Les Leopold

What If the Greedy Rich Paid Their Share? 8 Things to Know About Wealth and Poverty in the US

lesleopold — Wed, 25 Apr 2012 23:17:52 +0000

We're far from poor — we just have a wildly lopsided distribution of wealth that makes us seem poor.

America is loaded. We are not a struggling nation ready to go under. We are not facing an enormous debt crisis despite what the politicians and pundits proclaim. We are not the next Greece.

Rather, we have an enormous concentration-of-wealth problem — one that must be solved for the good of our commonwealth. We are a very rich nation but it doesn’t seem that way because our wealth is so concentrated in the hands of a few. This is America’s disaster.

But wait. Doesn’t the wealth belong to the super-rich? Didn’t they earn it fair and square? Isn’t that the way it’s always been?

Not by a long shot. The amount of wealth that flows to the super-rich is determined by our public policies. It’s all about how we choose to share our nation’s productivity.

Productivity and the Wealth of Nations

Our country is rich because we are enormously productive as measured by output per hour worked. The greater our collective output per hour, the more our economy produces and the wealthier we are…or should be. It’s not a perfect measure since it doesn’t adequately take into account our environment, our health or our overall well-being. But it is a good gauge of our collective level of effort, skill, knowledge, level of organization, and productive capacity. As the top line on the productivity chart below shows, we’ve been able to produce more and more per hour year after year since WWII. It’s a remarkable achievement.

From 1947 until the mid-1970s, the fruits of our bountiful productivity were shared reasonably fairly with working people. As productivity rose so did workers’ real wages (See the bottom line in the chart below. It represents the average weekly wage of non-supervisory workers who make up about 80 percent of the entire workforce.) This wasn’t socialism. There were still plenty of rich people who earned a significant slice of the productivity harvest. But much of that wealth was plowed back into the economy through taxation rates that between 1947 and 1980 hovered between 70 to 91 percent on incomes over $3 million (in today’s dollars). Much of that money was used to build our physical and knowledge infrastructures, and to fight the Cold War. Unions were supported by public policy and workers' real wages rose steadily after accounting for inflation. Wall Street was tightly controlled and the middle-class grew like never before.

Then something happened.

It wasn’t an act of God, or the blind forces of technological change, or the mysterious movements of markets. Nor did the super-rich become enormously smarter than before. Instead, flesh-and-blood policy makers decided that deregulation and tax cuts should become the order of the day starting in the mid-1970s. The idea was that if we cut taxes on the super-rich and deregulated the economy (and especially Wall Street), investment would dramatically increase and all boats would rise. But as we can see from the chart below, the average worker's wage in real terms stalled and even declined after the mid-'70s. The fruits of productivity no longer were shared equitably. The enormous gap between the two lines (trillions of dollars per year) went almost entirely to the super-rich. The wealth of the wealthy skyrocketed, not by accident, but by policy design. "Greed is good" replaced the middle-class American dream.

What Is Wealth and Who Has It?

Wealth or net worth is the total value of what you own (your assets) minus the total value of your debts (your liabilities.) Our collective net worth is really huge. We’re talking big, big numbers. As of the end of 2011, U.S. households had $30 trillion in private assets and $13.6 trillion in liabilities for a total net worth of $16.4 trillion (PDF). How much is that? It comes to an average of $141,000 per household – free and clear of any debts.

The article goes on. Read the rest over 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

5 Ways Wall Street Is Putting the Squeeze on American Students

lesleopold — Fri, 23 Mar 2012 00:10:05 +0000

The damage Wall Street inflicted on our educational infrastructure is growing.
March 13, 2012 |

The damage to our educational infrastructure is growing, according to Catherine Rampell's chilling report in the New York Times. As state funding has dwindled, public colleges have raised tuition and are now resorting to even more desperate measures — cutting training for jobs the economy needs most.

She describes how badly needed engineering and nursing school facilities are being cut to the bone even though these two fields are begging for trained college graduates. At the same time, Rampell reports that state higher education tuitions are rising, programs are being cut and students are stumbling out of college under a mountain of debt. As she correctly points out, the economic health of our society is based on our investments in education.

Economists have found that higher education benefits communities even more than it benefits the individual receiving the degree. Studies show that an educated populace leads to faster economic growth and benefits the poorest workers the most. Much of the post-World War II economic boom, for example, has been attributed to increased college enrollment courtesy of the GI Bill.

But if this is so obviously true, why are we cutting back on higher education?

The answer, not mentioned in her excellent article, is painfully obvious: Wall Street is the cause of those dwindling funds and is presently fighting to make sure those dollars are not restored any time soon. Here’s how:

1. The crash of Wall Street’s casino is causing the collapse of state and local revenues. Before financial amnesia sets in we must continually remind ourselves that the economy crashed because of Wall Street’s reckless gambling.

Through a series of “financial innovations,” Wall Street turned toxic mortgages into AAA-rated securities and thereby puffed up an unsustainable housing bubble, and milked it dry.

As it was collapsing, Wall Street also found ways to bet against the bubble and make billions more.

Wall Street then opened the public vault and helped itself to trillions of dollars of bail-out funds and low-interest loans.

Along the way the financial system froze, which in turn crippled the real economy sending more than 8 million workers to the unemployment lines.

State taxes crashed and college budgets were slashed, and they still haven’t recovered.

Big government didn’t cause this crash, nor did fiat money or leaving the gold standard (sorry, Ron Paul). It wasn’t the fault of poor people or even reckless home buyers. No, this crash was born and bred on Wall Street.

2. Wall Street is lobbying hard to shift the national conversation to debt reduction and away from higher taxes on the financial elite.

In a saner and fairer world, Wall Street would be paying for the damage it caused. The super-rich and their financial transactions would be taxed to close state and local budget deficits caused by Wall Street greed. It’s a no-brainer demand for anyone who wants America to thrive. The development of a highly educated workforce is the best and only way back to a full-employment economy.

But Wall Street understands that if the Occupiers continue to frame the debate, we might actually get legislation that forces the super-rich to pay up. So Wall Street is doing all it can to shift the debate back to deficits. They and their political flunkies warn us each day that we’ll soon become the next Greece unless we tighten our government-bloated belts. Their lapdog rating agencies are attacking the soundness of US government bonds to spread the fear of spiraling debt. It’s a full-scale assault to reduce funds for Medicare, Medicaid, Social Security and public education. And even the Democrats are not immune.

You’ve got to admire Wall Street’s gall. To deflect the conversation from Wall Street reparations, they instead want the 99 percent to pay for the damage created by high finance!

3. Wall Street wants more student indebtedness.

As tuitions rise, so do student loans. Sally Mae, once a government-sponsored agency, is now a giant private financial company that seeks to profit from federally backed student and private loans. Other Wall Street lenders are also eager to cash in on this growth industry. That last thing these companies want is for tuition costs to stabilize or, god forbid, go down.

4. Wall Street siphons funds away from the real economy.

The downward economic pressure on state and local funding continues even as the economy stumbles along. One big reason for the protracted jobs crunch is that Wall Street continues to engage in unproductive activities, some of which actually serve as a hidden tax on the rest of the economy.

When it engages in high frequency trading that takes place in nanoseconds, it extracts pennies from millions of trades each day. By the end of the year between $8 billion and $20 billion are extracted from our pension funds and 401ks and put into the bonus pools of Wall Street banks and hedge funds.

The epidemic of insider trading crimes turns our financial markets into volatile, rigged games, further bloating Wall Street at the expense of goods and service producing industries on Main Street.

Our banks are bigger than ever and continue to siphon away billions of dollars of capital because everyone knows they are far too-big-to-fail.

These unproductive activities are suppressing state and local economic activity and badly needed tax revenues. As long as it remains business as usual on Wall Street, students will pay with higher tuitions and fewer educational opportunities.

5. Wall Street lives in another universe, light years from everyday student concerns.

Perhaps the gravest concern relates to the ways in which the Wall Street elites are increasingly isolated from the day-to-day realities of struggling students and their families. When you make a million dollars an HOUR, as some of the leading hedge fund managers do, you are totally immune from the ravages of educational cutbacks.

For the denizens of Wall Street, the luxury economy is booming again.

Their kids don’t have to worry about student loans.

Their schools won’t suffer cutbacks.

Their families, snuggled away in their gated communities within their gilded suburbs never have to see what a society looks like when educational opportunity collapses.

Because they don’t experience the day-to-day consequences, they continue to engage in elite-driven class warfare without ever admitting it. If they don’t see it, they will never accept any accountability for the damage they are causing. The growing isolation of the super-rich means that “shared sacrifice” is a cruel joke. Students and their families will make the sacrifices, while Wall Street continues to grab the greatest share of our nation’s wealth.

Why we need Occupy Wall Street more than ever:

When America’s youth rose up to demand justice from Wall Street, they struck a raw nerve that resonated throughout our country. Not only did they nail the right target — Wall Street — but also they developed the right framework: the 99 percent versus the 1 percent. For a few months this past fall, these imaginative demonstrators changed the national conversation away from Wall Street’s focus on debt, to Wall Streets culpability. In doing so they opened the door to a national fight-back movement by students against their own indentured servitude. The possibility was there to protest against the mountain of student debt and educational cutbacks caused by the Wall Street-induced crash.

Let’s hope the Occupiers are alive and well, and will soon recapture America’s imagination. Perhaps then we will force the political establishment to do the obvious: slap a financial transaction tax on Wall Street and use the funds for free public higher education for all.

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

7 Ways to Really Take the Ax to Wall Street

lesleopold — Mon, 23 Jan 2012 19:57:46 +0000

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

How Can the World's Richest Country Let Children Go Hungry? 6 Tricks Corporate Elites Use to Hoard All the Wealth

lesleopold — Sat, 07 Jan 2012 16:00:13 +0000

December 21, 2011 - AlterNet

“Squeezed by rising living costs, a record number of Americans, nearly 1 in 2, have fallen into poverty or are scraping by on earnings that classify them as low income."

“Study: 1 in 5 American children lives in poverty."

“In 2010, 17.2 million households, 14.5 percent of households (approximately one in seven), were food insecure, the highest number ever recorded in the United States.”

What’s going on here? Aren't we the richest country on earth?

Day in and day out we are told that if the government doesn’t tighten its belt, we’re all headed for debtor’s prison. Social Security, Medicare and Medicaid are under attack. State budgets are in disarray. Teachers and firemen are getting canned. Public services are slashed. This is the new America and we'd better get used to it, the pundits proclaim. You would think we were a poor country.

But we’re not. We’re filthy rich, but the money is hidden away by the 1 percent while poverty rises all around. Here’s why.

1. Productivity continues to rise but the 99 percent doesn’t share in the benefits.

The key to the material wealth of any nation is productivity – how much we produce per worker hour. Productivity is a crude measure of our overall level of knowledge, technique, organization, skill and cooperative work practices that produce the sum total of our goods and services. Lo and behold, there’s nothing at all wrong with productivity in America. It continues to rise and rise just like it did during our post-WWII boom years. What’s changed is that the average American wage has stalled since the mid-1970s — which is precisely the time that we started to deregulate Wall Street and cut taxes on the rich.

During the 1950s and '60s boom years, almost all Americans shared in the fruits of productivity leading to rising real wages (after inflation). But now the productivity lines and wage lines have pulled apart. The gap between the two lines represents trillions of dollars that once went to the average American but are now going almost entirely to the super-rich.

2. Large corporations pay next to nothing in state and local taxes.

As a result of the Wall Street-created crash, state and local governments are struggling to make up for lost revenues and rising costs to care for the jobless and the destitute. In a fair society we would be asking Wall Street to pay for the damage it created. Instead, Wall Street has used its enormous lobbying muscle to make sure politicians are asking states to cut back public services of all kinds.

Meanwhile, large corporations use every trick in the book to avoid paying state and local taxes. A recent joint report by the Institute on Taxation and Economic Policy and Citizens for Tax Justice reveals that 265 large corporations avoided $42.7 billion in taxes from 2008 to 2010. That’s enough money to hire more than one million teachers! Instead, we are firing teachers in the name of fiscal austerity.

3. Money that should go toward the common good pours into the pockets of the 1 percent.

In 1970 the federal marginal tax rate on millionaires was 70 percent. That means for the next dollar the super-rich earned, 70 cents went to the federal government to pay for building what was then the most productive infrastructure in the world. Now the official top rate has fallen to 35 percent. But it’s much worse than that. Most of the super-rich take full advantage of the senseless 15 percent capital gains rate which pours hundreds of billions into the pockets of the super-rich. As a result, the real overall tax rate for the super-rich has plummeted to less than what the average secretary pays.

4. The biggest corporations are sitting on a mountain of cash.

While politicians lament the debt crisis, America’s largest corporations are refusing to invest more than $1 trillion in cash because of the lack of consumer demand (resulting from high levels of unemployment caused by the Wall Street crash). That money is doing little for our economy. It’s not putting our people to work. It’s not helping to close state and local budget gaps. It’s not helping to improve our depleted infrastructure.

5. Hedge funds have over $1.917 trillion in misused investment capital.

Wall Street investment firms are loaded with investment capital looking for ways to make outsized profits while paying as little in taxes as possible. This is the money that floods Wall Street casinos and that led directly to the housing bubble and crash. The money is still there just itching to ride up and down the next bubble. Approximately 80 percent of all stock market transactions come from the manipulations of these funds. And much of the money jumps in and out of the markets in nanoseconds using high-speed automatic trading techniques that extract hidden taxes from the rest of us. Most of this speculative capital serves no broader economic or social purpose except to enrich the super-rich.

6. Many of the 1 percent cheat on their taxes.

When you have enormous sums of money, you can hire high-powered accountants and lawyers to help you avoid taxes. But these maneuvers aren’t just taking advantage of tax loopholes. It’s about cheating. Many of the super-rich hide their money in offshore tax havens. They place it in secret bank accounts without declaring it. They just pretend it doesn’t exist. How much money are we talking about? The tax revenues lost in the U.S. are estimated to be $337 billion a year according to a November report by the Tax Justice Network. This is more than enough to put America back to work rebuilding our crumbling infrastructure.

So there hides our nation’s wealth. We are as productive as ever, but 99 percent aren’t getting their fair share. Instead the 1 percent are channeling our collective wealth away from our daily needs through investment hoarding, tax loopholes and outright tax cheating. Rather than using it to create badly needed jobs, they pocket it. And then our financial elites have the nerve to ask the rest of us to tighten our belts because the public trough is running low due to a financial crash they created! It’s an outrageous fabrication designed to shift the debate away from the obvious: Wall Street and its minions took down our economy, got bailed out and now refuse to pay anything to repair it. Instead they want us to pay for the damage they created.

This is the material basis for Occupy Wall Street and we should salute the occupiers for changing the national dialogue back to where it belongs. But we will have to go much further if we hope to create employment, alleviate rising poverty and bring a modicum of justice to our society. We will have to do nothing short of democratizing Wall Street from top to bottom so that our financial elites can no longer manipulate the economy and politics to serve their ends.

We are still the richest nation on earth, but our wealth has been captured and hidden from view. We can’t expect Occupy Wall Street to rectify this ungodly mess on its own. It’s time for the rest of us to join the fight to recapture our nation’s wealth while resurrecting our society’s fundamental decency.

No one should ever be poor in a country so rich.

Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and 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 Are We Forced to Worship at the Feet of 'Mythical' Financial Markets Controlled by the Elite?

lesleopold — Wed, 21 Dec 2011 14:47:41 +0000

We are told to appease the market gods or face eternal financial damnation.

The markets are “jittery,” “upset,” “skittish” and “unnerved.” They are “confident” or “unsure.” They are “demanding” that political leaders “put up or shut up.” And they are “reacting unfavorably” to Obama’s newfound populism.

These are just a few of the many ways financial markets are described each and every day by the media, financial players and public officials. At first it seems as if these markets are humanoids onto which we project our feelings. Yet, on closer inspection, it’s more like we have ascribed to them god-like powers. We are told to appease the market gods or face eternal financial damnation. As President Obama warned Europe recently, they must “muster the political will” to “settle markets down.”

Why do we worship these angry market gods?

Trading has been around for as long as humans. We, no doubt, increased our chances of survival through trading what we had more of for what we needed or wanted. The more complex our societies became the more markets grew. At some point during the Renaissance, markets emerged that traded money as well as goods, as city-states and nations sought ways to fund wars. But these markets were far from god-like. Sovereign nations ruled supreme and money-lenders had to do their bidding if they hoped to be repaid or in some cases, if they hoped to avoid execution. Even Adam Smith didn’t suggest that financial markets had god-like powers. In fact, these markets seemed more like petulant children throwing tantrums as they puffed up tulip bubbles, South Sea bubbles, railroad bubbles and periodic financial panics.

When the mother of all financial crashes struck in 1929, it seemed as if markets would forever lose their god-like status. A consensus emerged that financial speculation was a major cause of the Great Depression, and tight controls were established during the New Deal to teach these petulant children a lesson they would never forget.

They forgot. We forgot.

After WWII, a new generation of economists emerged who worshiped the markets and detested any and all government interference. For these true believers, markets were infallible, blessed by what they called the “efficient markets” theory. Financial markets, they claimed, always got prices right. They always provided the best allocation of society’s scarce resources, and most importantly, they undermined bad government decisions. And all of this happened without any guidance and without anyone exercising any control whatsoever. These great autonomous and anonymous forces of modern economies ruled supreme and that was absolutely wonderful, according to these worshipers– praise the lord!

Led by economist Milton Friedman, these market apostles undermined any and all regulations that were put in place during the Great Depression to contain the diabolical impacts of markets run wild. “Let them run wild,” we were told, “and we’ll get an economic boom to make all boats rise.” Starting with President Carter, each and every president unleashed financial markets more and more until the financial sector towered over the global economy. Not only were the new financial market gods, bigger and more powerful than ever before, but the new high priests — our financial elites — earned millions of dollars, then hundreds of millions, and then billions as they collected modern-day tithes from all of us for tending to the financial gods. While markets were said to be intermediaries between our savings and needed investment, the financial elites became the intermediaries between our money and their own pockets.

…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

The Shocking, Graphic Data That Shows Exactly What Motivates the Occupy Movement

lesleopold — Thu, 10 Nov 2011 13:24:31 +0000

The corporate media may obsess about what Occupy Wall Street is all about, but these images should make it clear.

October 23, 2011 |

What are the Occupy Wall Street protesters angry about? The same things we’re all angry about. The only difference is the protestors turned their anger into public action. Occupy Wall Street lit the embers and the sparks are flying. Whether it turns into a genuine populist prairie fire depends on all of us.

Now is not the time for wonky policy solutions, as the media meatheads are calling for. Rather, it’s time to air our grievances as loudly as possible, which is precisely what Wall Street and its minions fear the most. Here’s a brief list of why we should be angry and the charts to back it up.

1. The American Dream is imploding…

(click for larger version)

The productivity/wage chart says it all. From 1947 until the mid-1970s real wages and productivity (economic output per worker hour) danced together. Both climbed year after year as did our real standard of living. If you’re old enough, you will remember seeing your parents doing just a bit better each year, year after year. Then, our nation embarked on a grand economic experiment. Taxes were cut especially on the super-rich. Finance was deregulated and unions were crushed. Lo and behold, the two lines broke apart. Productivity continued to climb, but wages stalled and declined. So where did all that productivity money go? To the rich and to the super-rich, especially to those in finance.

2. Our wealth is gushing to the top 1 percent…

(click for larger version)

Actually the top tenth of one percent. Because of financial deregulation and tax cuts for the rich, the income gap is soaring. Here’s one of my favorite indicators that we compiled for The Looting of America. In 1970 the top 100 CEOs earned $45 for every $1 earned by the average worker. By 2006, the ratio climbed to an obscene 1,723 to one. (Not a misprint!)

3. Family income is declining while the top earners flourish…

(click for larger version)

As women entered the workforce, family income made up for some of the wage stagnation. But now even family incomes are in trouble. Meanwhile, the incomes of the richest families continue to rise.

4. The super-rich are paying lower and lower tax rates…

(click for larger version)

To add financial insult to injury, the richest of the rich pay less and less each year as a percentage of their monstrous incomes. The top 400 taxpayers during the 1950s faced a 90 percent federal tax rate. By 1995 their effective tax rate – what they really paid after all deductions as a percent of all their income – fell to 30 percent. Now it’s barely 16 percent.

5. Too much money in the hands of the few combined with financial deregulation crashed our economy…

(click for larger version)

When the rich become astronomically rich, they gamble with their excess money. And when Wall Street is deregulated, it creates financial casinos for the wealthy. When those casinos inevitably crash, we pay to cover the losses. The 2008 financial crash caused eight million American workers to lose their jobs in a matter of months due to no fault of their own. The last time we had so much money in the hands of so few was 1929!

6. We’re turning into a billionaire bailout society…

(click for larger version)

We bailed out the big Wall Street banks and protected the billionaires from ruin. Now we are being asked to make good on the debts they caused, while the super-rich get even richer, some making more than $2 million an HOUR! It would take over 47 years for the average family to make as much as the top 10 hedge fund managers make in one hour.

7. The super-rich still control politics…

If you thought that was mind-boggling, head over to AlterNet to read the rest of the article, with even more astonishing charts.

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

Free College on Wall Street's Tab? 5 Reasons the Finance Sector Should Pay for Full Tuition at Public Universities

lesleopold — Thu, 19 May 2011 19:45:46 +0000

We are the richest country in the world, and we have the means to create employment for the 20 million who are without work.

It’s now crystal clear that our economy is not producing enough jobs for all who want and need them. It’s also clear that our economy is doing an excellent job at putting more and more wealth in the hands of the few. It’s time to change this equation with one simple proposal that would put millions of Americans back to work in a matter of months: free tuition at all public colleges and universities.

The spinmeisters can’t hide the fact that unemployment is still at horrendous levels and causing enormous suffering for millions of Americans. Job growth is so paltry that at this rate it will take over a decade to return to full employment. Worse still, there are 5.8 million Americans who have been unemployed for 27 weeks or longer, the highest number since the Great Depression. Meanwhile, Wall Street, which caused the economic collapse, is returning to record profits and bonuses. We can no longer afford to wait for the trickle-down economics to put our people back to work. And we can easily afford a free higher education program provided we have the nerve to make Wall Street pay for it.

We’ve Done it Before

At the close of WWII, policy planners worried that the return of 12 million soldiers to the civilian workforce would bring back the Great Depression. To combat this possibility, Congress passed the Servicemen’s Readjustment Act of 1944, which became known as the G.I. Bill of Rights. It provided $500 a year for GIs who attended technical or higher educational institutions, which was more than enough to pay tuition at any college in the country. (Harvard cost $400 a year at that time.) GIs who went to school also received a generous stipend as well. As a result, the number of college degrees more than doubled between 1940 and 1950. Overall, 7.8 million veterans went to school on the GI Bill.

Was it worth it? In 1988, the Joint Economic Committee analyzed the impact of the GI Bill on the economy. The program cost taxpayers approximately $70 billion (in 2010 dollars). However, the committee estimated that the GI Bill generated an extra $120 billion in federal tax revenues and $350 billion in extra national output. Overall, for every one dollar invested in this massive educational program, $6.90 was returned to the economy.

We Could Do it Again, Right Now

Today, students and parents pay approximately $50 billion per year in tuition for two- and four-year public institutions of higher learning. As a result, families have run up a mountain of debt – there are $850 billion in outstanding student loans (which is more than credit card debt). Clearly, the educational burden on family budgets is enormous. Through a program of free higher education we could dramatically improve our economy, almost overnight. Here’s a brief list of what such a massive dose of trickle-up economics could do for our society:

1. Millions of Unemployed Workers Would Go Back to School: Those without jobs, or stuck in dead-end, part-time jobs, are likely to rush back to school, especially if they are permitted to keep drawing on their unemployment benefits. But, even those without such benefits would see higher education as a way back into the modern global economy. We should expect the number of those entering college to double. It is highly likely that a free higher education program would drop the unemployment rate by 1 to 2 percent in a matter of months.

2. Colleges Would Generate a Major Construction and Work Boom: We can be certain that tuition-free higher education would lead to a dramatic expansion of public colleges and universities. New facilities and entire campuses would have to be constructed to meet the influx, and more faculty and staff would be hired. If, as expected, a free tuition program doubled the number of students at public colleges and universities, we could expect to add approximately 1 million additional jobs on campuses and in their surrounding communities – jobs that cannot be outsourced.

3. Family Finances Would Improve: The debt burden on college students and their families is enormous. Two-thirds of college graduates, today, leave with an average of $24,000 in student loans, more than double from a decade ago. With a free higher education program, millions of families would feel significant improvement in their net worth since they no longer would have to deplete savings or go into debt in order to send their children to college. Also, those graduating from college would no longer be saddled with enormous student loans. This increased sense of financial security would surely add to economic demand and further create jobs.

4. States Would Get Help with Their Budget Crises: Because of enormous budget pressures on state government, tuition costs at public institutions rose by 7.9 percent in 2010-'11, nearly twice as fast as tuition increases at private colleges and universities, and many times above the rate of inflation. At the moment states are slashing their contributions to higher education in order to close budget gaps caused by the Wall Street-induced economic crash, which will make tuition rise even faster. If tuition were covered by the federal government, the pressure to raise tuition and to cut back on state colleges and university programs and staff would be greatly reduced.

5. Our Workforce Would Improve Its Skills: It may be a cliché, but survival in a global economic system depends on working smarter. The most productive nations in the world figured that out years ago. European nations, for example, charge little or nothing in tuition and fees. England is the exception, but it has set a cap of $5,000 per year, and by law, tuition can rise no more than the rate of inflation each year. In China, higher education is free as is campus housing. We need to upgrade the skill levels and knowledge background of our entire workforce. As long as we participate in international trade on a large scale, then the free tuition program will help improve our competitive edge.

How and Why Wall Street Should Pay

Just in case any of us are suffering from financial amnesia, Wall Street’s reckless greed caused the economy to crash and caused the destruction of over 8 million jobs in a matter of months. We then bailed out our financial barons to limit the damage and now Wall Street again is making record profits and bonuses.

They owe us and they can afford to pay.

We should expect the yearly tab for a free tuition program to come to approximately $100 billion. It would be both just and economically smart to extract that money from the financial sector. The only question is how to do so.

The best approach would be through a financial transaction tax, which is a small fee on all stock, bond, currency and derivatives trades. This fee would be negligible for those of us who take care of our own 401(k)s and other investment accounts. But if you’re a hedge fund or a proprietary trading desk at Goldman Sachs or JP Morgan Chase, you’d be paying a small fee on the millions of transactions you engage in every day. Economist Dean Baker estimates that a small financial transaction tax could generate $100 billion per year – precisely what we need to make free higher education a reality in America (PDF). (In case, you’re worried that the financial industry would flee the country if only one nation instituted such a tax, England already has one that is working just fine.)

It’s Time to Choose What Kind of America We Want

We are rapidly headed toward a two-tiered society in which financial elites have nothing in common with the rest of us. While they commandeer outrageous profits, bonuses and bailouts, we suffer unemployment and debt. While they pay lower and lower taxes, we see public programs slashed in order to cut deficits. While they send their children to the best schools in the world, we must take out enormous loans to go to universities that are suffering cutbacks.

But we should never forget that we are the richest country in the history of the human race and have the means to create employment for the 20 million who are without work or are forced into part-time jobs. Free higher education is a proposal that can enrich us all by putting America back to work and having those who caused the unemployment crisis in the first place pay their fair share.

It’s a program nearly all Americans would support. Now all we need are politicians with the spine to fight for it.

Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and 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, 2009).

Read the original post on 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

How Wall Street Thieves, Led by Goldman Sachs, Took Down the Global Economy — Their Outsized Influence Must be Stopped

lesleopold — Wed, 27 Apr 2011 17:19:03 +0000

For all the damning evidence you’ll ever need about Wall Street corruption, take a look at the recent report from the Senate Permanent Subcommittee on Investigations, “Wall Street and the Financial Crisis: An Anatomy of a Financial Collapse” (PDF). The 650-page indictment reveals the myriad of ways Wall Street lies, cheats, steals and defrauds on a routine basis. Arguably the report is as revealing as the Nixon tapes or the Pentagon Papers. Unfortunately, it’s too technical to get widely read. So here are the Cliff Notes.

This study, broken into four case studies, forms a biblical tale of how toxic mortgages were born, nurtured and spread like the plague throughout the land, making money for the financial philistines every step of the way.

The first case study focuses on Washington Mutual (WaMu), the nation’s largest savings bank, and its overt strategic decision to go big into selling high risk, high profit mortgages. Here you will find a detailed description of every type of dangerous mortgage foisted onto the public. Your blood pressure also will climb when you read how the bank used focus groups to help its mortgage brokers find better ways to sucker customers into risky mortgages even though the applicants had qualified for and wanted safer fixed-rate mortgages.

The report also details outright fraud committed by brokers – forging documents, making phony loans, stealing money – who then got rewarded again and again by the bank for their high sales records, even after they were caught! Nobody cared because the loans quickly were sold to Wall Street – the riskier the loan, the higher the interest rates and the more Wall Street would pay.

The second case recounts the pathetic tale of the Office of Thrift Supervision, the regulatory agency that was supposed to halt WaMu’s shoddy and corrupt practices. The report shows that OTS knew of these deceptive practices in great detail for five full years and still failed to stop the pillaging. Why? Because OTS’s top regulators didn’t believe in regulations. Banks should regulate themselves. OTS only wanted to help. And one way it helped was by deliberately impeding other regulators like the FDIC from enforcing stronger regulations on WaMu. The OTS, which mercifully has been eliminated, believed it was partners with the banks it supposedly regulated — a textbook example of regulatory capture combined with financial Stockholm syndrome.

The third case study which focuses on the two largest rating agencies (Moody’s and Standard and Poor’s) is a story of prostitution. Here we learn how the rating agencies turned trick after trick for the big Wall Street banks, doling out favors (AAA ratings) to thousands of “innovative” securities based on the junk mortgages that WaMu and others originated and packaged. Then when it became obvious to everyone that the crap was still crap, the whores went virtuous by drastically downgrading thousands of toxic assets overnight. This forced pension funds and insurance companies, who by law could only hold investment grade securities, to dump their downgraded assets all at once. The result was a rapid and deep collapse of all financial markets. (You read this section of the report and you have to wonder how anyone in their right mind could take seriously S&P’s recent “negative outlook” rating on the U.S. Who are they shilling for now?)

The last case study is the most pornographic as it strips bare two investment banks, Deutsche Bank and Goldman Sachs. The report accuses them of packaging and selling toxic securities while, at the same time, betting that those securities would fail. Furthermore, the report argues forcefully, that “Investment banks were the driving force behind the structured finance products that provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system. The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis.” (pg 19)

The Case against Goldman Sachs

It’s obvious that the subcommittee is gunning for Goldman Sachs, and for good reason. This elite investment house, the envy of all Wall Street, is shown to be corrupt to its core. Not only is it accused of creating toxic assets and unloading them on its own customers, but also, the report accuses GS of betting that the very assets they were selling would fail. They profited by selling the junk and then profited even more when the junk they were selling lost value. The deeper the financial destruction, the more they made. And of course, they didn’t tell the buyers of the toxic assets about GS’s hidden bets or the fact that their internal research showed that the assets were totally toxic. The report is the most detailed account ever written about the Goldman Sachs profitable trail of deceptions including lies that were told to Senate committees again and again.

Lie #1: 'Putting our Customers First'

The path of looting and destruction starts in 2006-'07 when the leadership of Goldman Sachs became convinced that the housing market was in decline and that they had to get rid of all their mortgage-related securities in a hurry. Well, how do you get rid of crap? You package it together, slice and dice it and get your favorite rating agency strumpets to kiss it with AAA-ratings. Then you send your sales force out on a mad scramble around the world to find customers. The problem was that by then most mortgage security buyers knew these assets were toxic AND that the ratings were phony. So GS told its sales agents to seek out customers who knew the least about mortgage-related securities. Nice.

Lie #2: 'Our interests are aligned with our customer’s interests'

Once the junk was packaged and sold, GS placed billions of dollars of bets that the mortgages contained or referenced in the securities would crash and burn. The more they crashed, the more the bets paid off for Goldman Sachs. However, GS failed to reveal this crucial information to its customers. Rather it said that GS’s interests were aligned with that of its customers, implying that GS was buying into the deal and holding the same garbage as the customers were buying. The report details many cases where GS bet big against what they were selling without providing this material information to its buyers.

The Goldman Sachs-Paulson Sting

The most egregious example of this swindle was the Abacus deal that GS cooked up with Paulson and Company, the hedge fund that bet billions that toxic mortgage-related assets would fail. Paulson approached GS with a plan to rig a bet that was sure to fail for the buyers and pay off big for Paulson. Without telling the buyers, Paulson was allowed to set the criteria for the selection of the toxic assets that were placed in the securities, and of course he picked the worst ones he could find. As the report says;

“With respect to Abacus, Goldman knew that the Paulson hedge fund wanted to take 100% of the short side and would profit only if the CDO lost value, yet allowed the hedge fund to play a major but hidden role in selecting the CDO assets.” (p 620)

To hide Paulson’s role, GS needed an independent “portfolio selection agent” to pretend to be the final arbiter of what mortgage pools became part of the security. They hoped that GHC Partners would play that role. But, as a key Goldman Sachs executive reported to his colleagues, GHC found the deal too unsavory:

“As you know, a couple of weeks ago we had approached GSC to ask them to act as portfolio selection agent for that Paulson-sponsored trade, and GSC declined given their negative views on most of the credits that Paulson had selected.” (p 564)

They soon found another shill agent to hide Paulson’s role. Within a year, the buyers of the security lost a billion dollars and Paulson made a billion on his bet. Goldman Sachs got the fees for arranging the deal. However, they later had to pay a fine of $550 million to the SEC for failing to disclose Paulson’s role. Meanwhile, Paulson became the most prosperous hedge fund manager in world. In 2010 he earned $2.4 million an HOUR.

Lie #3: 'Honest, we didn’t try to rig the market'

In order to place more and more bets against the toxic mortgages, Goldman Sachs wanted to purchase credit default swaps, which are like insurance policies. You pay a premium to buy a policy on a given toxic security. If that security fails, you get full value. And you don’t have to own the security to place this wager.

Around the time that Bear Stearns started to fail in 2007, GS wanted to buy up more and more of these bets. But first they wanted to drive down the insurance policy prices so they could get them on the cheap and make even more money. Well, it’s against the law to manipulate markets, but nevertheless GS tried to use its market power to “squeeze” the market downward. It didn’t work out because the cascading financial crash intervened. The Senate investigators found the following smoking gun (a self-evaluation from one of the key GS traders):

“In May, while we were remain[ing] as negative as ever on the fundamentals in sub-prime, the market was trading VERY SHORT, and susceptible to a squeeze. We began to encourage this squeeze, with plans of getting very short again, after the short squeezed [sic] cause[d] capitulation of these shorts. This strategy seemed do-able and brilliant, but once the negative fundamental news kept coming in at a tremendous rate, we stopped waiting for the shorts to capitulate, and instead just reinitiated shorts ourselves immediately.” (p 425).

He later denied this was really a squeeze by claiming to investigators that they placed too much emphasis on “words.” But, think about what this reveals. This GS employee in a self-evaluation to his superiors thought it would make him look good if he bragged about trying to engage in obvious illegalities. What does that really say about the venerable Goldman Sachs culture?

Lie #4: 'We’re only doing all this to make markets'

One of the biggest lies can be found in the concerted cover-up during the testimony before Congressional committees and investigators. After obvious coaching from their lawyers, GS executives stated again and again they are only trying to make markets so that sophisticated investors can make trades. The GS executives deny that they pushed the crap off their books onto investors. They were, instead, only trying to help investors find the deals they wanted. Some, GS argues, wanted to bet that the toxic assets would pay off and others that they would fail, and GS, they claim, only gave them both what they wanted. (They said this repeatedly because the disclosure rules for market making are much weaker than if they are promoting and selling securities to investors.)

Lies #5 ,#6, #7…….#101

The list goes on and on. GS manipulated assets to benefit themselves at the expense of their customers. They manipulated prices to benefit themselves at the expense of customers. As part of Abacus, they worked out a private deal with Paulson so that Paulson would pay less for his “insurance”, which in turn hurt the investors on the other side of the bet. And, even after all of these revelations, Goldman Sachs to this day continues to deny that it engaged in a strategy to bet big against the housing market.

In the end you come to one and only one conclusion. Every time Goldman Sachs had an opportunity to profit by cheating its customers, it did so.

What is to be done?

The Senate report calls for tighter regulations so that banks can’t play these games ever again. It calls for more effective regulatory agencies and rules, and it wants major reforms on the way the rating agencies work — much of this already contained in the Dodd-Frank financial reform bill. But in addition, the subcommittee obviously wants more federal prosecution of Goldman Sachs and others as it asks that “Federal regulators…. identify any violations of law…” (p 638).

No way are these reforms and indictments going to work.

We could put all the crooks in jail (and we should), but Goldman Sachs would still be there. We could tighten regulations more and more, but the big banks would still be armed with enormous wealth and power to subvert them. Regulations and jail are not good enough unless we want to construct massive regulatory and enforcement agencies that rival the banks in size and scope.

Rather, the report proves why the entire financial edifice must come down. Our nation cannot survive economically unless we do away with the large Wall Street banks and investment houses. It’s not just that they are too big to fail. They are too big – period!

At a workshop I recently conducted, one student asked if I thought it possible to go back to a system of local and state banks. I had my doubts. But after reading this report I realized that the student was right. Congress should undo the 1994 bill that “explicitly authorized interstate banking, which allowed federally chartered banks to open branches nationwide more easily than before.” (p 15)

We should break up the big banks and replace them with state and local ones. We should limit financial firms to no more than $10 billion in assets instead of the trillions they now control. We should heavily regulate the hedge fund gamblers. And we should shrink the size of Wall Street through a financial transaction tax.

You just can’t read this report without concluding that big finance, by definition, is bad.

I never make predictions, but this report offers a sure bet: If we don’t bust them up and limit their size, there soon will be another financial crisis that will eat away what’s left of our middle-class way of life.

As this startling report makes all too clear, it’s us or them and there’s no way around it.

Read the original post on Alternet.

Les Leopold is the author of The Looting of America.

Big Finance Is a Monster That's Consuming Our Economic Security

lesleopold — Fri, 22 Apr 2011 18:16:35 +0000

This horror story starts in the 1970s when the economic policy establishment, led by Milton Friedman, thought they were a whole lot smarter than the New Dealers who had put a lid on the financial sector and forced high taxes on the super-rich – all designed to prevent the gamblers from again wrecking our economy like they did in 1929.

Blinded by ideology, the 1970s gang were certain the economy would run much better if free markets were allowed to function without government interference. This meant deregulation of airlines, telecommunications, trucking industry and most importantly, the deregulation of finance. At the same time they called for tax cuts for the rich because these elites were the source of investment capital needed to make the economy grow.

When the Reagan Revolution arrived, both political parties were tripping all over themselves to cut taxes for the rich and to unleash the financial sector so that it could “innovate” This combo was supposed to produce a massive investment boom that would make all boats rise. Free markets, not government, would run the economy.

And so they did. The combination of upper-end tax cuts, deregulation, globalization and anti-union policies led to a dramatic change in our income distribution. The top one percent jumped from taking in 8 percent of all income in 1970 to 23 percent in 2006 — the same as on the eve of the Great Depression, and that’s no coincidence.

Continue reading this article at Alternet.

Les Leopold is the author of The Looting of America.

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

lesleopold — Mon, 04 Apr 2011 20:18:51 +0000

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.

Les Leopold is the author of The Looting of America.