“the era of an ever-growing financial industry was also an era of ever-growing inequality of income and wealth. Wall Street made a large direct contribution to economic polarization, because soaring incomes in finance accounted for a significant fraction of the rising share of the top 1 percent (and the top 0.1 percent, which accounts for most of the top 1 percent’s gains) in the nation’s income. More broadly, the same political forces that promoted financial deregulation fostered overall inequality in a variety of ways, undermining organized labor, doing away with the “outrage constraint” that used to limit executive paychecks, and more.” Paul Krugman
FROM KLEPTOCRACY TO KVETCHOCRACY
FROM STEALING TO WHINING
EDITOR’S NOTE: Amazing how history repeats itself. The books, articles and comments from pundits who just weeks ago were dismissive of the complaints of consumers, taxpayers, homeowners, voters from every part of the political spectrum have suddenly turned to consider whether our government has been hijacked by a very small group of people whose net worth and annual earnings have soared as the direct and proximate result of stealing from the rest of us. Now they are complaining that people are talking about it and that government is taking action against them for their misdeeds.
The Occupy movement has struck a chord with almost everyone. The way I would put it, they have brought home the difference between appearance and reality. While the stock market soared and Wall Street reported ever growing gargantuan profits, the rest of the economy was being dismantled for lack of capital and lack of will to keep America great. I had a dream when I was young. It was that whatever I chose to do I would have a chance, an opportunity to make a difference in my life and the lives of others. In the sixties that dream was shared by many — enough to make fundamental changes in the governance our nation and the benefits of being one of its citizens.
When I was on Wall Street I recognized the value of what they were doing — providing ever increasing liquidity to what appeared to be a growing economy. But in real terms that growth was illusory for most people and the fact that people accepted debt as a substitute for wages rightfully puts blame on both sides of the deal. It didn’t need to go that way. Liquidity became an acceptable substitute for real wealth and real money, and the value of the dollar began its long descent.
The growth of GDP was largely attributed to the growth of Wall Street, where financial services rocketed from 16% of GDP to 48%. If you assume that the growth of Wall Street as a percentage of GDP reflected trading paper that was manufactured by Wall Street, the growth that Republicans and conservative democrats alike are fond of using as a reference point, is a complete illusion. Take 32% of GDP off the table and you have an anemic economy that is completely consistent with the meteoric rise in the need to have two incomes per household.
When we take that Wall Street 32% off the table, our dire circumstances become obvious and understandable. Our REAL GDP didn’t grow — it shrunk. Factor in the deferred maintenance and rebuilding of our infrastructure, and you can see that where GDP could have grown it actually decreased by a huge factor. And that is where we stand now — a REAL GDP that is probably worth half of what is reported. Many of our citizens have a sense that this is the case and are now insisting that it be changed. They are right, and either we will do what is necessary or we will wish we had.
The measurement of GDP is really a statement of values. It takes certain transactions and puts a value on them whereas it takes other transactions and ignores them as a valued part of our gross national product. We took wealth for wealth’s sake as a value and computed as part of our economic self-esteem. Now we have run out of steam. There is not enough money in the world to continue propping up the bubble that was created over the last 35 years. We have over $600 trillion in derivative debt, based upon only $50 trillion in actual money in circulation. A 5 year old can understand that this can’t work. Occupy Wall Street is inviting us to look at these inconsistencies in our values and in our policies. The debate is long overdue.
Globalization, like securitization, is not evil unto itself. But it was a new weapon that only a handful of people knew how to use. It wasn’t a level playing field and concurrently with the asymmetry of information and facts known to the few who were growing rich versus the majority who were seeing their real prospects dwindle, the lack of information and the drive for the ideological position that government is always the problem resulted in taking the referees off the field just when the game got really technically challenging.
Between knowing more than anyone else and not having anyone stop them, the perfect storm of moral hazard erupted, as we had one major scandal after another, each escalating the stakes until we put the entire world on the table as a bet that only Wall Street could win. Blaming Wall Street is like blaming a soldier on the battlefield for firing his gun — that’s what he is there to do. But the soldier is supposed to be functioning under a chain of command that tells him how to identify the enemy and who NOT to fire on.
And like that soldier, Wall Street is to blame for not using their innate sense of right and wrong when they took aim at the pension funds of workers, the wealth of the middle of class, and the prospects of the country that gave them the freedom to innovate and profit. Government is wrong for not stopping practices that were plainly leading to a catastrophic result. And the voters are to blame for letting themselves be lulled into voting for slogans and marketing ploys as a substitute for using their own intelligence and good sense.
We all bought into a fairy tale, and whether it is fair or not, the result is unacceptable and must be changed. That change must start with application of law as it is written and not making exceptions on an ad hoc basis for banks who claim they are danger of collapse and taking the system with them when they go down. If they can’t foreclose homes, collect on credit cards, collect student debt, and other consumer loans without breaking or ignoring the law, then they shouldn’t be allowed to do so, just because we think that our sense of morality is offended. We are a nation of laws and due process, not a nation of men and ideological preferences.
Regardless of blame, the facts are that we are in a situation that is unworkable. The middle class is rapidly disintegrating into a lower economic class whose abilities to climb the ladder are being blocked by barriers that they cannot breach. The poor are descending into abject poverty, and the normal governmental functions like police, fire, social services, and maintenance of infrastructure of roads, tunnels bridges, electricity, water and sources of power have all crumbled under the sheer weight of neglect. The super rich can always work around these shortcomings by building their own power plants and building their own fleet of transport vehicles that don’t rely on our disintegrating roads, bridges and tunnels. They can hire their own army of guards and their own army of fireman, and provide their own services.
The anger out there is not that we are out of range of the super-rich, it is that the basic services and protections we always thought were a natural part of the American political and economic landscape have vanished. We want it back.
Losing Their Immunity
As the Occupy Wall Street movement continues to grow, the response from the movement’s targets has gradually changed: contemptuous dismissal has been replaced by whining. (A reader of my blog suggests that we start calling our ruling class the “kvetchocracy.”) The modern lords of finance look at the protesters and ask, Don’t they understand what we’ve done for the U.S. economy?
The answer is: yes, many of the protesters do understand what Wall Street and more generally the nation’s economic elite have done for us. And that’s why they’re protesting.
On Saturday The Times reported what people in the financial industry are saying privately about the protests. My favorite quote came from an unnamed money manager who declared, “Financial services are one of the last things we do in this country and do it well. Let’s embrace it.”
This is deeply unfair to American workers, who are good at lots of things, and could be even better if we made adequate investments in education and infrastructure. But to the extent that America has lagged in everything except financial services, shouldn’t the question be why, and whether it’s a trend we want to continue?
For the financialization of America wasn’t dictated by the invisible hand of the market. What caused the financial industry to grow much faster than the rest of the economy starting around 1980 was a series of deliberate policy choices, in particular a process of deregulation that continued right up to the eve of the 2008 crisis.
Not coincidentally, the era of an ever-growing financial industry was also an era of ever-growing inequality of income and wealth. Wall Street made a large direct contribution to economic polarization, because soaring incomes in finance accounted for a significant fraction of the rising share of the top 1 percent (and the top 0.1 percent, which accounts for most of the top 1 percent’s gains) in the nation’s income. More broadly, the same political forces that promoted financial deregulation fostered overall inequality in a variety of ways, undermining organized labor, doing away with the “outrage constraint” that used to limit executive paychecks, and more.
Oh, and taxes on the wealthy were, of course, sharply reduced.
All of this was supposed to be justified by results: the paychecks of the wizards of Wall Street were appropriate, we were told, because of the wonderful things they did. Somehow, however, that wonderfulness failed to trickle down to the rest of the nation — and that was true even before the crisis. Median family income, adjusted for inflation, grew only about a fifth as much between 1980 and 2007 as it did in the generation following World War II, even though the postwar economy was marked both by strict financial regulation and by much higher tax rates on the wealthy than anything currently under political discussion.
Then came the crisis, which proved that all those claims about how modern finance had reduced risk and made the system more stable were utter nonsense. Government bailouts were all that saved us from a financial meltdown as bad as or worse than the one that caused the Great Depression.
And what about the current situation? Wall Street pay has rebounded even as ordinary workers continue to suffer from high unemployment and falling real wages. Yet it’s harder than ever to see what, if anything, financiers are doing to earn that money.
Why, then, does Wall Street expect anyone to take its whining seriously? That money manager claiming that finance is the only thing America does well also complained that New York’s two Democratic senators aren’t on his side, declaring that “They need to understand who their constituency is.” Actually, they surely know very well who their constituency is — and even in New York, 16 out of 17 workers are employed by nonfinancial industries.
But he wasn’t really talking about voters, of course. He was talking about the one thing Wall Street still has plenty of thanks to those bailouts, despite its total loss of credibility: money.
Money talks in American politics, and what the financial industry’s money has been saying lately is that it will punish any politician who dares to criticize that industry’s behavior, no matter how gently — as evidenced by the way Wall Street money has now abandoned President Obama in favor of Mitt Romney. And this explains the industry’s shock over recent events.
You see, until a few weeks ago it seemed as if Wall Street had effectively bribed and bullied our political system into forgetting about that whole drawing lavish paychecks while destroying the world economy thing. Then, all of a sudden, some people insisted on bringing the subject up again.
And their outrage has found resonance with millions of Americans. No wonder Wall Street is whining.
Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
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bubble, Corruption, Eviction, securities fraud |
