Big Finance Is a Monster That's Consuming Our Economic Security
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And when in 1999 derivatives were set free from all regulations, all hell broke loose, From 2000 to 2004 the financial sector cornered 39.2 percent of all corporate profits, hitting a peak of 44 percent in 2002. Think about that: nearly half of all corporate profits were swept into the casino.
When toxic assets blew up in 2008 and the financial sector went on the federal dole, its share of profits collapsed back down to 17 percent, just about what it was during the 1960s. If only the story ended there.
Instead, we bailed them out without squashing their casinos, without hitting them with windfall profits taxes, without breaking up too-big-to-fail banks and without regulating hedge funds. Actually big banks got bigger and competition among them declined as the Feds orchestrated a series of mergers. As a result, banks could corner lucrative markets and raise their fees. Today, the top 10 banks have $11 trillion out of $13 trillion in total banking assets. (There are 7,650 banks.)
Guess what? Financial profits shot back up to 28 percent of all corporate profits in 2009.
And you won’t be seeing very much of it. That’s because the top one percent among us own 42 percent of all financial wealth, while the bottom 80 percent has just 7 percent...and those are 2007 numbers before the crash destroyed the value of so many 401ks.
The myth of finance and jobs
Obviously the financial sector is much bigger than hedge funds. There also are jobs at banks, investment houses, insurance companies and real estate firms. Surely, this massive sector is providing the kind of job growth we need to make up for the enormous losses in manufacturing employment?
Never before in history have the few made so much money and created so little employment. During the low financial profitability years, the financial sector as a whole (including insurance and real estate) inched up from 3.8 percent of all jobs during the 1950s to, 4.3 percent in the 1960s and 5.0 percent in the 1970s. (All data based on Bureau of Economic Analysis tables.)
But when finance was gobbling up 30 to 40 percent of all corporate profits, jobs did not follow. In 1980s and 1990s finance services accounted for 5.8 percent of all jobs, and from 2000 to 2010 when finance hit its most dizzying heights, it produced only 5.9 percent of employment. That’s pathetic. It’s also dangerous because it means we’re likely to face chronic high unemployment for years to come.
Yet some continue to see finance as our destiny. Heaven help us. Treasury Secretary Timothy Geithner, for example, is sure that America will prosper if it encourages its biggest banks to dominate the world market for financial services. In a recent interview he said:
"I don't have any enthusiasm for ... trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world. It's the same thing for Microsoft or anything else. We want U.S. firms to benefit from that."
At least the guy is honest. He really believes that making Wall Street bigger and richer will make our country prosper. And he actually thinks a multi-billion-dollar hedge fund is just like Microsoft. For Geithner it doesn’t matter that Microsoft has 135,000 employees while John Paulson’s hedge fund has fewer than 200. As Wall Street’s most powerful protector, he will never question whether or not this industry creates real value for our economy.