A funny thing happened on the way to the bailout. A number of the members of the bucket brigade — that’s us, taxpayers — realized that for all the billions of dollars worth of bailing we’re doing, we still appear to be sinking. Our task seems to be keeping things afloat long enough for first class passengers to fill the lifeboats. And as the water rises, more of us are less content with apparent the “brokers and bankers first” rule.
And let there be no doubt, as the U.S. economy looks like it’s going down for the first time, “brokers and bankers first” is the rule.
In the waning days of, well, everything from the George W. Bush era, to the Reagan era and 30 years of conservative rule — as is often the case in a disaster — men’s true characters reveal themselves, and they reveal their intentions when they have little left to lose.
It’s heard in back channels, on conference calls when they believe no one from steerage class can hear them.
How do you know that the Wall Street types were trying to steal from us, other than the fact that they said that the refusal to hand over money was akin to a terrorist act? Treasury officials had a secret conference call with Wall Street executives. Unfortunately for them, some bloggers were on the call. The ‘Treasury boys’ on the call made it clear that “the tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed.” That was always obvious.
And they admitted that “the exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes.” Both of these provisions were ‘concessions’ sought by Democrats. Of course, no one could have predicted this bill’s ‘concessions’ to Democrats were farcical. No one at all.
And it can be heard in committee meetings, where there’s strangely little concern that the news will drift down to steerage, when they essentially ask “How much do you think the take will be?”
In the final days of the election many Republicans seem to have given up the fight for power. But don’t be fooled: that doesn’t mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700bn bail-out out the door. At a recent Senate banking committee hearing, the Republican Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. “How much of it do you think may be actually spent by January 20 or so?” Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bail-out.
When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.
Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as “distressed asset” auctions and the “equity purchase program”. But make no mistake: the goal is the same as it was for the defeated Portuguese – a final, frantic looting of the public wealth before they hand over the keys to the safe.
Whether most of us heard the message in such explicit terms, we got the message. The public anger over the bailout, that in the end did nothing to stop it and little to change it, was probably rooted in what was unsaid in how the bailout was sold: it was never about helping everyday Americans. Certainly, we were told that the bailout was necessary to prevent financial disaster that would devastate Main Street. That much would trickle down. But the rescue, to date, has not.
As a result, more of us are angry, looking for targets, and sometimes fixing on the wrong —though convenient — ones.
It’s hard, however, to miss targets that have $700 billion and $1 trillion bullseyes painted on them. That’s because the bailout, thus far seems to be the final act in the long, slow grift of transferring wealth from the bottom of the economic ladder, and from public into private hands. The show is over — the “prosperity” of the last eight years or so fading away without most of us getting to enjoy it — and we get to sweep up after (pun intended) the elephant act.
Economic growth and tax cuts, we were told, were an inseparable pair. We definitely couldn’t have one without the other. And if we looked up and saw all that prosperity at the top, we were told to “just wait” for it to dribbled down our way, like champagne from an over-filled glass. Turns out we were sold a bill of goods, and by the time we realized it, the party was over, leaving much to be cleaned up and paid for. Again, Krugman, circa 2006.
Finally, there’s the government’s most direct method of affecting incomes: taxes. In this arena, Bush has made sure that the rich pay lower taxes than they have in decades. According to the latest estimates, once the Bush tax cuts have taken full effect, more than a third of the cash will go to people making more than $500,000 a year — a mere 0.8 percent of the population.
It’s easy to get confused about the Bush tax cuts. For one thing, they are designed to confuse. The core of the Bush policy involves cutting taxes on high incomes, especially on the income wealthy Americans receive from capital gains and dividends. You might say that the Bush administration favors people who live off their wealth over people who have a job. But there are some middle-class “sweeteners” thrown in, so the administration can point to a few ordinary American families who have received significant tax cuts.
Furthermore, the administration has engaged in a systematic campaign of disinformation about whose taxes have been cut. Indeed, one of Bush’s first actions after taking office was to tell the Treasury Department to stop producing estimates of how tax cuts are distributed by income class — that is, information on who gained how much. Instead, official reports on taxes under Bush are textbook examples of how to mislead with statistics, presenting a welter of confusing numbers that convey the false impression that the tax cuts favor middle-class families, not the wealthy.
In reality, only a few middle-class families received a significant tax cut under Bush. But every wealthy American — especially those who live off of stock earnings or their inheritance — got a big tax cut. To picture who gained the most, imagine the son of a very wealthy man, who expects to inherit $50 million in stock and live off the dividends. Before the Bush tax cuts, our lucky heir-to-be would have paid about $27 million in estate taxes and contributed 39.6 percent of his dividend income in taxes. Once Bush’s cuts go into effect, he could inherit the whole estate tax-free and pay a tax rate of only fifteen percent on his stock earnings. Truly, this is a very good time to be one of the have mores.
Truly, it was. It was a good time to be Countrywide CEO Anthony Mozillo, whose total compensation in 2007 was $132 million, and in 2008 the lender went bell y up and was bought by Bank of America. It was a good time to be Freddie Mac CEO Richard Syron, who made about $10.6 million the year before his company lost $821 and was taken over by the governmnet.
And it still is a good time to be one of the have mores, especially if you’re an executive of one of the many firms taxpayers have bailed out this year. Assuming you’re not one of the 165,000 New Yorkers who may lose their jobs in the wake of the economic crisis. While 159,000 of us lost our jobs last month and the rest of us are nervous about keeping ours in what’s reported to be the worst job market in 5 years, they’re lining up for $70 billion in bonuses.
Financial workers at Wall Street’s top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year – despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.
Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government’s cash has been poured in on the condition that excessive executive pay would be curbed.
Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany’s Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.
The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.
And that’s not all. Salaries on Wall Street are higher than they would otherwise have been without a little help from us, c/o the government bailout.
Uncle Sam has a new name on Wall Street — Sugar Daddy. Bonuses for investment bankers and traders are projected to fall 40% this year. But analysts, compensation consultants and recruiters say the drop would be much more severe, perhaps as much as 70%, were it not for the government’s efforts to prop up financial firms. “Year-end pay on Wall Street will be higher than it would have been had it not been for the government and mergers,” says Alan Johnson, a leading compensation consultant. “You would expect it to be down much more.”
Johnson predicts that the average managing director at an investment bank, a title typically earned after eight years on the job, will receive a bonus of $625,000. That’s down from nearly $1.1 million last year, but it is still 15 times the income of the average American household. Top bankers could receive as much as $1 million. Even a bond trader just out of business school could see his or her bank account enriched by as much as $170,000 this Christmas. “The firms have had an extremely difficult year,” says Joan Zimmerman, a Wall Street career coach. “But they can’t afford to lose talent either.”
While the government rescue limits the salaries of five top executives from each of the participating financial firms, Congress did nothing to restrict Wall Street firms from using taxpayer funds to boost the compensation of rank-and-file investment bankers. “Some people might argue that these bankers should not be penalized if they weren’t personally involved in the risky mortgage-backed securities,” says Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies, a progressive think tank in Washington. “My response is that the average taxpayer wasn’t either, but she is being asked to take a hit.”
And what a hit. Credit is still tight-to-nonexistant for a growing number of consumers, but banks borrowed up to $105.8 billion per day from the Fed, last week. They’ve borrowed billions — $50 billion here, $75 billion there — since the Fed launched a loan program a year ago, with an eye towards jumpstarting our credit-driven economy. Since then we’ve spent $250 billion partially nationalizing nine banks, and another $125 billion to infuse banks with capital and coax them into regular lending.
I use “coax” only semi-facetiously, because since being loaned the money thy’re intended to lend to others, banks have been sitting on the cash, and Washington has been reduced to begging them to behave like banks again.
Remember those billions the Treasury Department lent America’s banks to get them lending again? Well, not much of it is getting lent, despite pleading from Washington.
“We’re trying to get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House Press Secretary Dana Perino said in a press briefing Tuesday. “And we’re starting to see some evidence that that’s starting to happen.”
Really? Where? The lending market is virtually shut down, according to analysts, as companies and banks wait on the sidelines until the market turbulence subsides. For the first 28 days of the fourth quarter, banks have arranged just 75 syndicated loans totaling some $22 billion. That’s down from the 209 loans arranged in the same time frame last year, totaling $178 billion.
Breaking it down by day, loans totaled just $786 million, according to data from Dealogic. In the third quarter, when banks underwrote 555 loans worth $207 billion, the per-day breakdown was $3.2 billion.
And what they’re doing with the money is anbody’s guess. AIG received an $85 billion bailout, and less than a week later sent several of its executives on a luxury retreat at St Regis Resort in Monarch Beach, CA, spending $443, 000 on the spa treatment for seven to 10 executives. At least that much of the the $123 billion of AIG’s emergency loans (they ended up getting another $37.8 billion) can be accounted for. We don’t know what they did with the rest of it.
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.
“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.
Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.
But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.
It’s the same deal, whether its the bailout or taxes, where conservatives are still spreading disinformation about our “high corporate tax rate,” despite evidence that corporations are not overtaxed, but most corporations pay no taxes (including some 60,000 who owed $8 billion in unpaid taxes as of April 2008). And, despite conservative rhetoric to the contrary, it’s everyday Americans who pay the price.
It’s hard not to wonder about the pure contrarian inanity of the current conservative position. Our military is by far the strongest in the world, while our trains are among the slowest and our sewers are collapsing. So they propose raising spending on the military and cutting domestic investment. We suffer Gilded Age inequality, with the wealthiest 15,000 families — one-one hundredth of one percent of the population — capturing fully one-fourth of the entire income growth from 2000 to 2006. Their average income rose from $15.2 million per year to $29.7 million per year. Meanwhile, the rest of us — 133 million households that make up 90 percent of the country – divided up 4% of the nation’s income, adding about $305 to our average $30,354 income. So conservatives push for more tax cuts for the wealthy, while proposing to tax employer based health benefits. Corporate profits (prior to the recession) have catapulted to what is by far the highest percentage of national income in the past half century. So they want to cut corporate taxes, inevitably increasing the burden on labor. The economic future looks dim because consumers, drowning in debt, are cutting back. So they suggest cutting taxes on corporate investments will generate new investments and growth — as if companies don’t need someone to buy the products they make.
(That last sentence is strikingly similar to Obama’s answer to “Joe” the “Plumber,” about how Joe — in his businessman fantasy — would be “better off if you’ve got a whole bunch of customers who can afford to hire you…”)
At a time when famlies are preparing to be homeless for the holidays, stay-at-home parents have to look for paychecks, city mass transit systems risk collapse as banks call in billions of dollars in loans (meaning that some who still have jobs won’t have buses and trains to get them to work), military families are struggling even as parents and partners are fighting overseas, and desperate times lead more to depserate action, there’s talk of expanding the scope of bailout … to include insurance companies and privately-held banks.
Meanwhile, we’re still waiting for a “rescue for the rest of us,” and congressional Republicans and White House aides dismiss the idea of a second stimulus package that might finally be aimed directly at Main Street as “irresponsible” and the “wrong approach.”
As both Krugman and Klein point out, the message and the real outcome — whether it’s the bailout or taxes — don’t match up and probably weren’t intended to, for reasons rooted in a debate as old as our country.
A couple of days back, right-wing radio nut Dennis Prager had this to say at a Republican rally to help Michele Bachmann, Erik Paulsen, and Norm Coleman:
Equality, which is the primary value of the left, is a European value, not an American value.
Some folks I was talking to were saying “wow, that’s really crazy, what an extremist.” And they are right, of course, in one way. But the fact is that this kind of philosophy, while rarely these days stated quite so bluntly, is actually very much in keeping with traditional American conservatism, dating back to country’s founding.
I have a book coming out in January, entitled The Progressive Revolution: How the Best in America Came to Be, that is about the historic debate in America between progressives and conservatives and how that debate relates directly to today’s political battles. The fight over equality, along with those over trickle-down vs. bottom-up economic policy and elites running things, vs. a government of by and for the people, have been big battles ever since the country was founded.
… Conservatives have never liked equality, or democracy, or giving economic or political power to regular people rather than elites. When John McCain rails against progressive taxation or universal health care as socialism, and warns against the plague of ACORN registering people of color to vote, his rhetoric is as old as the rhetoric of conservatives from the beginning of American history. And when Obama embraces equality of opportunity and investing in the middle class and progressive taxation and health care for all, he is harking back to progressive thinkers and activists throughout that same historical period.
And the reasons for the rhetoric has become so red-hot in this election, and “final frantic looting” are the same.
We have reached a tipping point, a few steps before the precipice, with a few feet of earth still under our feet; a point from which we can see the abyss, and still have a chance to change direction. We have reached a point where more and more of us realize that neither the “prosperity” of the last eight years or the “bailout” of the last few months have “trickled down” to our communities and our families.
We have reached a point of realization that government by the wealthy, for the wealthy, and of the rest of us doesn’t work. And that means we’ve reached a point of possibly considering that perhaps “government of the people, by the people, and for the people” isn’t “government taking care of us.” It’s us, taking care of our communities, our families and one another.