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Wall Street: Land of the Million Dollar Babies
Wall Street is know around the world as the land of the million dollar babies since is chock full of people who have gotten incredibly rich as a result of handouts from the government. These handouts come in all forms, but most in the size extra large. The basic story is always the same; the banks and financial firms take gambles that provide big payoffs for their shareholders and "top performers" and pass along big risks to the taxpayers.
The TARP and the associated bailouts through the Fed were the most obvious example. The industry and their paid hacks are telling us that we shouldn't be upset about these deals because we got repaid most of our money. The reality was that we gave the banks the money they needed to survive in the midst of a financial panic. They used this money - and the backing of the federal government - to restore themselves to health.
While we may have gotten most of our money back, the loans we gave them were way more valuable at the time they were given. This is like giving someone water in the middle of the desert.
When we get back to the lush lakeside in the middle of a rainstorm, they generously offer to repay us. Of course, a big part of the story is that the banks relent the money to other people who were dying of thirst and kept the profit. Yes, we should be happy - tell that to the 15 million unemployed and the millions who are losing their homes.
We had some hopes of reining in the million dollar babies with the financial reform package, but those hopes appear to be dimming. The effort to downsize the "too big to fail" banks got trounced in the senate last week, garnering just 33 votes. Apparently, the prospect of having to head out into the markets unprotected by the implicit guarantee of government bailouts was too frightening for JP Morgan, Goldman Sachs and the other big banks. Their lobbyists twisted the arms and got the overwhelming majority of the senate to continue the big bank subsidy of free government insurance indefinitely.
There is still another good opportunity to rein in the banks ability to gamble with our money. Senators Merkley and Levin have proposed an amendment that would prohibit commercial banks from trading on their own behalf. The point is that commercial banks are backed up by the Federal Deposit Insurance Cooperation and the Federal Reserve Board. If they get into trouble, it is taxpayers' dollars at risk.
Until the repeal of Glass-Steagall in 1999, commercial banks were sharply restricted in what they could do, precisely in order to prevent them from taking advantage of this guarantee. If you wanted to engage in highly speculative activity you could set up a hedge fund or an investment bank, but Glass-Steagall prevented banks from gambling with government insured deposits. But this separation was obliterated by the repeal and now we have investment banks like Goldman Sachs and Morgan Stanley that are openly speculating with taxpayer insured money.
The Merkley-Levin amendment seeks to restore this separation. It really should be in the category of no-brainer: why should schoolteachers and firefighters be subsidizing the high-powered traders at Goldman Sachs?
But, as Senator Richard Durbin said last spring when the Senate voted down a bill that would have helped homeowners keep their homes: "the banks own the place." We'll see what happens.
17 Comments so far
Show AllReforming crapitalism is like improving the infernal combustion engine. One can make small changes but the fundamental problems don't go away. The rich still get obscenely richer and the carbon damage continues at only a slower pace.
There is a way. We need to listen to the disenfranchised indigenous people of the world. Bolivia is a bright light shining on the truth these days.
I find it kind of interesting that so many people think amassing more money then you could possibly spend in a dozen lifetimes is some how a good thing or even normal for that matter. If someone had forty dogs living in their house, people would say that is not normal, and the animals would probably be taken away from them. Same thing if they had sixty cats in their house.
Hoarders who have their houses full of old clothes, news papers, and other junk, to the point that they can barely move, get treatment for their affliction. So why is it considered normal, and even encouraged, that some people should amass more money then they, and even their heirs could ever possibly spend. Isn't hoarding money beyond a certain point really just a mental affliction like the others I mentioned? So if that is true, shouldn't they be treated for a mental affliction and not have their conduct encouraged?
Absolutely true, NC-Tom. However, that is one of many sicknesses that are congratulated at every turn in our utterly sick society. Read the comments after any CNN article. If our future depends upon intelligence and wisdom, we haven't a chance.
Just as soon as greed is included in the DSM-IV. Although addiction already is, and obsessive/compulsive as well.
Cicero: "Freedom is participation in power."
Dean Baker used to be a fire eating aggressively reformist progressive who wanted to reform ALL of corporate America and eliminate the corporate fiction of "legal personhood." Now he's slowly watering himself down as the various network round-tables grant him increasing but still limited access. He's almost crapped out.
The better writers these days on economics are Michael Hudson, Mike Whitney and William Greider. Paul Solman is still the best TV news economics reporter but PBS is slowly constraining more and more of his social critique like a corporatist boa constrictor since the News Hour took on Chevron and Monsanto as key underwriters.
If you want to understand the correct perspective that progressives, hell, all the American working-class should have on the big bank rip-offs, then read Michael Hudson's latest piece, The People v. The Bankers. It's long, but he drives his point home into the heart of the beast like an oaken stake through the heart of Count Dracula.
http://www.counterpunch.org/hudson05112010.html
Thanks for continuing to highlight Mike Hudson's very important work. It makes Dean Baker very small, indeed.
Dean Baker, you are old and moldy. I am getting old and moldy myself, but when I was young, even Alice Cooper knew they were Billion Dollar Babies. Now they are Trillion or Quadrillion dollar babies!
I saw Alice Cooper hang himself many years ago. It was not a pretty sight. Now, his Second Coming is touring again, as old and moldy as he must be. Dean Baker is far cleaner, crisper, and cogent than 99% of economists.
Cicero: "Freedom is participation in power."
Which goes to show how soggy most of that remaining 1% still is.
The first article I read by Dean Baker was about turning foreclosures into rentals. I was impressed with the idea but he has been disappointing since. The sad thing is, you're probably right--that he is more cogent than 99% of economists.
There should be salary (including investment income) caps for all. These greedy assholes are the financial equivalents of 600 pounders waddling down the street. I don't see people admiring the morbidly obese, so why do we admire the financially obese?
Mr Baker still tries to defend The system of Capitalism, believing a few cosmetic changes all that needed.
Capitalism is in trouble the world over. Even in countries where it seems to work, it for very temporary and short term reasons. (Ie Country A plunders country B...Country C has lots of oil but it will be gone in 30 years...Gold is found in country d but the mines run out in 40 years etc).
Capitalism is predicated on concentrating the wealth in the hands of a few, and then giving those few exclusive access to the Worlds rapidly depleting resource base ensuring even more concentration of wealth.
It ca not be tweaked . It has to be replaced. Aspects of it might remain but it can not be "tweaked" into viability.
Mr. Baker delivers another serving of ABC gum = Already Been Chewed gum.
Zzzzzzzzz
Baker is full of it ... Some of these banks are solvent, most are not ... their balance sheets are chock full of underwater derivatives fully valued because of "Mark to Make Believe" rules derived under threat of extinction to the Financial Accounting Standards Board ...
The Wall Street Banks are still underwater as a whole but giving bonuses based on accounting fraud ... the same accounting fraud that Enron used before its collapse. Baker misses the entire game going on now ... or is shilling for the privately owned and operated Federal Reserve ...
Baker, the nuts are running the Washington asylum! Now let me get this right, you expect them to cut off their food supply?
"But, as Senator Richard Durbin said last spring when the Senate voted down a bill that would have helped homeowners keep their homes: "the banks own the place." We'll see what happens."
Do we have any accountant/lawyers out there who can figure this out?: http://implode-explode.com/forum/viewtopic.php?t=118994&start=0&postdays=0&postorder=asc&highlight...
According to an accountant who responded to the above link, it seems forclosures can legally be stopped by the laws already on books.
Can anyone out there figure this out with the information provided?
The banks "borrowed" more than a 1.5 trillion dollars from the Feds, at almost zero interest rate. The actual amount is a closely guarded secret. The banks used these "borrowed" money to invest in government securities that yield 3% or to speculate in commodities and used some of the profits to pay the TARP money.
It is all making money on the back of the tax payers and Mr. Baker is not forthcoming in explaining these shenanigans.
It is all paper shuffling and speculation without any benefits to the economy or the average Joes who are still unemployed and losing their homes.