushing live and in color on your computer screen. However, losing your job overnight because of a financial collapse is pretty tangible. Watching your nice neighborhood become a shabby ghost town because of mortgage foreclosures and plummeting housing prices is not too subtle either. Knowing that Wall Street dons are rolling in dough again while you're fighting off debt collectors is quite immediate. Seeing your town lay off teachers because the Wall Street-induced crash caused tax revenues to tank is almost as sad as looking at an oil-soaked pelican. So what's really behind the double standard? Power: bankers have more of it than oil execs. Big Oil just isn't as big as the financial industry anymore. Look at it this way: Citigroup was too big to fail. BP isn't. If it goes under the markets will not crash. Millions won't lose their jobs. In fact the other oil giants will be only too glad to suck up the business. But when a single major financial entity goes under, the entire economy is at risk. That immense power gives the financial sector the moxie to cover up its culpability. We know who to blame for the Gulf spill. But how many people know who to blame for the Wall Street crash? The culprits have spent millions to convince us that they are totally innocent. Instead, it's the government's fault for failing to adequately regulate them. Or it's all those hapless Americans buying houses they couldn't really afford, touching off a housing bubble. BP officials appear red-faced before the congressional committee and admit guilt. But when Goldman Sachs' Lloyd Blankfein gets before Congress, he assures us that he's doing "God's work." He might look innocent, but Blankfein and his Wall Street brethren are guilty as sin for polluting our financial system with toxic assets--and walking away with billions (See The Looting of America for all the evidence you need.) Politicians know they can get away with slapping BP around. But you better not slap Wall Street--you might upset the markets. God knows we don't want to give Wall Street the jitters and cause a Dow Jones tumble. Let's not risk a run on currencies or any other scary reaction that might endanger our feeble jobless recovery. Taking a knock at BP might lose you some oil industry campaign contributions. But the financial industry is the biggest campaign contributor of all--to both Democrats and Republicans. Now that Wall Street has collected its bailout billions, it wants the rest of us to tighten our belts. The captains of high finance are demanding that we reduce public debt, which we ran up to bail them out and deal with the mass unemployment they caused. It takes a hell of a lot of nerve. First they crash the system and run away with a fat pocket of cash. They we bail them out and they use the money to pay themselves tens of billions in bonuses. Then they demand that WE clean up our financial act or they won't loan out any money. And sadly, they're getting away with it. A generation of deregulation and regressive tax policies gave them the keys to the world economy. They now control so much capital that they have the power to veto policiies instantly, just by rapidly moving money around. The porous financial reform bill won't stop them. The too-big-to-fail giants will grow even bigger. Get ready for more financial toxic shock as Wall Street's financial engineers drill through the bill's countless loopholes. So next time an oil-blackened snowy egret gets you furious at BP, remember to save some righteous indignation for the financial polluters who are picking your pockets. 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.
As the financial reform bills grind through the congressional conference committee, the largest banks are howling like little brats because they haven't gotten everything they want, right now! "Gimme!" Of course the reform package already gives the biggest banks the juiciest goody of all by letting them continue to be "too big to fail." Life will be good for the top 20 or so financial institutions. They'll have access to cheaper funds based on implicit government guarantees --since everyone on the planet knows we'll bail them out the next time they crash. (Hedge fund managers -- the top 10 each earned a cool $900,000 an hour in 2009 -- are also faring well on Capitol Hill. Senators just stalemated a measure that that would have forced them to pay income taxes like the rest of us instead of pretending their income is capital gains, which is taxed at lower levels. The idea had been to use those extra tax dollars to extend unemployment benefits and aid distressed state and local governments that are now laying off teachers. Let them eat cake.) But the big banks still aren't satisfied. Now they're whining about the possibility that Congress might pass a version of the so-called Volcker Rule, which would prohibit them from engaging in "proprietary trading" -- trading for their own accounts -- while also receiving federal guarantees for their consumer deposits. From a taxpayer's point of view, the argument is pretty simple: Why should the government let these bonus-rich banks speculate using taxpayer guarantees as collateral? Why should we underwrite their casinos? The banks' response to that question is extremely revealing. Their first defense is to insist that the financial crash wasn't their fault. ("Honest, I didn't break the cookie jar!") The housing bubble did it!, they wail. As the New York Times reports, "the banks assert that the financial crisis of 2008 was a lending-based crisis caused by reckless loans made to unqualified home buyers. It was not, they say, a trading crisis." The bankers are hoping to redirect the public's wrath with this little fabrication, but haven't quite succeeded. And won't, unless (until?) they buy up all the media. In truth, the crisis was started and amplified by their own financial engineers who dreamed up a series of fantasy finance instruments like synthetic CDOs. From these, the banks built an upside-down pyramid of bets based on extremely risky assets. The banks claimed these bets were as safe as AAA-rated Treasury notes -- but of course they weren't. (That didn't stop the rating agencies from gladly joining the banks in this profitable scam.) The banks' socially useless new financial instruments multiplied a manageable $300 billion sub-prime mortgage problem into a multi-trillion dollar global disaster. This massive gambling operation directly led to the destruction of more jobs than any time since the Great Depression. Twenty-nine million people are without work or forced into part-time jobs, not because of housing loans by low-income buyers, not because of over-leveraged consumers, but because the biggest banks in the world got too big, too powerful, and way too greedy. And now we're allowing them to get even bigger and greedier. (For an easy to read account of how calamitous financial gambling actually caused the crash, see The Looting of America.) The banks' second defense, believe it or not, is to argue that their financial gambling operations are really safer than making loans. Say what? According to a chief lobbyist for the 19 largest financial companies:
[Making loans] "is arguably the riskiest activity that any financial entity can engage in. It is money out the door that banks hope will be paid back."
Take a deep breath and think about that one. The biggest banks in the world are telling us they're scared to make loans? That lending people money so they can start or expand a business or buy a house or car is too risky compared to their high-stakes trading games? Hmm. Risky for whom? It's true that under the current rules governing high finance, the bankers can rig the game and win every time. They're essentially serving as "the house" within a vast global casino. That yields a lot more cash than their traditional job of moving the nation's savings into productive investments. And as we've just seen, if it all comes crashing down around their ears, the tax-paying public will rescue them. In fact the banks' gambling games are hugely risky - just not for them. They get all the upside, while the taxpayer underwrites the downside. That's not theory. It just happened and it's likely to happen again before long. Meanwhile, the banks have now admitted the deep, dark truth: They're no longer focusing on the old-fashioned business of moving savings to productive investments. Their mission now is to dominate the financial industry while making as much money possible. This narrow focus on speculative gambling is the major reason behind our jobless recovery. The banks aren't making their capital readily available to the real economy where it is desperately needed. Instead, the banks are back to creating and propagating fantasy financial instruments -- the most profitable financial enterprise ever invented. They're addicted to it, like gambling junkies at the craps table. The casino they've built is quite big and splashy. They've got their high-speed trading. They got their customized derivatives. And they've got control of the largest financial marketplaces on Earth. It's certainly a beautiful spread for the big boys, as the field narrows down to a handful of huge banks. They're amassing trillions in assets and capital...and hundreds of billions in bonuses. But they won't be using these riches to invest in something so boring as a business or consumer loan. Instead, they'll put more money down at the casino, multiplying their returns and their influence over both global finance and our political system. (And maybe they'll spend a few bucks to ensure that the media rewrite the history of the crash while they're at it.) So yes, Congress should make banks separate proprietary trading and risky derivatives businesses from everyday, old-fashioned banking. (Though I expect that any such rules Congress passes will be riddled with holes, leaving the largest banks free to gamble.) But even if these reforms are reasonably strong and enforced, they attack only a small part of the problem: Too big to fail financial institutions are far too large and far too powerful to coexist with democracy. They pose an immediate threat to middle-class life. The only sensible and safe solution is to bust them into smithereens. I don't know how we'll get there. But if we don't we may find ourselves permanently ruled by a new financial oligarchy that pulls the strings of economic and political power. This is not the time to give up. Democracy keeps raising its head, from the striking workers in China to marches in the streets of Europe. What will happen over the next decade in this epic clash with global financiers? That's up to us. 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.
Senate and House conferees are about to reconcile a financial reform bill that is virtually designed to institutionalize "too big to fail." And when they do we'll lose another battle in the ongoing war between global financial markets and democratic nation-states. This war has been going on for decades -- but democracy hasn't always been in full retreat. The New Deal Conquest: During the Great Depression democratic forces gained the upper hand in the war. We realized that financial markets, which are driven by the largest banks and financiers, had to be tightly controlled. We knew that global speculation on currencies only deepened the Depression and had to be strictly limited. We knew that an iron curtain was needed between commercial and investment banking to protect Main Street depositors from market madness (that was the Glass-Steagall Act). And most importantly we knew that the key to preventing economic upheaval was to limit the wealth of the super-rich and to increase the wealth of working people through progressive taxes, Social Security, wage and hour laws, and the promotion of unionization. The Bretton Woods agreements forged by the Allies during WWII set up strict rules for global finance, rules that kept financiers in check for more than a quarter century. And it worked pretty damn well. As economist Joseph Stiglitz points out, this era saw only one financial crisis (Brazil, 1964), and working people in western democracies made huge gains. Since the era of deregulation took hold in the late 1970s, the world has suffered over a hundred financial crises and middle-class incomes have stagnated. The Deregulatory Counter-Offensive: By the late 1970s, bankers regained the advantage through the spread of a new faith in self-regulated markets. The economic apostles of unfettered markets lobbied against progressive taxes, unions, and social welfare programs. The new orthodoxy was: Let the elites collect the money--they'll invest wisely (instead of consuming), and all boats will rise. This near-religious revolution rapidly spread through the economic and policy establishment. Regulations were dismantled right and left, and the revolving door between government and Wall Street started spinning. The American financial catechism ruled the world. And on Wall Street, the money tap was open. It did not trickle down. Then, suddenly, in 2008, the market gods destroyed themselves as the unregulated financial casinos crashed and burned, just like they did in 1929. For a few months, it seemed like the deregulatory theology become a global heresy. It was obvious that Wall Street's reckless speculation and its bold new wave of financial engineering had caused the Great Recession. (See The Looting of America for an accessible account.). It was also clear that if government didn't come to the rescue, Wall Street would lay in ruins, along with the rest of the economy. This was the perfect moment for democracy reassert democratic control on financial markets, just as we did during the New Deal. We blew it. The Victory at Too Big to Fail: At the moment when Wall Street was on its knees, we decided to bypass serious reform. Instead, we rebuilt Wall Street, using taxpayer money and guarantees - more than $10 trillion worth. We let bankers use our bailout money to pay themselves $150 billion in bonuses -- at a moment when over 29 million Americans were jobless or forced into part-time jobs. We allowed the top hedge fund managers to walk off with over $900,000 an hour (not a typo) in 2009. Windfall profits taxes? No. In fact we let hedge fund honchos pay an extra-low tax rate by calling their income "capital gains." We didn't restore Glass-Steagall, we didn't break up "too big to fail" financial institutions. In fact the biggest banks became even bigger, courtesy of the U.S. government. The Invasion against Democracy: The war is escalating. Right now, financial elites aren't just fighting a defensive battle against new regulations. They're playing offense: They're whipping up deficit hysteria around the globe and calling for drastic cuts in middle class programs. Why? They want to ensure that their loans to governments aren't threatened by rising public debt. Ironically, the public debt they're so worried about was created in large part by them -- the result of huge bailouts and other expenses stemming from the crash they caused. Although the bankers want us to dismantle what remains of our worker-oriented policies, welfare for the financial elites is still fine and dandy. This is the most dangerous counter attack in the history of finance. We had better know a great deal more about the attackers. Who makes up this shadowy force called "global markets"? Who fights their battles? Do they have a high command? Not really. There is no executive committee of financial elites. There's no international conspiracy, no Elders of Zion. Instead these markets are pulled and pushed by about 50 very large banks and financial institutions. This is where much of the nation's $2 trillion in hedge fund money roams. This is where the top six US banks frolic. They don't have to sit around a table strategizing. They instantly sense threats to their power. They instantly smell profitable openings and they're poised to grab what they can, whenever they can. They thrive on turmoil, which gives them new "proprietary" trading opportunities to exploit. Volatility means big bucks, especially now that the largest players know that the government will back up even their wildest gambles. History has just proven that they are way too big to fail. Of course they still have to lobby government officials--many of whom either were bankers, or will be once they leave office. But their most powerful lever on government is through the market itself: Here, by moving vast quantities of money around, they can instantly veto policies they don't like. If the EU talks seriously about financial transaction taxes, the markets go down the Euro grows weaker, and interest rates rise--making it more expensive for governments to borrow the money they need to operate. Politicians have learned to "listen" to the markets and are conditioned to placate them. Should a nation state get out of line (Greece, Italy, Spain, Portugal, etc), the markets slap them silly. Politicians rush to the scene and start slicing social spending. If instead they demand new taxes on financial elites to reduce public debt, the markets respond with even more fury. Money flees. All the external machinery of democracy still clanks along. We still pull the levers in the voting booth. But the decisions that affect us the most are made in a profoundly undemocratic way. Faceless financial markets exercise far more control over politicians than the voters who elected them. So the problem isn't just the corporate campaign contributions, or corporate media control or the academic consensus supporting our financial theocracy. It's the raw power of the markets. They've been roaming free and virtually unregulated for more than a generation, and now their power is unparalleled. Just months after they brought our economy crashing down, they're right back to their old tricks, setting the stage for the next crash and the next bailout while getting filthy rich along the way. Bill Clinton nailed it on the head when he reportedly said:
"You mean to tell me that the success of the economic program and my reelection hinges on the Federal Reserve and a bunch of fxxxing bond traders?" (See Agenda by Bob Woodward)
No Retreat, No Surrender? There's no room for pacifists in this war. Clearly, Wall Street and its global minions are not seeking a truce. Instead, they're coming after our Social Security, Medicare and Medicaid programs. They want us to work longer before we retire and get less when we do. They want us to pay more for health care and get less of it. They want less public money to go to schools, teachers and public infrastructures. And they want us to get used to a jobless recovery with double digit unemployment rates. (And when millions and millions of people are unemployed, we can't maintain high labor standards, and our wages and benefits erode.) In short, they want to undermine all the policies and programs that have built and sustained middle class life. Already government officials in the UK, Germany and here are telling us we must endure austerity for "decades to come." As Fed Chair Ben Bernanke candidly put it:
"We can see what problems can arise in a country if investors lose confidence in the fiscal position of that country, so it is very important that we address this problem."
Of course, he's not going to point out that this austerity is only for the masses, definitely not for the financial elites. Or that the underlying cause of the debt investors are so worried about is the giant economic crater caused by the very same financial elites who now might "lose confidence" in financing a middle class society. We shouldn't kid ourselves about the pitched battles ahead. Fighting back won't be easy, and winning will be even harder. People in country after country will have to mobilize themselves in defense of real democracy, in defense of each nation's right to provide its people with a decent quality of life. In my opinion, that includes sustainable jobs with decent benefits and a solid public infrastructure that promotes equity, protects the vulnerable and enriches the environment. Unfortunately, no one can guarantee that democracy will prevail in the war against financial theocracy -- just recall the totalitarian chaos in Europe during the Great Depression. But don't count it out, either. It's true that many of us regular folks have been diverted by the media, distracted by the Internet or lulled into a stupor by pharmaceuticals. But when we realize that we've been shoved into a corner with no way out, we'll act. A popular struggle will begin. And when it does, we'll at least have a fighting chance to recapture our democratic souls. 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.
Senate and House conferees are about to reconcile a financial reform bill that is virtually designed to institutionalize "too big to fail." And when they do we'll lose another battle in the ongoing war between global financial markets and democratic nation-states. This war has been going on for decades -- but democracy hasn't always been in full retreat. The New Deal Conquest: During the Great Depression democratic forces gained the upper hand in the war. We realized that financial markets, which are driven by the largest banks and financiers, had to be tightly controlled. We knew that global speculation on currencies only deepened the Depression and had to be strictly limited. We knew that an iron curtain was needed between commercial and investment banking to protect Main Street depositors from market madness (that was the Glass-Steagall Act). And most importantly we knew that the key to preventing economic upheaval was to limit the wealth of the super-rich and to increase the wealth of working people through progressive taxes, Social Security, wage and hour laws, and the promotion of unionization. The Bretton Woods agreements forged by the Allies during WWII set up strict rules for global finance, rules that kept financiers in check for more than a quarter century. And it worked pretty damn well. As economist Joseph Stiglitz points out, this era saw only one financial crisis (Brazil, 1964), and working people in western democracies made huge gains. Since the era of deregulation took hold in the late 1970s, the world has suffered over a hundred financial crises and middle-class incomes have stagnated. The Deregulatory Counter-Offensive: By the late 1970s, bankers regained the advantage through the spread of a new faith in self-regulated markets. The economic apostles of unfettered markets lobbied against progressive taxes, unions, and social welfare programs. The new orthodoxy was: Let the elites collect the money--they'll invest wisely (instead of consuming), and all boats will rise. This near-religious revolution rapidly spread through the economic and policy establishment. Regulations were dismantled right and left, and the revolving door between government and Wall Street started spinning. The American financial catechism ruled the world. And on Wall Street, the money tap was open. It did not trickle down. Then, suddenly, in 2008, the market gods destroyed themselves as the unregulated financial casinos crashed and burned, just like they did in 1929. For a few months, it seemed like the deregulatory theology become a global heresy. It was obvious that Wall Street's reckless speculation and its bold new wave of financial engineering had caused the Great Recession. (See The Looting of America for an accessible account.). It was also clear that if government didn't come to the rescue, Wall Street would lay in ruins, along with the rest of the economy. This was the perfect moment for democracy reassert democratic control on financial markets, just as we did during the New Deal. We blew it. The Victory at Too Big to Fail: At the moment when Wall Street was on its knees, we decided to bypass serious reform. Instead, we rebuilt Wall Street, using taxpayer money and guarantees - more than $10 trillion worth. We let bankers use our bailout money to pay themselves $150 billion in bonuses -- at a moment when over 29 million Americans were jobless or forced into part-time jobs. We allowed the top hedge fund managers to walk off with over $900,000 an hour (not a typo) in 2009. Windfall profits taxes? No. In fact we let hedge fund honchos pay an extra-low tax rate by calling their income "capital gains." We didn't restore Glass-Steagall, we didn't break up "too big to fail" financial institutions. In fact the biggest banks became even bigger, courtesy of the U.S. government. The Invasion against Democracy: The war is escalating. Right now, financial elites aren't just fighting a defensive battle against new regulations. They're playing offense: They're whipping up deficit hysteria around the globe and calling for drastic cuts in middle class programs. Why? They want to ensure that their loans to governments aren't threatened by rising public debt. Ironically, the public debt they're so worried about was created in large part by them -- the result of huge bailouts and other expenses stemming from the crash they caused. Although the bankers want us to dismantle what remains of our worker-oriented policies, welfare for the financial elites is still fine and dandy. This is the most dangerous counter attack in the history of finance. We had better know a great deal more about the attackers. Who makes up this shadowy force called "global markets"? Who fights their battles? Do they have a high command? Not really. There is no executive committee of financial elites. There's no international conspiracy, no Elders of Zion. Instead these markets are pulled and pushed by about 50 very large banks and financial institutions. This is where much of the nation's $2 trillion in hedge fund money roams. This is where the top six US banks frolic. They don't have to sit around a table strategizing. They instantly sense threats to their power. They instantly smell profitable openings and they're poised to grab what they can, whenever they can. They thrive on turmoil, which gives them new "proprietary" trading opportunities to exploit. Volatility means big bucks, especially now that the largest players know that the government will back up even their wildest gambles. History has just proven that they are way too big to fail. Of course they still have to lobby government officials--many of whom either were bankers, or will be once they leave office. But their most powerful lever on government is through the market itself: Here, by moving vast quantities of money around, they can instantly veto policies they don't like. If the EU talks seriously about financial transaction taxes, the markets go down the Euro grows weaker, and interest rates rise--making it more expensive for governments to borrow the money they need to operate. Politicians have learned to "listen" to the markets and are conditioned to placate them. Should a nation state get out of line (Greece, Italy, Spain, Portugal, etc), the markets slap them silly. Politicians rush to the scene and start slicing social spending. If instead they demand new taxes on financial elites to reduce public debt, the markets respond with even more fury. Money flees. All the external machinery of democracy still clanks along. We still pull the levers in the voting booth. But the decisions that affect us the most are made in a profoundly undemocratic way. Faceless financial markets exercise far more control over politicians than the voters who elected them. So the problem isn't just the corporate campaign contributions, or corporate media control or the academic consensus supporting our financial theocracy. It's the raw power of the markets. They've been roaming free and virtually unregulated for more than a generation, and now their power is unparalleled. Just months after they brought our economy crashing down, they're right back to their old tricks, setting the stage for the next crash and the next bailout while getting filthy rich along the way. Bill Clinton nailed it on the head when he reportedly said:
"You mean to tell me that the success of the economic program and my reelection hinges on the Federal Reserve and a bunch of fxxxing bond traders?" (See Agenda by Bob Woodward)
No Retreat, No Surrender? There's no room for pacifists in this war. Clearly, Wall Street and its global minions are not seeking a truce. Instead, they're coming after our Social Security, Medicare and Medicaid programs. They want us to work longer before we retire and get less when we do. They want us to pay more for health care and get less of it. They want less public money to go to schools, teachers and public infrastructures. And they want us to get used to a jobless recovery with double digit unemployment rates. (And when millions and millions of people are unemployed, we can't maintain high labor standards, and our wages and benefits erode.) In short, they want to undermine all the policies and programs that have built and sustained middle class life. Already government officials in the UK, Germany and here are telling us we must endure austerity for "decades to come." As Fed Chair Ben Bernanke candidly put it:
"We can see what problems can arise in a country if investors lose confidence in the fiscal position of that country, so it is very important that we address this problem."
Of course, he's not going to point out that this austerity is only for the masses, definitely not for the financial elites. Or that the underlying cause of the debt investors are so worried about is the giant economic crater caused by the very same financial elites who now might "lose confidence" in financing a middle class society. We shouldn't kid ourselves about the pitched battles ahead. Fighting back won't be easy, and winning will be even harder. People in country after country will have to mobilize themselves in defense of real democracy, in defense of each nation's right to provide its people with a decent quality of life. In my opinion, that includes sustainable jobs with decent benefits and a solid public infrastructure that promotes equity, protects the vulnerable and enriches the environment. Unfortunately, no one can guarantee that democracy will prevail in the war against financial theocracy -- just recall the totalitarian chaos in Europe during the Great Depression. But don't count it out, either. It's true that many of us regular folks have been diverted by the media, distracted by the Internet or lulled into a stupor by pharmaceuticals. But when we realize that we've been shoved into a corner with no way out, we'll act. A popular struggle will begin. And when it does, we'll at least have a fighting chance to recapture our democratic souls. 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.
Is it good news that the hiring of 411,000 temporary census workers finally made a small dent in our enormous jobs crisis... at least temporarily? Shouldn't we now listen more carefully to Senator Judd Gregg of New Hampshire who wants to cut off extended unemployment benefits? He explained it this way on CNBC:
Because you're out of the recession, you're starting to see growth and you're clearly going to dampen the capacity of that growth if you basically keep an economy that encourages people to, rather than go out and look for work, to stay on unemployment. Yes, it's important to do that up to a certain level, but at some point you've got to acknowledge that we're not Europe. (Senator Judd Gregg on CNBC)
The honorable senator and many other pols and pundits apparently believe that at least some unemployed Americans are just coasting on their unemployment checks, having a bit of a vacation rather than grabbing one of the many jobs being generated in this red-hot recovery of ours. Somehow Gregg and company studiously ignore the fact that there still aren't enough jobs to go around. As May's unemployment numbers show, we're still in a jobs recession, despite the impact of temporary census jobs. More than 29 million Americans are still without work or forced into part-time work -- that's a real jobless rate of 16.6% (BLS U6). (Leo Hindery Jr.'s more precise estimate is 30.16 million for a jobless rate of 18.8 percent.) Nearly 7 million people have been jobless for over 26 weeks (the "long-term unemployed") -- more than at any time since the Great Depression. We still need more than 22 million new jobs to get us anywhere near full-employment. Senator Gregg is not the only one who is putting the onus on the unemployed. The philosophy behind his statement is shared by many leading governmental officials. (And after all, the Obama administration wanted Gregg to head the Commerce Department. That thought he's a moderate?) The philosophy they share is this: In the ideal free market, the price of labor determines the amount of employment, or so the theory goes. If the price of labor goes down, there will be more jobs. By cutting the amount and length of unemployment benefits, we effectively lower the price of labor overall, forcing more people to compete for scarce jobs. Fed Chair Ben Bernanke has blamed high unemployment during the Great Depression on "sticky" labor markets -- sticky because resurgent unions and New Deal wage and hour laws prevented employers from cutting wages the way they wanted to during a time of falling prices. (Gregg might say that in those days we were way too much like Europe.) In short, the way to create jobs is to get those lazy workers off the dole so that they can help lower wages across the economy. Only then will employers find it worth their while to hire more workers. Interesting theory, but it doesn't apply to this planet. In fact, during a major economic crash -- like the Great Depression and the current Great Recession -- the last thing you want to do is reduce the income of working people and the unemployed. With less income, people spend less. And falling consumer demand is the pathway to double-dip recession. The net result: even more job loss and a continued downward spiral -- less demand, fewer business sales, fewer jobs needed, lower tax revenues, more public sector layoffs... and down we go. Have Gregg and others forgotten that the Great Recession began on Wall Street? Do they really believe that coddled unemployed workers are to blame for our economy's failure to produce sufficient jobs? (See the New York Times report, "Black in Memphis Lose Decades of Economic Gain" for a graphic picture of how money hungry banks have devastated whole communities, ) How can they be so blind? Actually, they are far from blind -- they're just covering their eyes. No one in power wants to face up to the enormity of the job crisis. And no one really has a plan to get us out of it. Everyone is praying that "the markets" -- the gods who appear to rule our world -- will recover and start spewing out the tens of millions of jobs we need. No one has the nerve to say that we'll never get those jobs back -- not until the government (either directly or through contractors) starts hiring people en masse to repair our physical and intellectual infrastructures. And of course no one has the nerve to point the finger at those who really are on the dole -- to the tune of $900,000 an hour, in the case of our hedge fund elites. Or the Wall Street bonus babies who walked off with $150 billion last year as a direct result of our multi-trillion dollar bailouts. No, it's a lot safer to beat up on the unemployed -- no campaign contributions lost there. It's time to square up to the jobs crisis. It won't go away by itself. The key to solving the crisis? Move money from Wall Street to Main Street. The only argument we need to have is over how best to do it. Personally, I'm for massive government investment in renewable energy, conservation, and education (especially for dislocated workers). We could create a million weatherization jobs almost overnight if we had the guts to put a 50 percent windfall profits tax on Wall Street bonus babies and hedge fund billionaires. Not only would we get people back to work, but we'd have better insulated homes and offices, vastly reducing our dependence on oil. But no. Now that we've propped up Wall Street and shoveled out some stimulus money, we're told that we're broke. Deficit mania is setting in. So forget creating jobs. Besides, the mysterious and all-powerful "markets" won't like it if government starts playing a more active role. They'll jack up interest rates to punish any country that fails to cut government spending. The politicians are on their knees praying to the market gods and offering up sacrifices in the hopes that they can get through the next election cycle. Catering to the whims of financial markets is madness. Are we living in a theocracy or a democracy? Do we have to grovel before the market gods? Or can we create a world where there is ample work and more harmony with our environment? Who decides? The wrathful gods of Wall Street? Or the people who actually work for a living -- or would like to, if only they could find a job? 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.
Dear Messrs, Tepper, Soros, Simons, Paulson, Cohen, Icahn, Lampert, Griffin, Arnold and Falcone, It's now estimated that about 150,000 teachers will lose their jobs next year because of the financial crisis touched off by your industry. On behalf of the 3 million young people who would have been their students, I have a proposition for you: Donate 50 percent of your 2009 earnings to keep those 150,000 teachers in their classrooms. Each of you, on average, still would net over $935 million dollars for the year (you should be able to scrape by on that) -- and the money you'd forgo would ensure that 3 million kids would get an education. That the ten of you personally received $18.7 billion (not million) from your hedge fund proceeds in 2009 is quite a feat, given that it was the worst economic year since the Great Depression. You each got roughly $36 million a week -- over $900,000 an hour! Meanwhile, as result of the Wall Street shenanigans you helped engineer, 29 million Americans are now without work or forced into part-time jobs. While you may not feel personally responsible for the crash, you do bear some responsibility since you are major players in the financial industry. (Funny how no one is accepting responsibility for the financial crisis.) As Leo Hindery Jr. put it, your industry is a
"profit-driven, greedy, selfish institution that, with its unbridled compensation practices and current light-touch regulatory regime is, I truly believe, behind almost every major societal and economic ill that has befallen the United States since 1980."
As you know, you probably would have earned little or nothing in 2009 if the American taxpayer hadn't bailed out the entire financial system. That $18.7 billion you collected didn't fall from the sky. Fearing another great depression, we poured nearly $10 trillion into the financial sector in the form of loans, liquidity programs, asset guarantees and the like. Those taxpayer subsidies should have gone to enhancing the public good, not pumping up obscene levels of private gain. Instead the net result of our mammoth rescue effort is that 150,000 teachers are laid off while you collect more than $36 million a week. It's a troubling saga of public decay: Your high-flying financial manipulations helped bring down our economy. Millions of people lost their jobs and were no longer able to pay taxes; businesses everywhere went under. And now state and local governments are going broke and slicing their budgets. Tens of thousands of teachers are losing their jobs. (Those of you who live in New Jersey are watching this play out with a vengeance, as school programs are slashed to the bone.) Meanwhile, you walk away with billions, courtesy of U.S. taxpayers. I challenge you to explain this story to your children or to anyone else who isn't on your payroll. How can you justify making more than $900,000 an hour in an industry that is essentially responsible for the loss of 150,000 teachers? Not to pick on you, Mr. Tepper, but you led the list by earning $4 billion in 2009. That's more than $1.9 million an hour, or $32,000 per minute. You earn more in one minute than the average entry-level teacher earns in one year! Please explain. You personally can do something about this insanity. You can prevent the further deterioration of our public educational system. You can let America know that you are willing to right a wrong. You know better than anyone else in the country how truly fortunate you are. And you know that you can easily afford to put thousands of teachers back to work, shoring up the public educational system that is at the core of our democracy. And let's be honest, you can cough up $9 billion and still be wealthier than the pharaohs. In a saner world, we would have placed a 50 percent windfall profits tax on all financial earnings in 2009. That would have helped compensate for the massive public subsidies we provided to your industry. It would have replenished our local, state and federal coffers. But as a nation we are cowed by financial power. We simply do not have the will to challenge our distorted distribution of wealth -- at least not yet. However, with the stroke of a pen, you can help rebalance the scales. In truth, I don't expect you to rise to this challenge. I suspect that if you see this letter, you will come up with a thousand and one reasons to dismiss my request. Some of you might point out that you are already giving hundreds of millions to charities and educational institutions. Or maybe you'll just be miffed that someone like me has the gall to make such an outrageous proposition. But it's not me that you need to think about. You need to think about those 150,000 teachers and the 3 million kids who won't be learning from them next year. Your wealth will have little value if the society around you crumbles. The time may come when the American people demand a modicum of financial justice and economic sanity. This would require something far beyond the current financial reform, which is basically a gift to Wall Street and your hedge funds. (After all, under this legislation, you'll still be able to pay only 15 percent tax on your earnings, which is virtually criminal given our revenue shortfalls.) The time may come when we stop allowing financiers to earn billions while we gut our public infrastructure. I don't know when that will be or how we'll get there. But if you keep piling up your billions with no concern for the American people, you might just hasten the day when an angry and determined public comes knocking on your door. Better you should put our teachers back to work. No? P.S. If you employ those 150,000 teachers, I'll donate the royalties from my latest book, The Looting of America. After all, you're part of the reason the book keeps selling. 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.
Wake up Congress! The financial reform bill you just passed won't protect us from economic chaos. Why? Because it fails to burst the mother of all bubbles -- Wall Street itself. Our outsized financial sector is a clear and present danger to all of us. This gigantic bubble, which bankers and politicians have been pumping up for the past 30 years, now casts a dark shadow over our economy and our political system. It has distorted our distribution of wealth, making a few people obscenely rich while shrinking what's left of the middle class. The financial industry bubble started expanding during the 1970s with the push for deregulation. It grew even faster in the 1980s after Reagan and Congress dramatically cut taxes on the super-rich. The wealthy had to do something with their excess money, so they turned to financial gambling. Wall Street grew and grew, rising from about 7 percent of all corporate profits after WWII to more than 30 percent today. Financial executives got exceedingly rich. As Simon Johnson and James Kwak point out in 13 Bankers, "From 1948 until 1979, average compensation in the banking sector was essentially the same as in the private sector overall; then it shot upward...until in 2007 the average bank employee earned twice as much as the average private sector worker." As I noted in my book The Looting of America, the ratio of compensation of the top 100 CEOs to the average worker shot up from 45 to 1 in 1970 to a whopping 1,723 in 2006. Did the execs -- and the financial execs in particular -- get that much smarter than the rest of us? In a way they did. They got smarter at siphoning off the wealth from our economy while adding little to it. They learned how to leverage gigantic financial bonuses for themselves. And when their financial house of cards collapsed in 2008, they figured out how to get Congress to hand over more than $8 trillion in cash, asset guarantees and cheap federal loan facilities, a vast taxpayer-financed bailout. And so, just two years later, the Wall Street bubble is once again inflating -- and gobbling up our nation's wealth. This week's chilling Los Angeles Times article on our anemic recovery ("Consumer spending trend is a shaky foundation for economic recovery") reveals the contours of our bubble economy:
Much of the new spending has come not from America's broad middle class but from a small slice of affluent people at the top.... What's more, some analysts calculate that another big chunk of the recent spending spurt has come from an even shakier source -- delinquent homeowners who have more cash in their pockets because they've stopped making mortgage payments now that their houses are worth less than the loan amounts.
So apparently our economy is being rescued by 1) some of the same "affluent" people who caused the crash in the first place -- and then benefited from a bailout financed by middle-class taxpayers; and 2) victims of the housing crash, who are now walking away from their homes with a few dollars in their pockets. This week we learned that home foreclosures have reached a record high. Maybe we should break out the champagne, since our economy is apparently depending on these folks. The Wall Street bubble and our pathetic recovery are the result of having forgotten everything we learned during the Great Depression. If we want a strong middle class society, we've got to impose steep income taxes on the super-rich and tightly constrain the financial sector. We're not doing either of these things, and so we're looking at a future of economic chaos. It's obvious why most Congress members choose to ignore the biggest bubble of all. Too many politicians rely on financial industry contributions to win office. Too many want jobs on Wall Street once they leave office. Most just don't have the guts to take on the financial elites. So how do we puncture the bubble and save our economy? In theory it's not very hard. But in practice it will take a mass movement that aims at the right targets. 1. Break up the top twenty banks that are too big too fail. Entities like JP Morgan Chase, CitiGroup and Goldman Sachs are a danger to our democracy. Together these 20 big banks constitute an oligopoly with a stranglehold on our economy. They stifle competition and fix prices, they gamble against their clients, they siphon off our economic wealth. Perhaps most critically, they control economic policy. Today, the question on nearly every politician's lips is, "How will the markets react?" Is that democracy? 2. Institute a financial transaction tax. You would think watching the Dow drop 1,000 points in a hour might create an "aha" moment for our leaders. If not, all they had to do is read the New York Times piece describing the life and times of high-speed traders. These people account for 40 to 60 percent of the volume in the stock market, making billions of trades each day. How long do they hold what they buy? No more than 11 seconds. No joke. The big banking houses are into this game. When pressed they insist that high-speed trading is great because it brings "liquidity" into the market. But who really needs this liquidity? Certainly not your average mom and pop trader. Big bankers like fast trading and "liquidity" because it allows them to siphon even more of investors' money into their pockets. What do we do to stop this vast flow of money to the ultra rich? Put a very small tax on each and every financial trade. The tax could exempt a certain amount so that it targets big bankers and fast traders, not any individual mom and pop traders who are still left in the market. Will it unemploy some day traders? It might. But perhaps our day traders should put their magnificent skills to work in the real economy -- by, say, teaching people math and computer science. (Well maybe not, since the Wall Street-caused fiscal crisis is leading to tens of thousands of teacher lay-offs.) A financial transaction tax could generate about $100 billion a year to help fund or stimulate job creation and/or reduce our deficits. Why don't we hear the deficit hawks screeching about this? 3. Pass a windfall profit tax of 75 percent on Wall Street bonuses and hedge fund incomes (no matter how the money is packaged and laundered). Wouldn't just about any regular American like this idea? We bailed out Wall Street, and they used the money to pay themselves more than $150 billion in bonuses. And now, we want our money back. Does anyone really think that that the top 25 hedge fund managers who waltzed off with $25 billion last year actually deserve all that money? Can anyone think they're worth as much as 658,000 entry-level teachers? 4. Raise the marginal tax rate on those earning $3 million or more per year to 70 percent. (This is quite conservative. The rate was 91 percent under the communistic Eisenhower administration.) If anyone has any real evidence, not faith-based theory, that multimillionaires -- or our economy -- would suffer under such a tax, please let me know. I haven't seen it. Financial columnists like Andrew Ross Sorkin seem enthralled by the capacity of rich people and their fancy lawyers to circumvent such taxes and fees. Yes, they will find ways around stiff taxes, and yes, they are very clever. But where's our outrage? Instead of admiring the sly tax evaders who buy congress members and capture regulators, we should be calling them on the carpet. They are not adding to the nation's wealth, they are looting it. 5. Ban the sale of complex derivatives to all public entities and pension funds and ban public and pension investments in hedge funds. Congress may or may not succeed in passing new rules to curb dangerous derivatives and to bring a bit more transparency and controls to some of these instruments. But it's a crime against humanity to allow any Wall Street firm to foist complex derivatives on public entities and pension funds. When I wrote about how predatory bankers were ripping off five Wisconsin school districts, many readers argued that the school officials themselves were to blame -- they should have known better. Now Capital News Service is reporting that public entities and pensions funds in at least 16 states are facing losses that may amount to over $25 billion. Wall Street got the fees, and the public got ripped off. Afterwards, we bailed out Wall Street, but not its victims. Just another case of public money being used to pump up the Wall Street bubble. A ban is the easiest way to bust this part of the bubble. So who's going to make sure we bust the mother of all bubbles? Nobody but us, the American people. The battle is just beginning. As Bob Kuttner points out (Presidency in Peril), it took at least seven years -- and a lot of public pressure -- for the New Deal to succeed in reforming the financial industry and taxing the super-rich. We are only in Year 2 of our meltdown. The financial elites are hanging on for now, but the American people are wising up to their scams and are hungry for retribution. They are also hungry for jobs. And that is the key to our economic conundrum: Consumer spending by the wealthy and by people who have abandoned their mortgages cannot possibly create the 22 million new jobs we need to get near full employment. We need to build a vibrant, sustainable economy with a big middle class -- and we can't do that as long as Wall Street keeps siphoning away our wealth. Right now the Tea Party is capturing much of people's frustration and anger. Unfortunately, the Tea Party's program of cutting taxes and attacking government regulations is a bad joke when it comes to Wall Street. It will only make it easier for the financial sector to inflate itself and further deflate the middle class. If we're going to save ourselves, our families and our country from the ever expanding Wall Street bubble, the rest of us are going to have to get active and soon. Pass out the pins. 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.

Now that the bank lobbyists are nearly finished neutering the financial reform bill, it's time to face reality: our financial world will continue to be run by the very financiers who crashed the system two years ago. The bankers' arguments ricocheting through the halls of Congress make it seem as if our financial system is basically rational and sound -- that only a few flaws need fixing. That's lunacy. Our bright bankers may be rational as individuals, but collectively they perpetuate a fractured system gone utterly mad... and getting madder every day.

So the financial insanity will continue, with such psychotic outcomes as these:

1.Our pensions and 401ks will continue on their roller coaster ride, driven by market chaos and high-speed computer cacophony. Last week, the automatic trading programs our financial geniuses invented sent the Dow into a one-hour, 1,000-point freefall. Thank goodness it was only one hour. Two would have set off a global panic. No one is sure what happened or why. But don't worry, we're told. The glitches will be fixed and all will be well. (Just as a little technological tinkering is sure to prevent another offshore oil disaster too--not a problem!) In a saner world we would be asking the obvious: Does that high-speed trading serve the needs of our people, or is it just another high-risk strategy to enrich the largest and most connected investors?

2. Big financial institutions, now fully assured that they are indeed too big to fail, will continue to dominate both finance and politics. Anyone in their right mind knows that allowing five or six banks to control our entire financial system is a recipe for disaster and a major threat to democracy. What's the excuse for this form of madness? Well, we're told, during the Great Depression 4,000 banks failed (including lots of little ones), which proves that size doesn't matter. Please help me with this logic: Many banks failed and caused the Great Depression. A few big banks failed and caused our recent Great Recession...Therefore big banks are better? (Somebody flunked their Logic 101 class.) Here's what our experience tells us. Banks, both big and small, when left to play out in the street unsupervised, often end up at the casino tables-- gambling with our money. Big banks are an even bigger risk, because they have the power to gamble with our democracy as well.

3. We'll continue to pay top hedge fund managers 26,000 times more than we pay teachers. This goes back to a question I asked in an earlier post: Are 25 hedge fund managers worth 658,000 teachers? Apparently they are, since that's what they netted in 2009 during which they enjoyed the benefits of our $8 trillion (not billion) bailout. We rescued every hedge fund and bank, but left more than 30 million Americans scrambling for full-time work. This soaring unemployment caused tax revenues to tank, touching off fiscal crises in nearly every state. So governments dramatically cut spending and axed tens of thousands of teachers. The ultimate losers? Public school kids all over the country who were hoping for a good education. The winners? The bankers who caused the crisis. Even during the worst year since the Great Depression.--the sun was still shining on Wall Street, with a $150 billion bonus pool and a billion dollars each for the top 25 hedge fund managers. We put no windfall profits taxes on those billions, even though the money came directly from the U.S. treasury in the form of bailouts. We even allowed that income to be taxed at lower capital gains rates. That's rational?

4. Little countries that falter, like Greece, will continue to put the whole global economy at risk. We're told that the Greeks have only themselves to blame: They retire too early, drink too much retsina and often break into dance without warning....all on borrowed money. Yes, they broke the EU's debt limit rules. But they had a bit of help from Goldman Sachs, which made hundreds of millions of dollars in fees for creating complex derivatives to "help" the Greek government hide their debt. And yet Congress still refuses to regulate these scary financial items because they are "customized." Of course it was the global crash begun by our big banks that sparked the Greek fiscal crisis in the first place. In a sane world, the largest banks and the wealthiest investors in Greek debt (who caused the crash in the first place) would be forced to make reparations for the damage they caused. Instead, we have to make the Greeks stop dancing? Sicko.

5. The deficit hysteria drumbeat will build to a deafening crescendo. Forget about taxing the super-rich--we've got to cut benefits for working people instead. Respected journalists like New York Times columnist David Leonhardt warn us that we're all living beyond our means. It's time to tighten our belts or we'll end up like Greece. No more tax breaks for health and housing. We've got to retire later, with less money, and cut our medical expenses. And our wages have to become more "competitive." But who is "we"? Where are all these high-living people? The average non-supervisory production worker in America (about 75 percent of the workforce) has already seen an 18 percent drop in real wages since the mid 1970s. Meanwhile productivity increased by more than 90 percent. Yet now we've got to tighten our belts? Where did all that money from the higher productivity go, if not to us? No surprise here: into the hands of the few.

It all goes back to that most glaring symptom and cause of our psychosis: our insane maldistribution of income, which gets worse and worse every year. The richest 1 percent of Americans now earn more than the bottom 50 percent. Back in 1973, the richest 1 percent of earners collected 8 percent of the national income. By 2006, the top 1 percent got nearly 23 percent of the national income -- the highest proportion since 1929. Or look at the pay gap on the job: In 1970, the top 100 CEOs earned 45 times more than their workers, on average. In 2009 the ratio was 1,071 to 1.

Here's an example of what this maldistribution is costing us: The top 400 richest Americans have a combined wealth of more than $1.3 trillion. And that's enough money to endow every public college and university in the country so that students could attend tuition-free in perpetuity. (Hopefully some would decide to graduate before then.)

We need to return to Eisenhower era tax rates: 91 percent on those earning over $3 million in today's dollars. The money would roll in, and the deficit hawks would sound like parakeets.

The ultimate insanity of our current moment is that the richest investors and the largest bankers in the world just crashed our system, got bailed out by taxpayers, grew even larger, and now are back to earning record profits and bonuses. They caused the biggest jobs crisis since the Great Depression and drove the entire global economy into a ditch--and they could do it again any minute. And now they're telling us to tighten our belts and act more responsibly?

Here's the good news. The American people sense something is really wrong. They're angry at Wall Street and anyone in its pocket. It's taken a while, but the truth is seeping in. The angry public forced Congress to bring those squirming bankers into their hearing rooms. Unfortunately, Congress caved when it came to actually passing a strong reform bill that would bust up the biggest banks, end windfall profits and curb the gambling. Too bad the average citizen has no way to register his or her anger except to vote the "ins" out. Since. both parties are largely in the pocket of the financial industry (and other industries), it's hard, if not impossible, to be optimistic about the new "ins."

Imagine if we could vote for something like a jobs and environment party, free from Wall Street's money, that was dedicated to putting ALL of our people to work building a truly sustainable economy? Now that would be really insane.

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.