Politics and Social Justice Archive

Why Is Obama's Treasury Dept. Perversely Siding With Big Banks Against Elizabeth Warren and the State AGs?

Monday, April 4th, 2011

American families are fortunate to have Elizabeth Warren on their side, along with the 50 state attorney generals who are demanding reparations from the nation’s largest banks.

Warren, who is the temporary head of the Consumer Financial Protection Bureau (a quasi independent agency housed in the not-so-friendly Treasury Department) and these AGs are demanding justice. It’s about time.

They want the big banks to pay dearly for the fraud they’ve perpetrated on potential homeowners in the form of robo-signings, lost titles, forged documents, phantom fees, willfully mismanaged loan modifications and a slew of other ruses even Kafka couldn’t imagine. Most of these homeowners are underwater – their homes worth less than their mortgages – and many are unable to meet their payments. All have seen the value of their homes plummet.

Continue reading this article on Alternet.

looting Les Leopold is the author of The Looting of America.

The Real Story of Our Economy: Why Our Standard of Living Has Stalled Out

Tuesday, March 29th, 2011

Do public sector workers earn more than private sector workers? Who cares? This boneheaded question has us fighting over the crumbs. (And the answer is no - all credible studies show that when you account for educational levels, the total compensation packages are about the same.)

The real question is: Why have most workers seen their standard of living stall over the last generation?

The answer is both obvious and appalling. More and more of our nation’s wealth is going to the few, while the many have seen their real wages actually decline. It’s a disgrace.

It wasn’t always so. For more than a quarter century after WWII the fruits of America's productivity were shared with average working people, year in and year out. But what exactly was being shared?

What’s productivity and who gets its benefits?

Productivity is a crucial economic measure of the total output of goods and services in our economy per hours worked. It’s not based on pay levels, only on hours worked in the economy as a whole. In effect, it measures how much human labor power it takes to produce everything we have. It makes a real difference to our standard of living if it takes 10,000 hours rather than 1,000 to build a house.

Output per working hour, although imprecise, is the best way we have to measure our level of technique, organization, skill, effort and intellectual firepower. Sure, this measure has significant flaws because it doesn’t really measure our health or environmental quality. But it does indeed measure the material side of our standard of living. When productivity grows, a society has the means to solve many problems and the means to enhance working and living conditions…but only if the fruits of productivity are shared somewhat fairly.

Continue reading this article at Alternet.

looting Les Leopold is the author of The Looting of America.

Is Corruption on Wall Street All in the Eyes of the Beholder?

Friday, March 18th, 2011

Japan's Nikkei share average plunged 10.6 percent on Tuesday, posting the worst two-day rout since 1987, as hedge funds bailed out after reports of rising radiation near Tokyo. ~ Reuters, March 15, 2011

While it's far too early to assess the full impact of the Japanese disaster on markets around the globe — let alone on the Japanese people — we do know that hedge funds are already busy trying to profit from the misery. They make no apologies for operating in an ethics-free zone. Their business is to rapidly move money in and out of distressed markets. That's just what they do.

But as we're learning from the trial of billionaire Raj Rajaratnam, head of the Galleon hedge fund, an ethics-free zone can easily become a crime scene. The Raj is charged with enough counts of insider trading to spend 20 years in the hoosegow. And he's not the only one on trial. As the case unfolds, Wall Street as a whole may find itself in the dock, facing the question it dreads most: Just how much of Wall Street's wealth is built upon criminal activity?

Of all the rich and worried people on Wall Street right now, the hedge fund managers are the richest and maybe the most worried. After all, they've got a lot to lose. A LOT. Just to name one example, in 2010, the top hedge fund manager, John Paulson, netted — for himself personally — $2.4 million an HOUR. Forbes reports that in 2009, Rajaratnam was the 236th richest American, with an estimated net worth of $1.8 billion. That's more than 12,000 times the median US family's net worth (which was $98,997 in 2009).

Sebastian Mallaby, the financial author, offers a spirited defense of the hedge fund industry, arguing that, yes, there may be a few truly rotten apples, but insider trading is really no big deal. (See "Hands Off Hedge Funds" May 2007)

An industry of around 9,000 hedge funds is indeed bound to harbor some criminals….Moreover, some of what politicians and journalists label 'hedge-fund abuses' involve leaks of inside information from investment banks rather than from hedge funds, making the hedge-fund managers who receive the leaks accomplices rather than the chief offenders.

But federal prosecutors beg to differ: They say the Raj's hedge fund is the prime mover of the insider conspiracy, not a lowly accomplice to the crime. "Greed and corruption — that's what this case is all about," said the the lead prosecutor in his opening statement. Rajaratnam "knew tomorrow's business news today and traded on it. ….One crucial thing he didn't know. He didn't know the FBI was listening."

What goes on when the F.B.I. isn't listening?

The defense team, led by John Dowd, argues that the Raj is just a smart guy who made his fortune through "shoe-leather research, diligence and hard work" and who "conducted the best research in the business." You see, says Dowd, the Raj used the "mosaic" method of investing: He collected from many sources a compendium of unconnected facts about a company to form a mosaic of its true worth. And that mosaic told him whether to go long, short, both, or stay away. Constructing these gorgeous mosaics turned the Raj into the billionaire he is today.

Mosaic method? Okay, let's give it a try. How about constructing a mosaic of hedge fund illegalities over the past decade or so? There are so many colorful tiles to choose from. Here are a few.

Insider Trading: Hedge funds of all kinds rely on "expert networks" who link together consultants who gather information about companies. In the process, bits of illegal information find their way into and around the network and then into the bottom lines. The Raj investigation already has upended several hedge funds that benefited from this common phenomenon.

Tax Evasion: Swiss banker Rudolf M. Elmer has blown the whistle on an international web of rich investors, banks and hedge funds that evade taxes by illegally shifting money to low-tax jurisdictions. There's something extra-slimy about tax dodging by hedge funds, given that they already pay less taxes than anyone else. Due to an egregious IRS loophole, hedge fund managers pay a top tax rate of 15 percent instead of the 35 percent normal wealthy people are supposed to pay. That these under-taxed fat cats feel entitled to top it off by engaging in this blatantly illegal form of tax evasion is galling. These guys seem unable to resist piling up more money, even if it means taking the law into their own hands.

Ponzi Schemes: When we think Ponzi, we think Bernie. Hedge funds like Madoff's are ideally suited for this kind of scam since they are designed to evade so many disclosure regulations. But Bernie's isn't the only game in town. There's a whole other kind of Ponzi scheme that has largely escaped media attention. You can find a description of this seriously twisted strategem buried deep in the bowels of the Financial Crisis Inquiry Commission Report. To construct and market exotic and highly profitable CDOs based on toxic subprime assets, investment banks had to be able sell the lower tranches (where a good deal of the junk assets lived). But that got harder towards the end of the housing boom.

So to keep the production line going, the banks sold the junk to each other: Entity A sold to Entity B who then sold back to Entity A. This game of hot potato was even played by different departments within one large investment bank. Hedge funds were always there to suck up the lowest level, highest yield "equity" tranches — while often shorting other pieces. The potato toss had to continue or the entire game was lost. According to the Financial Crisis Inquiry Report, "heading into 2007 there was a Streetwide gentleman's agreement: you buy my BBB tranch and I'll buy yours." (p. 278) This scheme would have gone nowhere without hundreds of hedge fund players lapping up the equity tranches and buying the credit default swaps that allowed the deals to be constructed in the first place. How many financial billionaires were minted in this process, I wonder?

Front-running trades: With their high-speed trading computers and algorithms that sense market moves, the biggest hedge funds and banks are able to trade just a fraction of a second before the rest of us do. The SEC has been investigating this practice, known as front-running, for several years. The agency is worried that brokers leaked information about large trades by institutional investors to hedge funds so they could pull off the trade just a split second before the large trade took place thereby earning a quick, easy and illegal profit.

Timing and Late Trading: When Eliot Spitzer was New York Attorney General (and earned the handle Sheriff of Wall Street), he uncovered how hedge funds were maneuvering around trading rules like a Ferrari speeding around the hapless shmoes stuck in midtown traffic. Hedge funds were allowed to jump in and out of mutual funds many more times than normal investors, enabling them to score high returns at the expense of regular mutual fund customers. They even got away with booking trades hours after the market closed for the day — a real perk, since market-moving announcements often are made right after closing. You don't need to go to Wharton to make big bucks on this one: All you do is wait a few hours to judge the impact of the after-closing news, then book your trades at the 4 pm price. Spitzer forced the guilty parties to pay several billion dollars in fines.

Accounting Irregularities: This is the catch-all biggie: Hedge funds and banks cook the books to avoid showing losses and to artificially inflate profits. Hedge funds are also deeply involved in helping other companies — like Enron and WorldCom — cook their books. According to a study by Bing Liang at the University of Massachusetts, as of 2004, 35 percent of all hedge funds cited no dates for their last audit. Hmmm.

Setting up bets that can't fail: Goldman Sachs had to pay $550 million for not telling its investors about its questionable deal with a hedge fund: The bank allowed the hedge fund to pick the most shaky underlying mortgage securities to be used in creating a synthetic CDO — so that the hedge fund could then turn around and bet against it. It was a winning bet for the hedge fund — it bagged a billion. Unfortunately, the investors lost a billion. Goldman Sachs did pretty well with its deal to pay only the $550 million SEC fine. After all, the company was bailed out by taxpayers to the tune of $12 billion: We paid them 100 cents on the dollar for credit default swap insurance that AIG could not pay. Incredibly, the hedge fund was in the clear. It couldn't even be charged, since it neither bought nor sold the securities in question. At the moment, there's no law against encouraging someone else to rig a bet for you — except at the racetrack.

These are just a few of the many tiles for our hedge fund mosaic of cheating. As Neil Weinberg and Bernard Condon wrote in Forbes back in 2004 ("The Sleaziest Show On Earth"):

Hedge funds exist in a lawless and risky realm, exempt from the rules governing mutual funds, equities and most other investments. Hedge funds aren't even required to keep audited books — and many don't. These risky funds often are guilty of inadequate disclosure of costs, overvaluation of holdings to goose reported performance and manager pay, and cozy ties between funds and brokers that often shortchange investors.

Of course, none of this proves that any given hedge fund billionaire is a cheat or even ethically challenged. But it does offer an unflattering picture of an industry that is at this very moment trying to milk money from Japan's roiling markets, once again profiting from the misery of others.

There's got to be a better way.

Read the original article on The Huffington Post.

looting Les Leopold is the author of The Looting of America.

Main Street Goes to War Against Itself as Job Crisis Persists

Friday, March 4th, 2011

The February unemployment rate is 8.9 percent. The broader Bureau of Labor Statistics U6 jobless rate is 15.9 percent. The report shows a net increase of 192,000 jobs. However, we need 127,000 new jobs every month to keep up with population growth. At this rate it will take 11.2 years to get back to full employment.

A Wall Street billionaire, a unionized public employee, and a Tea Party member are sitting at a table eying a plate of a dozen delicious cookies. The financier reaches across and takes 11 cookies, looks at the tea partier and says, "Watch out for that union guy. He wants your cookie."

How did this happen? How did we get to the point where governors all over the place are blaming the economic crisis on working people?

We're here because we didn't take the fight to Wall Street. The White House, Congress, and even trade unions let Wall Street off the hook. And now working people and the middle class all over the country are paying a heavy price.

The battle actually started thirty years ago when our nation embarked on a real-time experiment: Would wholesale financial deregulation and tax cuts for the super-rich drive a massive investment boom that would make all boats rise? It turned out, no. Instead, working families' incomes stalled. But the wealthy were left with such thick wads of cash that they didn't know where to spend it all. So they bought up Wall Street's new toxic "financial innovations." And presto: the largest financial crash since the Great Depression. (My apologies for the self-promotion but please see The Looting of America for an accessible account of the meltdown.)

Remember a couple years back, when Wall Street was on its knees, begging for our support? That was the perfect moment to reverse the 30-year trend and create a new kind of financial system that wouldn't gamble away our nation's wealth. Instead we resurrected too-big-to fail institutions and bailed out virtually every Wall Street investor.

And now, the right wing, which has been banging its drum against unions, government, and taxes for years, is having a field day using our recession-induced budget problems as a cover for slicing their enemies — the unions — to smithereens.

There's plenty of blame to pass around.

The White House:

President Obama started out with populist rhetoric that reflected America's disgust with Wall Street's greed. But soon, he tucked behind his Wall Street-friendly corps of advisors — Geithner, Summers and Bernanke — who told him there was only one way to avert another Great Depression and start generating jobs: Resurrect Wall Street with trillions of dollars in loans, asset swaps and guarantees — and throw in a modest stimulus program.

So Obama stopped talking about shrinking Wall Street's profits and wages. He stopped talking about how our best and brightest should forgo Wall Street and instead build productive careers in education, science and medicine. He stopped talking about how appalling it was to be bailing out the very people who'd brought the economy to its knees. What could he say given how much the administration had done for the Wall Street billionaires? Now it's hard even to remember that our cocky financiers were so recently on their knees begging for survival.

It turned out that Geithner, Summers and Bernanke were only half right: The US did avert (or postpone) a Great Depression — but jobs did not follow. Thanks to the US taxpayer, Wall Street's profits and bonuses went back to record levels, as if nothing much had happened. People stopped talking about financial nationalization and "hair cuts" for investors.

Obama squandered the progressive moment. Because had had refused to make Wall Street pay for the damage it had caused, we had no way to fund serious job creation. As a consequence, the "nationalization" we saw was of deep, persistent unemployment in every corner of the country. And the people getting the hair cut were the Democrats. They were pummeled in the mid-terms not because of health care reform, but because the traditional "Party of Jobs" failed to create them. In my opinion, they were punished for being the Party of Wall Street.

After the massive electoral defeat, the President turned into a deficit hawk, pushing the entire debate to the right. When he called for freezing public employees' wages, he fired the first shot in the war against workers on Main Street.


Of course the President had many fainthearted enablers on Capitol Hill. Congress failed miserably to build on Main Street's anger against Wall Street. Lawmakers couldn't even bring themselves to close a simple loophole to force the richest hedge fund financiers — people making $2.4 million an HOUR — to pay normal income taxes. Instead these hedge honchos still only pay 15 percent — a lower rate than their own office cleaners. Closing that loophole on the top 25 hedge fund managers alone would have reduced the deficit twice as much as Obama's two-year wage freeze on federal employees.

Congress members also couldn't bear to break up too-big-to-fail institutions. They couldn't stomach windfall profits taxes or transaction taxes on the financial sector to help pay for our continuing bailout. (Who do you think now owns and guarantees hundreds of billions in toxic assets? You do!) And of course, the Capitol Hill crew didn't have the nerve to put Americans back to work through visionary moves like free higher education or the nationwide weatherization of all our homes and businesses.

The Labor Movement

Unfortunately, most trade unions also missed the moment. They were so invested in Obama and the Democrats that they didn't want (and maybe forgot how) to mobilize en masse against Wall Street. Americans needed a clear narrative explaining how Wall Street caused the financial crisis and a coherent program to create millions of sustainable jobs. They got neither from organized labor.

To be fair, labor had its hands full. With union jobs rapidly evaporating, it had bet the farm that a Democratic administration and Democratic Congress would pass the Employee Free Choice Act. (EFCA aims to level the playing field so that workers who want unions can form them without being fired.) This reform, they hoped, would unleash a great new surge of union organizing. But the bill didn't even come up for a vote. Now, in state after state — even in old union strongholds like Wisconsin, Iowa and Michigan — politicians are hacking at workers' basic collective bargaining rights, as if somehow those workers caused the financial crisis. As one savvy union staffer quipped, "Workers don't make synthetic CDOs!"

So let's square up. Where we are, and how did we get to this fateful moment?

1. Because we bailed out Wall Street banks and then let them off the hook, they're now back to collecting record profits. Hedge fund managers are making billions for themselves thanks to our blanket bailout of the financial sector. Not only are they not paying reparations, they're fighting hard to roll back even more regulations so they can run their financial casinos with full impunity. Their contribution to deficit reduction is minuscule. Equality of sacrifice is a joke on Wall Street.

2. Because of the financial crisis set off by Wall Street and Wall Street alone, 8.75 million jobs were lost in one year. With economic growth still feeble and corporations hoarding their money, it will take over 11.2 years to reach full-employment again at the rate we're going.

3. Because of high unemployment and the resulting drop in tax revenues (as well as years of tax cuts for the wealthy and large corporations), state and local government budgets are having a fiscal heart attack. It's open season on public employees, the last bunch of American workers who are a) unionized in large numbers, b) still have decent health care benefits and c) still have defined benefit pension plans (which don't force workers to shoulder all the financial risks in retirement). Meanwhile, no one's going after the ultra-rich for shirking their state and local taxes. In every state of the union, the richest one percent of residents pay a lower percentage of their income in total state and local taxes than do middle- or low-income residents.)

4. Political demagogues are playing working people against each other with the rhetorical cry, "Why should taxpayers pay for public employee benefits that they themselves can only dream of?" The obvious answer is that private sector workers should also have decent health care benefits and pensions. Meanwhile, a windfall profits tax on Wall Street could close every state budget gap in the country.

Thank goodness for the intrepid workers and students in Wisconsin, Indiana, and elsewhere who are resisting the assault. And thank goodness most Americans are on their side, according to a recent New York Times/CBS News poll. It showed that a majority support public sector collective bargaining, favor tax increases over cuts in public sector benefits, and don't think unions are too influential.)

The bagpiping firefighters camped out at the Wisconsin capitol are blocking the maniacal march to lower our standard of living. But that's not good enough. It's time for the bagpipes to march on Wall Street… and for the rest of us to join them.

Read the original article on The Huffington Post.

looting Les Leopold is the author of The Looting of America.

When Will We Face Up to the Enormity of the Jobs Crisis?

Friday, November 12th, 2010

"If future job creation reaches about 208,000 jobs per month, the average monthly job creation for the best year for job creation in the 2000s, it will take almost 140 months (about 11.5 years) to reach pre-recession employment levels. In a more optimistic scenario with 321,000 jobs created per month, the average monthly job creation for the best year in the 1990s, it will take 59 months (almost 5 years)." Michael Greenstone, Adam Looney "The Long Road Back to Full Employment: How the Great Recession Compares to Previous U.S. Recessions," The Brookings Institution

This may be the first time in American history that the super-rich are experiencing an economic boom while the rest of us are coping with serious economic difficulties. Even during the depths of the Great Depression there was some equality of suffering. Of course, the wealthy weren't exactly standing in bread lines wondering if they'd ever work again. But the rich and the poor both felt the crisis. This time around, it's a Tale of Two Cities: the super-rich are doing just fine, thanks to taxpayer largess, even as the rest of us are staggering through the highest sustained unemployment level since 1937.

Our Wall Street billionaires easily weathered the financial storm that they themselves created. It's as if nothing had happened. The financial reforms Congress passed are weak. The biggest banks actually are bigger. And Wall Street profits and bonuses are approaching record highs. That's in stark contrast with the fact that more than 29 million Americans are without work or have been forced into part-time jobs.

With the Republican landslide, the super-rich have nothing to fear from Congress. No need to worry about tax increases or tighter regulations now. The hedge funds will be able to hang on to their 15 percent tax rate (by claiming their earnings as capital gains) while raking in $900,000 an hour (not a typo). Meanwhile the pressure mounts to cut social spending–because, of course, we've got to combat the large deficits we racked up by giving tax breaks to the rich, bailing out Wall Street, and dealing with the financial crash that Wall Street created. (We get a deficit commission instead of a jobs commission?)

But the real mystery is how quiet progressives are. We seem constitutionally incapable of facing the enormity of the employment crisis.

As far as I can tell, most liberal advocacy groups are carrying on as if the economy hadn't crashed at all. It's like we're all stuck in our remote silos - each working on our own separate issues. We have no shared vision, shared programs or shared will to tackle the broader unemployment crisis. We hope the economy will somehow resurrect itself so that we can go on fighting for our favorite cause without any further interruptions.

Meanwhile, the right, especially the Tea Party, definitely is in crisis mode, and they have a plan. In my opinion they have misidentified the crisis - big government and debt - and have the wrong plan — cut taxes and government spending. But they have a vision, they have passion, and they're not afraid to challenge not only the Democrats, but the Republicans. They've hit on a clever theory to explain the jobs crisis, one that can't be disproved by facts: It's caused by big government's interference in the economy. The solution: slice government spending and regulations so that free enterprise can prosper. And if unemployment still remains high after budget cuts–well, then we just didn't cut enough. It's a perfect Catch 22.

And the rest of us are saying …what? What do environmentalists propose to do about the jobs crisis? What is the women's movement's economic program? What do progressives involved in healthcare or education think we should do to create the 22 million new jobs we need to get back to full employment?

Yes, there's a lot of positive discussion about rebuilding our economy through green jobs and renewable energy. But the scale of these proposals is far too small to put much of a dent in the unemployment numbers. Are we all too afraid to say what's really needed?

We need hundreds of billions of dollars of public investment, right now, paid by taxes on the super-rich.

Why are progressives so timid? Part of the answer lies in our permanent attachment to the Democratic Party. It seems that we can't ever imagine a time when it would be appropriate to abandon or at least openly fight with the Dems–even those who abandoned us long ago. What will we do as the remaining Blue Dogs move even further to the right, joining with the Republicans on deficit reduction, gutting health care reform, outlawing abortions and stonewalling on climate change? One thing is certain — the Democratic Party is in no mood to lay out a bold national proposal to create the millions of new jobs we need. Most are tacking to the "center" to avoid the fate of Russ Feingold, the very best of the bunch.

What would a massive job creation program look like?
Let's start with a no-brainer: We hire an army of at least one million installers to weatherize every home and business in the country. Hiring all these workers –at decent wages –through tens of thousands of local contractors will probably add another 400,000 jobs (in addition to the original million) as these re-employed workers spend their earnings. Households and businesses will save on their energy bills, and we'll reduce global warming emissions. The budget crisis facing state governments will ease as tax dollars start pouring in and unemployment insurance claims plummet. We'll trigger an economic upswing that's also good for the environment.

Next, we should fund free higher education at all public colleges and universities, a social good that will also open up the job market by drawing people from the workforce into the educational system. A hiring and construction boom on campuses all over the country will generate a flood of jobs for our millions of unemployed construction workers. This is precisely how the GI Bill of Rights averted what could have been a staggering unemployment crisis after WWII–a time when millions of returning veterans were coming back home in search of work. Through the GI bill, three million instead went to school. Congressional studies show that the GI Bill returned almost $7 dollars of economic growth for every dollar invested–probably the best investment the federal government ever made.

We should also invest massively in alternative energy research, in rebuilding and enhancing our infrastructure, and in meeting a myriad of other needs in our communities. Ask every town in the country to come up with ten projects that need doing right now, and then have the federal government fund them. The ripple effect would wake up our slumbering economy.

Oh, but won't all this cost a fortune? Aren't we already tapped out from Wall Street bailouts and the half-assed stimulus program (not to mention two wars)?

Good question — it gets us to the best part of our in-your-face program. We need to make those who crushed our economy, and whom we so generously bailed out, foot the bill. The American people, I believe, would support a windfall tax on financial profits and bonuses and eliminating tax loopholes on hedge funds to fund the jobs we so desperately need.

Time for a Jobs Party?
Will any of this pass in the near future? Of course not. But it'll never happen if we don't propose what is really needed.

We have no prayer of tackling the jobs crisis until we articulate a clear-cut agenda and start pressing for it. And we can't do it alone. We need a sustained, organized voice independent of the Democratic Party that focuses clearly on the jobs crisis. In fact, we should take a cold hard look at creating a Jobs Party. Maybe, one day, it would become a third party that would truly vie for power. But at the very least it could create the same kind of chaos among the Democrats as the Tea Party is creating among the Republicans. Wouldn't it be nice to see Democratic officials, fearing primary fights, tripping all over themselves to proclaim their allegiance to the Jobs Party agenda?

Right now, the only conversation we're hearing on jobs is a boring rerun of failed neo-liberalism - cut taxes on the super-rich, deregulate big business and pray for rain. Instead, we need to force politicians to engage in a much more aggressive national conversation about jobs. How are we are going to create the 22 million new jobs to get us back near full-employment?

Will it really take eleven years or more, as the Brookings Institution study (cited above) suggests, for us to get these jobs back? That's up to us. A Jobs Party with moxie could speed up the timetable during this new era of joblessness.

Maybe all this sound fanciful and unrealistic. But let's remind ourselves of how fast the world is changing. Did anyone believe that President Obama could go from being America's darling to chopped liver in less than two years? Did anyone believe that a Tea Party would become a "credible" force among more than 40 percent of the electorate by pushing an agenda that died with Barry Goldwater a generation ago?

Actually, the most fanciful path of all might be hoping we can muddle through indefinitely with the Democrats while ignoring the employment crisis as we plug away, day after day, inside our issue silos.

Come on — let's say what we really believe in before we forget how.

Read the original article on The Huffington Post.

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, available now.

How To Earn $900,000 an Hour while Unemployment Soars

Friday, October 15th, 2010

Let's be honest. Wouldn't you like to rake in a cool $900,000 for one hour's work? No? Still have hippie ideals, perhaps? You could work for just 10 minutes and walk off with $150 k. Push yourself to work one entire day and we're talking $7.2 million. Hang in there for a month, and you'll pull in more than the richest athletes make in 10 years — $256.5 million. And in one year? Well, you'll be earning what the top ten hedge fund honchos each averaged in 2009 — $1.87 billion. Wouldn't you like to know their secrets? Here are a few:

Step 1: Check your conscience at the door.
You must be able to live with the knowledge that while you were making $900,000 an hour, more than 29 million other Americans had no job at all or were forced into part-time work. Also you'd have to live with the uncomfortable fact that your sector - high finance - crashed the economy, leaving eight million Americans jobless in a matter of months.

You're obviously good at math so you'll be able to calculate that it will now take 22.5 million new jobs to bring the economy back to full-employment (an unemployment rate of 5 percent or less). That's the equivalent of creating 630 new corporations the size of Apple Corp. (35,000 employees each). Sadly, you're also a realist, so you know that unemployment is likely to remain at record post-WWII highs for years to come.

Feeling guilty? Don't. Remind everyone again and again that hedge funds like yours didn't get bailed out. You're not too big to fail. You just figured out how to be better at investing than anyone else. You're what capitalism is supposed to reward. You earned your $900,000 an hour fair and square! Suppress all your doubts and just keep telling yourself — and everyone else — that you have nothing to do with rising poverty or the fact that nearly 50 million people can't afford health care. You're the solution, not the problem. Conscience be damned!

Step 2: Remember: None of this is your fault!
Yes, a few tiresome critics will keep pointing the finger at you, saying that the financial sector crashed the economy. Ignore them and put the blame where it belongs - somewhere else. When in doubt, seek guidance from the pros on Wall Street. They know exactly who to blame:

- the few bad apples who gave out mortgages like candy
- the greedy Americans who bought homes they couldn't afford (they should have ignored the bankers who told them they could!)
- the politicians who pushed for risky loans for "low-income" buyers (subtext: favoritism for minorities.)
- the Fed, which kept interest rates too low for too long, inflating the bubble
- and, most importantly, American consumers who "lived beyond their means," running up too much debt. (Those people, not you, really need to tighten their belts!)

Assert with the utmost confidence that it's Wall Street billionaires who make our system the envy of the world, so help me god.

Step 3: Proclaim that you are the solution:
It's not enough to dodge the blame. You've got to convince academics and journalists to anoint you as the savior. You see, it's you and your fellow high finance moguls who will save us from ever having to endure a crisis like this again. Fortunately for you, they've already bought the story. For example, in More Money than God, Sebastian Mallaby writes:

How can governments promote small-enough-to fail institutions that manage risk well? This is the key question about the future of finance; and one part of the answer is hiding in plain sight. Governments must encourage hedge funds….The chief policy prescription can be boiled down to two words: Don't regulate." (p 380-81)

Imagine that! Top hedge fund managers who earn $900,000 an hour are the answer to too-big-to-fail bailouts, and you don't even need government regulations to keep them honest! People who suggest that Wall Street billionaires are essentially card counters in a Las Vegas casino? They're just envious. People who question whether the entire casino has any redeeming social or economic value at all? They're just stupid. (For my envious and stupid account, see The Looting of America.)

Step 4: Tell people, "Sure, go ahead and raise taxes on the super-rich!" (wink, wink): Because of Wall Street billionaires our income distribution is the most extreme since 1929. By some estimates it's even worse, with the top 1 percent hoarding nearly 50 percent of our nation's wealth. And yet, a recent academic survey suggests that most Americans have no idea things are so skewed. The vast majority actually said they would prefer a wealth distribution more like Sweden's. Heaven forbid!

So–why on earth would someone like Warren Buffett be offering to pay more taxes? Well, for one thing, there are worse things than higher income tax rates. What you want to avoid at all cost is any reform that might reduce financial industry profits–like controls on derivatives and financial transaction fees.

As for raising taxes: Just because you say you're willing to pay them doesn't mean you'll actually ever have to. Everyone knows that the moment anyone actually tries to tax the super-rich, a Greek chorus of greed will chant: "Investor confidence will crash! Small businesses will suffer! Jobs will crumble! The recovery will stall!"

So, once you get to be a billionaire, join the cavalcade of gurus who insist they should at least pay the same tax rates as their secretaries. And if those weak-kneed politicians simply refuse to raise your taxes, well, what's a billionaire to do?

Step 5: Count on America's admiration:
Americans may say they want wealth to be distributed much more evenly. But they also have a perpetual love affair with the super-rich. Any effort to rein in billionaires grates against one of our most fundamental values: the right to make as much money as we can, however we can, whenever we can. The very existence of Wall Street billionaires opens up the possibility that we ourselves will become super rich someday.

Fortunately for Wall Street billionaires, Americans tend to view even modest proposals to redistribute wealth as cataclysmic. (Remember Joe the Plumber?) When I propose that maybe we would be better off without Wall Street billionaires, even non-plumbers tell me: "Oh, no. We don't want to live in a socialist society where incomes are flat. Everyone would lose their motivation. And we'd be stuck with only one flavor of ice cream at our dilapidated collectivist food co-op!" In our political culture, there seem to be no mental resting points between North Korean communism and an economy that lets Wall Street billionaires run wild.

However, every once in a while we get pissed off. In 1913 we passed a constitutional amendment to legalize income taxes on plutocrats. From the 1930s to the 1970s we enacted tax rates on the super-rich that hovered between 70 and 90 percent. And long before that Andrew Jackson vetoed the National Bank because, as he said, "the rich and powerful too often bend the acts of government to their selfish purposes." The rigged Bank laws, he argued, "make the rich richer and the potent more powerful, the humble members of society the farmers, mechanics, and laborers, who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.

We're still complaining. We get upset at government because it seems to favor the super-rich. Yet in the end we protect our Wall Street billionaires by attacking regulations and taxes on the wealthy.

Step 6: Thank the lord for sex, drugs and rock'n roll: Reagan and company may have hated the 1960s youth rebellion, but they sure glommed on to a key feature of it: People wanted to be liberated from society's constraints and from a government that was betraying our nation's ideals. Through either insight or dumb luck, the Reagan revolution successfully melded the idea of accumulating wealth with the idea of gaining freedom from everyone and everything — the ultimate form of "doing your own thing." (My surfer friend called it "takeoff velocity.")

Few of us who came out of the 1960s trusted government. After all, it had waged an unjust and un-winnable war in Vietnam. Public figures seemed to lie to us on a regular basis — from Mai Lai to Watergate. You want that kind of government running the economy too?

"Do your own thing" economics also caught on. Free love and free markets may have had a lot in common. Milton Friedman (who also opposed criminalization of drugs) led the way among American economists, arguing that government interference always distorts free markets. Only when markets are left entirely alone can they operate efficiently and create prosperity for all. Friedman's free market philosophy won over the academic and policy establishment. They saw the rise of Wall Street billionaires as a sign of our nation's economic health and prosperity. It wasn't just that their vast wealth might trickle down to the rest of us. It was that the accumulation of such wealth in the first place signaled a strong underlying economy.

According to the free market economists, under our system you can't possibly earn $900,000 an hour unless you produce $900,000 worth of something. So financial industry billionaires must, by definition, have the knowledge, skills, and experience to create that enormous value. Because nobody would cough up that sum of money unless they got equivalent value in return.

Therein may lie the biggest secret of all: Wall Street moguls are confident that Americans will always believe that that the big boys are really worth their money.

But for how long? Will our millions of unemployed workers eventually get fed up? Will the middle class finally get angry at the plutocrats who stole their dreams? Or will our anger continue to focus on government regulations, social spending and taxes instead of on our financial plutocrats? Eventually we'll have to choose or the choice will be made for us: Do we want a $900,000 an hour Valhalla for the few? Or a prosperous America for the rest of us?

This article appeared originally on The Huffington Post.

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.

Are the Unemployed Causing Unemployment?

Friday, June 4th, 2010

This article originally appeared on the Huffington Post. 

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). 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 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.

An Open Letter to the Ten Wealthiest Financiers in America: You're Not Worth $900,000 an Hour!

Friday, May 28th, 2010

This article originally appeared on The Huffington Post

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.

Kiss Your Middle Cl…ass Good-bye?

Friday, May 21st, 2010

This article was originally published on the Huffington Post. 

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.

Help! What's the Cure for Financial Insanity?

Friday, May 14th, 2010

This article originally appeared on the Huffington Post

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.