Uncategorized Archive

7 Ways to Really Take the Ax to Wall Street

Monday, January 23rd, 2012

As we’ve learned the hard way, the core of our modern capitalist economy is finance, and finance is run entirely by a few large Wall Street firms. But here’s the ultimate irony: while modern capitalism depends on Wall Street, Wall Street no longer depends on capitalist principles. In finance a new system has emerged that makes a mockery of the idea that entrepreneurs should be rewarded for their successes and suffer losses when they fail.

Capitalist Values Vanish from Wall Street

This week we are reminded again that the ideals of capitalism are a joke on Wall Street, as the heads of the largest Wall Street banks earn enormous incomes while the values of their banks plummet. “According to data from Rochdale Securities analyst Dick Bove, the heads of major banking groups including JPMorganChase (JPM), Goldman Sachs (GS) and Bank of America (BAC) are out-earning their employees and shareholders even as shares of bank stocks as a group lost about 26 percent [in 2011].” (Ron Haruni, “Big Bank CEOs Walk Away with Big Bucks in 2011”)

The big boys are raking it in again even while the economy suffers through the highest sustained level of unemployment since the Great Depression. More to the point, these very bank executives were complicit up to their eyeballs in helping to crash the economy in the first place! Chase CEO Jamie Dimon hauled in $41.9 million in 2011 while its bank stock lost roughly 23 percent of its value. Lloyd “I’m doing God’s work” Blankfein, CEO of Goldman Sachs, walked off with $22 million while his bank lost more than 46 percent of its value.

But, at this point, why should we be surprised? Before the crash, the heads of too-big-to-fail banks made billions in packaging, selling and then betting against toxic mortgage-backed securities that directly puffed up the housing bubble. When they couldn’t escape the crash they helped to foster, they went down on their knees begging for government help. At the same time they publicly claimed all was well, while privately taking in more than $7 trillion in secret government loans. And then after sucking up all these enormous bailouts, they used these nearly interest-free government loans to buy up other banks and lobby to prevent rules that might constrain their gambling activities. Meanwhile, they paid not a dime in personal restitution for killing 8 million jobs in a matter of months, most of which have not returned.

Financial Plutocracy is Real

That’s not capitalism. Rather, it’s the very definition of a plutocracy. These banks and those who run them are living off the rest of us and have no intention, ever, of suffering through the ups and downs of capitalist rewards and losses. When you run the casino, it’s always payday for the house.

We’ve got a choice. Either we learn to live under their thumbs or we do something dramatic about it. The porous Frank-Dodd bill has no chance of ending the plutocracy. Instead, we’re going to need some bold thinking and even bolder, more massive mobilizations a la Occupy Wall Street. But first, we need to have a better notion of what the democratizing of Wall Street might look like.

How to Really Overhaul Wall Street

I put this question to Marshall Auerback, global portfolio strategist for Madison Street Partners, a Denver-based fund management group, and a fellow for the Economists for Peace and Security (and an AlterNet contributor). With those titles, he should have an insider's grasp on what needs to be done. In fact, Brother Auerback is more than willing to take an axe to Wall Street as we know it. Here’s his brilliant wish list:

1. Banks should only be allowed to lend directly to borrowers and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to government regarding the regulation and supervision of those activities. Goodbye CDOs, synthetic CDOs and the slew of profitable but dangerous financial casino games banks so love.
…Read the rest of this article at AlterNet!

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

Why the Idiocy About Unemployment?

Wednesday, July 14th, 2010

This originally appeared on The Huffington Post.

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.

Les Leopold: Why the Wall Street - BP Double Standard?

Friday, June 25th, 2010

This originally appeared on The Huffington Post.

"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.

The Tea Party Dumps Economic Populism: Where are the Progressives?

Tuesday, February 9th, 2010

The Tea Party sprang to life in response to the financial crash that sent our economy into a tailspin. Until recently, it balanced two tendencies: hatred of big government and hatred of Wall Street. The combination (in the form of the bailouts and stimulus programs) provided a perfect target as economic hardship hit millions on Main Street.

But as the Tea Party becomes more structured and holds conventions like the one this past weekend featuring Sarah Palin, you can see its economic populism slipping away. Sure, there will be attacks against Wall Street's privileged, but those are for show, not substance. Increasingly it is all about the bedrock conservative principles: smaller government, fewer taxes and a strong military. Jobs and Wall Street will become secondary issues even though millions of grassroots Tea Partygoers are still motivated deeply by these concerns.

Of course this is terrific news for Wall Street which has just awarded itself $150 billion in record bonuses while more than 28 million Americans are without jobs or forced into part-time work.

You won't hear the Tea Partyites calling for a new Consumer Financial Protection Agency or windfall profits taxes on bonuses. Instead they will rant about government interference in the economy and high taxes.

I mean, you can't make this up. Wall Street goes on a gambling spree, wins big, and then crashes the economy. The federal government bails out the elites. Then Wall Street — still on the government dole — makes record profits and bonuses. And just when efforts for financial reforms inch forward in Congress, a grassroots movement emerges against government regulation and taxes, including those on Wall Street.

The underlying anger about the crash, the giveaways to Wall Street and the lack of jobs are still there. The means the field is open for a progressive populist movement. But where is it?

There are some progressive financial reform groups pressuring Congress to enact good legislation. There have even been a couple of mobilizations at banker meetings and at Ben Bernanke's house. But overall, progressives have been AWOL when it comes to building a mass-based populist movement or anything close to it. (Except in Oregon: see "Watch out Tea Party, Progressive Anger is Alive and Well" )

Why is that?

Here's what I've heard from progressives: We're too old, too comfortable, too hooked on the Internet, too invested in the stock market, too invested in Obama, too demoralized; that the activists among us are too close to the Democrats, too far from the grassroots, too concentrated on health care reform, too concentrated on global warming, too besieged by other issues like racism, gay and lesbian rights, abortion rights, union survival, and on and on. You'd think that being a progressive activist was a liability rather than a major plus during this upheaval.

One colleague provides a very different line of inquiry. He argues that most progressives he knows actually have bought into neo-liberalism without even knowing it. He believes they have developed a deep and unquestioned faith that markets will right themselves with a nudge or two, and solve most of our most pressing problems.

I've spun this idea around to mean the following: Progressives see the current economic crisis as an aberration to an otherwise sound economic system. As a result, all it will take is a few financial reforms and more stimulus to get us back to normal - "normal" meaning we can return to our favored issue areas and continue the critical battles we have been fighting on social issues, the environment, racial equality etc. In short, there's no compelling reason to stop what we're doing in order to build something fundamentally new.

But what if American capitalism has radically changed? What if the old version — a system of markets moderated by government to produce a decent standard of living for most of its citizens — is gone?

Maybe our system has morphed into a new billionaire bailout society where wealth is ever more concentrated, where economic life is every more dependent on large financial firms that must never be allowed to fail, and where public funds are ever ready to back up the financial arrangements of the super-wealthy.

A few reforms might not right this ship. Instead we may be facing a long dark decade of sky-high unemployment, repeated recessions and jobless recoveries. These problems are likely to be compounded with years and years of political gridlock as both parties feel pressured not to interfere with markets. Without a new movement I doubt we'll see real controls that break up too-big-to-fail banks, limit obscene Wall Street salaries, and end casino finance. In our new billionaire bailout society we will not have enough jobs for all who need them.

I would love to be wrong. Maybe markets will bloom and new green jobs will flourish as we solve global warming and bring economic sustainability and security to our society. But look around you. We have the worst income and wealth distribution since 1929. We have the highest sustained unemployment since the Great Depression. Congress is gridlocked. And to top it off, a right-wing, anti-government, anti-regulation populist movement is gaining ground.

Let's face it. When the crisis hit, we weren't prepared. The time to have acted boldly was a year ago when bankers where on their knees begging for money. That was the moment to break up the big banks, slap on meaningful salary caps and windfall bonus taxes - and then use that money for job creation. That's when we really had the chance to put a progressive mass movement on the streets to counteract the lobbying clout of Wall Street. That moment has passed and it's painful to see it fade away.

If this analysis is correct, we'll get more chances and relatively soon. The billionaire bailout society doesn't give a damn about jobs. It can mint new wealth without even loaning out money. The disconnect between Main Street and Wall Street is profound and ever growing, as is the space for creating a new progressive populist movement.

I can't provide you with a cookbook for organizing it. But I do know there are tens of thousands of progressive activists hard at work right now on their particular issues. They have more than enough talent and experience to build a national populist formation. But first they have to decide that taking on the billionaire bailout society is the most important work they can do, (the way a previous generation threw themselves into stopping the Vietnam War.)

We may not have a choice. The lethal combination of Wall Street's economic domination and the Tea Party's hatred of all things government is likely to overwhelm most other progressive causes. Building a progressive alternative to the Tea Party may be our only way out.

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.

This article originally appeared on the Huffington Post.

150 Billion Reasons Why Wall Street Loves Political Gridlock

Friday, February 5th, 2010

No, it's not a conspiracy. Goldman Sachs and its minions are not plotting to cripple the government. But it is remarkable how our political system freezes shut just when we need to make serious changes to our economic system.

Earth to government: our people are out of work, but we're letting bankers waltz off with $150 billion in bonuses (based on bailout money) as a reward for crashing our economy? Do something about it!

It's obvious to all but the ideologues on CNBC that that financial markets can't police themselves. We tried that over the past three decades and the system crashed. It's also obvious that our financial sector is composed of large institutions that are too big to fail. Those giants have the ability to gamble with other people's money and not suffer the consequences of failure. (Actually, they not only gamble with OPM, but they now are gambling with taxpayer money. How sweet it is!)

The emerging pattern is maddening. The financial sector gambled and won big during the housing bubble by creating, selling and trading a slew of new securities that supposedly removed risk from risky debt. It didn't work but it was the most profitable enterprise in the history of Wall Street. The bubble burst, but the bankers and traders, of course, got to keep their phony bubble profits. Worse still, we the taxpayers, through the bailouts are paying off the bad bets. Instead of going belly up, the largest financial entities are miraculous making record profits and bonuses while still taking advantage of trillions of dollars of federal loans and asset guarantees.

Meanwhile, there are more than 29 million Americans without jobs or who have been forced into part-time work. (The real unemployment rate is about 18.4 percent) Tens of millions are underwater in their homes or losing them. Pensions and retirement accounts are suffering. But the bankers who caused the crash have the nerve to give themselves a record $150 billion in bonuses?

To be sure the American public is outraged and screaming for reforms. But what kind? The Tea Party, the fastest growing political movement in decades, hates big government, hates the bailouts and the stimulus, and detests collusion between government and Wall Street. But its solution is to attack government. It has no way to change Wall Street, except by letting the market take care of it. Good luck. In the end, Tea Partyites would rather see the $150 billion of our money go to the failed bankers than to see a windfall profits tax on Wall Street's undeserved bonuses.

This outrage translated into an upset victory in Massachusetts which took away the Democrat super-majority in the Senate. More Republican victories in the fall are likely to follow, so that we can expect political gridlock for years to come.

So what happens to serious Wall Street reforms during all of this? First off, let's remind ourselves that to date no reforms have taken place. The best time to have acted was when the bankers were on their knees last fall begging for funds. Now Wall Street is using our money to lobby against anything that might cut into their money-machine.

There will be happy talk of bipartisan reform but gridlock will stop any government regulations that might interfere with the next record bonus pool. Banks won't be busted up into smaller units. There won't be a return to Glass-Steagall. The most profitable custom derivatives will remain unregulated. There will be no serious taxes on these unwarranted and outrageous bonuses. And the Financial Consumer Protection Agency is likely to be stillborn.

Also, this gridlock will prevent any serious efforts to put Americans back to work again. The Republicans will block large stimulus bills in the name of deficit reduction. They will prevent direct government hiring in the name of free markets. And let's face it, there are more than enough Blue Dog Democrats who will go along and gladly. Once again, we'll be relying on the miracle of the markets and trickle down from the super-wealthy. It could take a decade or more before we get near full-employment again.

We thought we were living in a country based on democratic capitalism. But the combination of political gridlock and our too big to fail financial casinos should give us pause. We now have a new pattern: Wall Street can make billions by creating bubbles. When they burst, we bail them out. They then can make billions while on government welfare, and lobby to prevent any and all serious reforms. Meanwhile unemployment is crippling millions of Americans — unemployment that is directly caused by Wall Street. And unemployment is further exacerbated because the financial sector now finds that it can make more money by playing the markets than by lending to the real economy. Rather than instituting serious, lasting reforms like we did during the New Deal, our political system freezes shut. (And this all is happening even before the Supreme Court decided it would be OK for corporations to directly buy politicians.)

That's not capitalism. Welcome to the new billionaire bailout society. And if that doesn't get you angry, please send me your meds.

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.

This article was originally published on the Huffington Post.

The Tea Party: Economic Populists or Wall Street Toadies?

Tuesday, February 2nd, 2010

Who cares?

We all should. The Tea Party is not a fake. It's not just a creation of Fox News and Dick Armey's Astroturfing operation. It's a genuine expression of populist anger that is driving our politics from below. There's a reason it is polling higher than either of the two parties. There's a reason it helped destroy the Democrats' super-majority in the Senate.

Commentators like David Brooks also are wrong to assume that populism is a movement of the less educated against the educated elites. Of course there are those in the Tea Party who discount the science of evolution and global warming, who think Obama is a foreign-born Muslim agent, and who are racist, sexist and anti-Semitic to boot. But to equate the entire notion of populism with retrograde ignorance is to fall into a dangerous stereotype. Populism is not about education: whether expressed by the left, right, or middle, it's a revolt against concentrated power and economic injustice.

The financial crisis has made clear to millions of Americans that we now live in a billionaire bailout society where economic elites can gamble, lose, get bailed out and then refill their coffers with our money in preparation for the next round, while millions of the rest of us are thrown out of our jobs and homes. Frankly, we'd be stupid not to join a populist revolt against that kind system.

For the moment the Tea Party represents much of this anger. But its ideology rests on an enormous contradiction that could tear it apart. Teapartyites hate big government. They hate Wall Street. And they believe the two have teamed up to screw everyday Americans on Main Street. But if government doesn't reign in Wall Street, what will? The markets? Even Alan Greenspan doesn't buy that anymore.

There are echoes in this revolt that go all the back to Thomas Jefferson and the anti-Federalists who also feared big government and concentrated economic power. They were particularly incensed by Alexander Hamilton's successful effort to establish both a large national debt and a national bank (publicly chartered, privately owned). Hamilton, our first Secretary of the Treasury, convinced George Washington that the new federal government should assume the revolutionary war debts amassed by the States. In fact, due to Hamilton's machinations, the federal government redeemed these debts at face value, even though many of these bonds were nearly worthless and had been snapped up at deep discounts by speculators. As a result, Hamilton's plan produced an enormous windfall for the rich. This didn't bother Hamilton at all because he wanted to "bond" the wealthy to the new national government. (He also wasn't bothered by the fact that poor farmers would service the debt through very unpopular excise tax on whiskey.) Hamilton believed that government debt was the glue to uniting a collection of disparate states into a strong union. (When Geithner and Paulson allowed AIG to use taxpayer money to pay Goldman Sachs at face value for billions in bad bets, they unwittingly were carrying out the tradition first established by Hamilton.)

The Tea Party certainly has inherited the anti-Federalist fear of big government. But it shows no signs of having the Jeffersonian backbone to attack concentrated economic power.

This weakness couldn't be clearer as Wall Street awards itself $150 billion in bonuses for a job well done during the worst economic year since the Great Depression with 30 million unemployed or forced into part-time work. Instead of bonuses there would have been mass unemployment on Wall Street had the taxpayer not bailed out the banks to the tune of $6 to $12 trillion in taxpayer grants, loans and asset guarantees. There is no way to view that $150 billion in bonuses as anything other than welfare for Wall Street.

This should be the ultimate populist litmus test for the Tea Party. Do they have the nerve to defend the average taxpayer from Wall Street's rapaciousness? Are they going to demand a windfall tax on these outrageous bonuses? Or are they going to oppose all taxes and let Wall Street waltz off with the loot?

Hey Tea Party, which side are you on?

Unfortunately, at the moment there is no national progressive populist movement to call the question. In Oregon, progressive populists bucked the anti-tax, anti-government tide to win two ballot measures for more progressive taxation. (See "Watch Out Tea Party: Progressive Anger is Alive and Kicking")

The next step should be a call for a national windfall profits tax on the $150 billion in Wall Street bonuses. Millions of Americans would understand that it's our money and that we should get it back.

If the Tea Party fears taxes and big government more than it fears taking on Wall Street, then it will forfeit the mantle of populism. For no matter how much populist outrage it can express in the short run, the Tea Party will discredit itself if it shills for Wall Street.

But first progressive populism has to form into a national movement to take on the big banks. There are $150 billion good reasons to do so right now.

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.

This article was originally published on the Huffington Post.

Why are we donating $2,000 per family to Wall Street Bonuses?

Wednesday, January 27th, 2010

President Obama won't tell us in his State of the Union address. The deficit hawks won't crow about it. Don't expect the Tea Party or Rush and Beck to highlight our generosity either. But the sad fact is this: During the worst year since the Great Depression, with 30 million people out of work or forced into part-time jobs, Wall Street is awarding itself $150 billion in bonus money…..and it comes from us!

That's $500 for every man, women and child in the country — $2,000 for a family of four. (Maybe we should try deducting it from our income taxes as a charitable donation.)

Had we not bailed out the financial sector, there would be no bonus pool this year. Zip, zero, ziltch.

It seems like financial Alzheimer's setting in as many forget how all this happened. Wall Street, and no one else, crashed the economy through its fantasy finance extravaganza. It created, sold and traded a slew of new fangled financial instruments that were supposed to remove risk from risky investments. Wall Street went begging for subprime debt in order to create and market their new financial securities, the most profitable activity in their history. As a result of their securitization casino, which leveraged bet upon bet, the housing market turned into a bubble and finally burst. Wall Street had miscalculated, big time. The risk returned with a vengeance.

Not matter what Rick Santelli proclaims, government interference didn't cause the crash. Greedy, stupid home buyers didn't cause the crash. Poor people backed by the Community Reinvestment Act didn't crash the system. And China didn't cause it either. The book should be closed on this: Wall Street's fantasy finance casino did us in. (Please see The Looting of America for a fuller account.)

Once housing prices stopped their meteoric rise, the entire precarious structure of bets piled upon subprime loans, turned toxic. The banking system froze and the real economy was tossed off a cliff. We truly were on our way to the next Great Depression.

Policy leaders of all stripes bailed out the financial system because they thought there was no choice–and that was true to an extent. Preventing total financial collapse was necessary. The choices to be made were about how to prevent a further collapse and what kinds of demands we'd make on the banks that had brought disaster upon themselves and the rest of us. Bush, Paulson, Bernanke, Obama, Geithner, Summers and Congress made their choices. They poured money into the banking sector like never before. We gave the Wall Street banks gigantic loans and enormous guarantees on their toxic assets. We gave them TARP. It all totaled to more than $12 trillion, with most of it still in play, even after the TARP repayments. (See Nomi Prins's excellent accounting..)

We can, and should, argue about whether the bailout was put together properly. A strong case can be made that the victims (the public), rather than the perpetrators (Wall Street's casinos), should have received our support. Clearly, there were much better ways to rescue the failing economy and produce jobs, which is still by far our number one problem.

Wall Street was saved from bankruptcy, including Goldman Sachs which now cavalierly insists that it didn't really need the bailout money (yet it took $12.9 billion of taxpayer support via AIG, and tossed it into its bonus pool.) Wall Streeters actually think they've earned the $150 billion in bonuses through their own cleverness. Think again. It's nothing more than taxpayer welfare.

Of course, no one wants to admit that we put the richest people in the world on welfare. It's embarrassing to acknowledge that we are rewarding those who killed millions of jobs. And worst of all, our political establishment doesn't have the nerve to take our money back.

Instead the President talks about getting back every penny of our TARP money, with interest. Not good enough, because that still leaves the $150 billion of taxpayer largess in the bankers' pockets, where it doesn't belong.

The deficit chicken hawks (who now seem to have Obama in their roost) also have no intention of clawing back our money. Instead they would rather attack domestic programs that assist unemployed workers, the old and the infirm. (Of course, you won't hear them question the wasted billions in the military budget or in the needless war in Afghanistan.)

The only group really kicking up a fuss is the Tea Party. But their ideology is so screwed up that they'd rather see the money stay on Wall Street. Their righteous indignation is fueled by blaming government, Obama, the Fed and the liberal elites for putting it there. They have no room in their ideological universe for windfall taxes on unwarranted bonuses, which they derisively call the redistribution of income, even when their own hard-earned incomes are being redistributed to Wall Street bankers. Very generous of them.

That leaves the terrain wide open for a new progressive populist movement aimed directly at taking back from our $2,000 per family from Wall Street's unearned bonuses. It's not a panacea for our jobs crisis or even a solution to Wall Street's dysfunctional role in our economy, but it is a very good place to start.

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.

This article was originally published on the Huffington Post.

Wall Street Bonuses Can Create One Million Green Jobs

Monday, January 25th, 2010

President Obama may be joining the populist crusade against Wall Street. In the span of one week he opened up a three front war: a tax on big banks, full support for a new Consumer Financial Protection Agency, and the embrace of Paul Volcker's plan to break up the big banks.

It's about time. Or has the time already passed?

Yes, there is enormous popular anger against Wall Street and the bailouts. However, the deepest anger is rooted in the enormous fears and hardships caused by the lack of jobs.

Obama is responding with a call for another stimulus in the form tax breaks for small businesses and for the weatherization of homes. Not good enough. The scale and scope of his proposals are unlikely to alleviate enough of the pain and suffering experienced by jobless Americans. Unfortunately, the Administration does not realize how deeply the crisis of employment is built into our billionaire bailout society.

So what should Obama do?

Declare a national jobs emergency. Then tie taxes on Wall Street's bonuses directly to job creation on Main Street. Make it simple. Make it fair. Make it fast.

Instead of taxing the banks through his proposed complex asset liability tax which most Americans really don't understand (and which will be lobbied into Swiss cheese), he should slap a windfall profits tax on the $150 billion record bonus pool, which every American can grasp. (Rep. Dennis Kucinich's bill for a 75 percent bonus tax is waiting for Obama's support.)

It's not hard to connect the dots: That bonus money comes directly and indirectly from taxpayer bailouts to Wall Street. That's our money. Take it back and create jobs with it.

At the same time, President Obama should announce the creation of a million-person weatherization corps to insulate every American home, business and public building. The energy efficiency benefits would be wonderful to reduce carbon emissions, global warming, and oil imports. (Do the math: 75 percent windfall profits tax on $150 billion bonus pool equals $112.5 billion. At $100,000 per job including benefits, administration and supplies, you could create more than one million green weatherization jobs.)

But the key is putting one million people to work on this vital national security task before November - that is before corporate donations unleashed by the Supreme Court make a mockery of elections.

Let's keep in mind how we got here. For thirty years the financial lobbyists and their willing partners in Congress and the White House engaged in an orgy of deregulation and tax reform, resulting in wealth accumulation in the hands of a few. So much money accumulated with the wealthy, that they literally ran out of investments in tangible assets in the real economy. Wall Street solved that problem by creating a menagerie of deregulated fantasy finance instruments that sucked up the surplus wealth and earned Wall Street more profits that ever before. (Summers and Geithner were avid cheerleaders for this process.)

The process of securitization and derivatives was creating an upside down pyramid of synthetic instruments leveraged on top of risky assets like subprime loans, which in turn created an enormous housing bubble. (And before that the dot.com bubble, the savings and loan crisis, and so on–it should be clear by now that we're dealing with a distended financial sector that inherently builds bubbles.)

The one clear plus was that the artificial housing bubble also created jobs in the housing supplies, construction, and financial industries, even as our manufacturing sector was dismantled piece by piece and moved to low-wage areas around the world. Average wages stagnated and declined, but Americans, overall, were working.

It's now clear that that these jobs and faux prosperity were built on financial rot. As soon as housing prices stopped rising, the entire upside down pyramid of leveraged assets came crashing down. The financial sector froze and threw the world economy to the brink of another Great Depression. The real economy, starved for credit, went into an immediate tailspin and unemployment shot through the roof. There are now nearly 30 million Americans without jobs or forced into part-time work.

The theory of recovery adopted both by the Bush and the Obama administrations was this: stabilize the financial sector with enormous bailouts to stop the financial implosion and provide stimulus bills to kick-start the real economy. This combination was supposed to lead to a rapid recovery both for financial assets (including our 401ks and pensions) and for the creation of real jobs.

It didn't quite work out that way. The financial sector, which is still living off an array of hidden government guarantees, asset purchases, and cheap money, is making enormous profits again. (If you want to see clearly how TARP is just a small part of the Wall Street bailout package, take your blood pressure pills and go look at Nomi Prins's excellent accounting). Meanwhile the real jobless rate is well over 17 percent.

And just to rub it so it really stings, Wall Street has the chutzpah to award itself a record bonus pool of $150 billion during the worst economic year since the Great Depression. This pool would be a negative number were it not for trillions of dollars of taxpayer welfare for Wall Street.

In our new billionaire bailout society, Wall Street's elites have the ability to restart its speculative money-making games without loaning money to Main Street's businesses. They have a slew of ways to game the system so that the federal money and support flows into their bonus pools. Loan making is still declining even as their profits rise, making a mockery of their role as distributors of capital to the real economy. It is highly questionable if these non-lending financial firms are producing any economic worth at all for our economy.

So Obama is stuck with a bailout and stimulus package that only half worked. At an enormous long-term cost, it may have succeeded to stabilize the financial system and to avoid another Great Depression, at least for now. But it failed to create sufficient jobs to make up for the crater in our economy created by Wall Street's speculative crash.

So he needs to directly put Americans to work unless he and the Democrats want to lose their jobs as well. Although the most efficient means to create one million weatherization jobs would be through direct public employment (like a new WPA), the anti-government mood requires that we use as many private contractors as possible. That kind of government funded/private contractor partnership should be able to cut through the ideological barriers because Americans will understand that employing people in useful jobs is fundamentally worthwhile. We need to save energy. We need work. And, we need to make the bankers, who so recently wrecked our economy, pay for it.

This will never happen unless the President stays on message every day. He also needs to act as if we were in a dire national jobs emergency, which we are.

It was telling to watch the President at his recent town hall meeting in Elyria, Ohio. Although the session was billed as a jobs event, he revealed his real concerns when he concluded with a call for health care reform and energy legislation. As important as those issues are to all of us, he'll never get there unless he focuses on jobs, jobs and more jobs until we are working again.

At the same time, the President should challenge the "do nothing" Republicans and their blue-dog Democratic cousins to put up or shut up on jobs. If they refuse to pass the needed legislation, the President should redirect unspent funds from other programs to combat the jobs emergency. No one will blame him for playing hard ball on jobs creation.

Is it realistic to create a million jobs in a short period of time? We'll never know unless someone tries. But if we limit ourselves to advocating only what seems realistic, here's the sickening reality that awaits us: bankers walking off with record bonuses during a year in which they nearly destroyed our economy, and during a year in which we bailed them out with trillions of dollars of taxpayer welfare.

It would be an important morale booster for the country to create green jobs - one million of them -by November.

Isn't that change we can believe in?

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.

Drinking the Financial Innovation Kool-Aid: Day 2 at the Financial Crisis Inquiry Hearings

Thursday, January 14th, 2010

You can smell it on their breath — the tell-tale fumes of "financial innovation."

Drink it and you start to believe that financial innovation actually exists. The commissioners and their witnesses are being ever so careful to insist that our economy will make room for it, not discourage it, not to over-regulate it , and to find market forces to enhance it.

But they seem incapable of the healthy skepticism expressed so well by Paul Volcker:

"I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two - Credit Default Swaps and CDOs - which took us right to the brink of disaster: were they wonderful innovations that we want to create more of? …. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information…. The most important financial innovation that I have seen in the past 20 years is the automatic teller machine… How many other innovations can you tell me of that have been as important to the individual?" ("What Has Financial Innovation Done for You?")

Here's a line of questioning they might want to consider:

  • Which of the financial innovations that have taken place over the past twenty years have been good for the American people? Can you name any at all?
  • Why not set up a process by which new financial products must be approved (like drugs) before they can poison the economy?
  • How many of these "innovations" actually are nothing more than sophisticated casino games for those with excess wealth and for those who profit by creating them?

The commission must acknowledge that financial innovation is not like any other kind of innovation in our economy. If you create a new IPod and it goes sour, it hurts Apple, its investors and its suppliers. You create a synthetic collateralized debt obligation that goes south, you crash the world economy and kill millions of jobs.

Market forces will never solve the problem of innovation. It will take the heavy hand of regulation or we'll be bailing out the financial sector again and again when these "innovations" blow up.

Getting to the Root Causes

Shelia Bair, the head of the FDIC, was the first witness get near to addressing the major underlying causes of the crisis: our distended, finance-heavy economy. She discussed "economic distortions" and the "disproportional" size of financial profits in our economy. She said that during the 1950s and 1960s financial profits accounted for 15 percent of all corporate profits. By 2008 they had metastasized to 34 percent.

If someone had bothered to ask, she may have also addressed the underlying distribution of wealth and income that has created the demand for more and more speculative financial products. It once was the case that that productivity increases inevitably led to real wage increases. That's no longer true. Those two trends have split apart starting in the mid-1970s, and now the lion's share of the productivity increases go to the super rich.

In general there is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that's not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of America Chapter 2 and 11).

Ms. Bair opened the door to a line of questioning about how those imbalances were caused by decades of "tax reforms" that moved money to the very top of the income brackets. This was deliberate economic policy from Reagan on. This was the heart of trickle down. Combine the mal-distribution of wealth with financial deregulation and your get a crash, guaranteed.

Instead the commissioners are going after fraud, the rating agencies, the lack of regulation of subprime products, and derivatives. But, that won't get us there.

The commission would do well to review how we controlled finance and the distribution of wealth from the 1930s to the 1970s. Then, policy makers understood that a vibrant and stable capitalist system required a growing middle class, a tightly regulated financial sector, and a constrained distribution of income.

Since then we got this: In 1970 the ration of pay between the top 100 CEOs and the average worker was 45 to 1. By 2008 it was 1,081 to one.

Please Mr. Angelides, go there!

(You can find my live blog of the hearings at Campaign for America's Future)

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.

This article was originally published on the Huffington Post.

GeithnerGate: Follow the Money…and Take it Back

Monday, January 11th, 2010

"An arm of the Federal Reserve, then led by now-Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG to withhold key details from the public about overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs." Huffington Post

Cover-up revelations keep coming about Timothy Geithner's secret assistance to AIG. The latest show that he urged AIG not to disclose how it would be shoveling money to Goldman Sachs and other large financial institutions by paying off its credit default swaps at par value instead of much less.

More than $60 billion changed hands that shouldn't have if Geithner had played hard ball. Therefore, the charge is that Geithner should be bounced because he was protecting the banks' interests ahead of the public interest. He may also have protecting himself during his confirmation hearings.

Ok, string him up. But what about recapturing the loot?

Before we pull the rope, let's take a closer look at this outrageous scam. During the bubble years, AIG conducted an extremely lucrative business guaranteeing all kinds of derivatives based on risky debt. They couldn't call it insurance because insurance products are regulated — meaning you need to have reserves to back them up, which they didn't. So these toxic assets insurance polices instead got the fancy name "credit default swaps," which were not and still are not regulated. (Take a bow Phil Gramm, Robert Rubin, Bill Clinton and Alan Greenspan.)

This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase…) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!

AIG figured the best hedge and the most money could be made by insuring more and more of this risky stuff. This was thought to disperse the risk broadly since all of the junk debt couldn't possibly fail at the same time, could it? They "insured" over $450 billion worth. (For the sordid details and comic relief, please see The Looting of America )

Then, the unthinkable happened. The assets tanked and AIG had to pay up on its policies, but couldn't. It was about to fold. Had AIG gone under it may have pulled with it hundreds of other financial institutions around the world that were relying on its insurance. The government stepped in to bail them all out. (AIG now spreads the fiction that this was just one rogue operation over in England in an otherwise safe and sound empire. But the big boys at the top of AIG all knew the credit default swap operation was a delectable source of enormous profits and shared in the booty… and they're not giving back any of the ill-gotten gains.)

We can argue some other time about whether or not some kind of bailout was necessary or what we should have gotten in return. The point here is that big fat financial houses like Goldman Sachs would have received pennies on the dollar for their AIG-backed credit default swaps had AIG gone into bankruptcy court. Instead, Goldman and others received par value and that money is now funding their mammoth profits and bonuses. (Spewing more corporate fiction, Goldman Sachs and JP Morgan Chase say they had been carefully hedged and would not have suffered from an AIG bankruptcy. Baloney. If AIG had gone under without a Federal rescue, those big banks would have gone down too or teetered on the edge.)

Here is precisely where free-market capitalism metastasizes into the billionaire bailout society. Goldman Sachs believed they had adequately covered $12.9 billion of its toxic assets by purchasing insurance from AIG. In fact, they believed those toxic assets plus the insurance made them as good as gold and part of their capital base.

In effect Goldman had placed two kinds of bets. First they bet on the toxic assets which were extremely lucrative, but risky. Then they bet that AIG could successfully insure them against losses on that first bet. They lost both bets. Too bad. That's capitalism….or used to be.

For losing their bet with AIG, Goldman Sachs should have only received about 20 cents on a dollar in a bankruptcy court. Instead, we bailed out AIG to prevent bankruptcy and Geithner et al pressured AIG to give Goldman Sachs 100 cents on the dollar. As a result, Goldman Sachs suffered no negative consequences at all from betting and losing. That's not capitalism. That's our new billionaire bailout society, where we, the taxpayers, pay off the bad bets. And the super-wealthy get more wealthy even when they lose their bets.

Think about it. Goldman Sachs alone got $12.9 billion - found money. Ka-Ching–right into its bonus pool. (OK, let's be fair. In bankruptcy they may have received $2.58 billion so the net windfall was $10.32 billion, which is about what it would cost to hire 172,000 teachers for one year.)

By all means, let's fire Geithner, and Summers too while we're at it. But if we really want to see some semblance of justice, we should slap a 90 percent windfall profits tax on all Wall Street firms. No matter how you cut it, they're all on welfare and their profits stem directly from our largesse. (Even those banks that have paid back TARP are, right this very minute, at the federal trough sucking up trillions of dollars of federal liquidity programs and asset guarantees.)

If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank….in the Cayman Islands.

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.

This article was originally published on the Huffington Post.