This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
This is a story we are all too familiar with: Wall Street vs. Main Street. Irresponsible behavior leads to bonuses for Wall Street while working hard and playing by the rules leads to unemployment and foreclosure for Main Street.
You’ve heard the elements of the story: For quite some time Wall Street and the banks were operating irresponsibly, fomenting a huge credit bubble which led to the financial collapse. At the end of 2008 millions and millions of regular people – popularly known as “Main Street” – began losing their jobs, losing their houses, losing their savings and forgetting about ever retiring.
Wall Street: Huge Wall Street bonuses are in the news: Bank Bonus Tab: $33 Billion
Nine banks that received government aid money paid out bonuses of nearly $33 billion last year — including more than $1 million apiece to nearly 5,000 employees — despite huge losses that plunged the U.S. into economic turmoil.
… The nine firms in the report had combined 2008 losses of nearly $100 billion. That helped push the financial system to the brink, leading the government to inject $175 billion into the firms through its Troubled Asset Relief Program.
The Cost: The same amount, used for the people, would bring over 2.5 million good-paying jobs.
The “financial collapse” bonus pool is $33 billion. For comparison, look at what $30 billion could buy for We, the People, if only we had some control over things. $30 billion is the amount requested in Senator Sherrod Brown’s (D-Ohio) Impact Act. $30 billion = more than 2.5 million jobs:
“IMPACT (Investments for Manufacturing Progress and Clean Technology) creates a $30 billion Manufacturing Revolving Loan Fund to help small and medium-sized manufacturers finance retooling, shift design, and improve energy efficiency.
. . . the IMPACT Act could create 680,000 direct manufacturing jobs nationally and 1,972,000 indirect jobs over the next five years.”
Gas Prices and Bonuses: Do you remember those soaring gas prices that hit Main Street so hard last year. They play a part in this bonus story. For some background, see Matt Taibbi’s Rolling Stone piece, Inside The Great American Bubble Machine,
So what caused the huge spike in oil prices? Take a wild guess. . . . [Wall Street] persuad[ed] pension funds and other large institutional investors to invest in oil . . . The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
[. . .] But it wasn’t the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.
This fits our story because the top bonus-getter this time around is Andrew J. Hall. Hall “earned” it by helping to run up the price of oil last year. Hall is getting a $100 million bonus. (Thanks to previous years’ bonuses Hall already owns a 1000-year-old castle called Schloss Derneberg. Go look at some of the pictures of what these nice Wall Street bonuses can buy.)
Here’s some more bonus news: Goldman may pay out largest bonus pool ever,
Looks like things are back to normal, or perhaps even better, at Goldman Sachs Group Inc. (NYSE:GS) as the firm is reportedly on track to pay out its largest bonus pool in the firm’s 140-year history thanks to soaring profits in the first half of 2009.
Yes, that’s right “back to normal.” Huge bonuses, in some cases the largest ever.
Main Street: Also back to “normal,” the rest of the country remains mired in debt, unemployment, foreclosures, budget cuts and a health care crisis looks on, helpless to do anything about it because the functioning of their government has been captured by a wealthy few. Even before the financial collapse things were pretty bad. Wages had been near-stagnant for decades while costs rose, resulting in soaring credit card and other household debt. The savings rate had actually gone below zero. But not for Wall Street. While this was happening the finance sector had quadrupled to nearly 40% of all corporate profits and insiders were reaping tens and hundreds of millions and even billions for themselves.
There are many who say that these problems of debt and stagnant wages are because of Wall Street. Wall Streeters encourage companies to focus on maximizing short-term profit rather than investing in long-term stability. Wall Street pressure encourages companies to cut benefits, outsource jobs, increase workloads and eliminate customer services as much as possible.
These changes in business practices occurred partly because of the huge cuts in the top tax rates from the Reagan through the Bush years. It used to be that people built fortunes over time by carefully building businesses. But the tax cuts enabled “get rich quick” schemes that let a few benefit from chopping up and selling off once-stable companies, raiding pension funds, and so many of the business practices that have destroyed Main Street livelihoods.
This also happened because of deregulation. People were convinced that regulation of business “cost jobs,” or a hundred other things we were told. Well it turned out that regulation was important. And it turned out that a few people reaped massive fortunes from the experiments in deregulation and tax cuts.
The Damage Done: While the bonuses are the largest ever, for public trust in their government and elected leaders this may equate to some of the most damage ever. People see these bonuses being handed out, paid for with taxpayer money, and they understand that their money is going out to the very people who destroyed the economy and their dreams. This kind of unfairness and injustice can tear apart the fabric of society. We are seeing elements of this in the disruptions at the Town Hall meetings on health care. People are angry at the way they are being treated, and the corporate right is channeling that anger into further demands for deregulation and favors for a few at the top.
While the stage was set for the bailouts and bonuses by the Bush administration, President Obama was elected to change things. Immense damage has been and continues to be done to the Obama administration in the public mind by these huge Wall Street bonuses. This set the stage for opposition to the health care plan. People feel that the President should find a way to stop this travesty. But instead he is seen as continuing it. His advisors are seen as being from Wall Street and unwilling to stand up against their friends and social and professional circles in which they live.
The Hope: President Obama has appointed a “Pay Czar.” Kenneth Feinberg, who previously worked for free as head of the September 11th Victim Compensation Fund, has the job of “Special Master for Compensation.” He will look at the compensation of the top 25 executives at these firms and decide if it is fair.
I think I speak for a lot of people when I say I want Mr. Feinberg to be aware that this bonus pool comes from taxpayer money, that the firms giving these bonuses wouldn’t even be here if the taxpayers hadn’t bailed them out, that the rest of the country – Main Street – hasn’t seen a raise in a very long time, largely because of the policies of Wall Street, and that the bonus pool just happens to match the amount that would create 2.5 million jobs on Main Street through the IMPACT Act.
Mr. Feinberg, claw it back. Don’t let these people get these bonuses, and be very public about it. The public needs to have their trust restored.
But more than that, the conditions that enabled Wall Street to benefit from destroying the livelihoods of the rest of us need to be reversed. Strong regulation needs to be reintroduced by the administration and backed up as necessary by the Congress. Top tax rates need to be increased back to where they were before Reagan to discourage this terrible “get rich quick” behavior and to reverse the concentration of the country’s wealth among a top few. Most important: strong campaign finance and lobbying rules need to be implemented to remove Wall Street’s ability to influence government. Truest and fairness need to be restored to our system.