Help! What's the Cure for Financial Insanity?

Now that the bank lobbyists are nearly finished neutering the
financial reform bill, it's time to face reality: our financial world
will continue to be run by the very financiers who crashed the system
two years ago. The bankers' arguments ricocheting through the halls of
Congress make it seem as if our financial system is basically rational
and sound -- that only a few flaws need fixing. That's lunacy. Our
bright bankers may be rational as individuals, but collectively they
perpetuate a fractured system gone utterly mad... and getting madder
every day.

So the financial insanity will continue, with such psychotic outcomes as these:

1.Our pensions and 401ks will continue on their roller coaster ride, driven by market chaos and high-speed computer cacophony.
Last week, the automatic trading programs our financial geniuses
invented sent the Dow into a one-hour, 1,000-point freefall. Thank
goodness it was only one hour. Two would have set off a global panic.
No one is sure what happened or why. But don't worry, we're told. The
glitches will be fixed and all will be well. (Just as a little
technological tinkering is sure to prevent another offshore oil
disaster too--not a problem!) In a saner world we would be asking the
obvious: Does that high-speed trading serve the needs of our people, or
is it just another high-risk strategy to enrich the largest and most
connected investors?

2. Big financial institutions, now fully assured that
they are indeed too big to fail, will continue to dominate both finance
and politics. Anyone in their right mind knows that
allowing five or six banks to control our entire financial system is a
recipe for disaster and a major threat to democracy. What's the excuse
for this form of madness? Well, we're told, during the Great Depression
4,000 banks failed (including lots of little ones), which proves that
size doesn't matter. Please help me with this logic: Many banks failed
and caused the Great Depression. A few big banks failed and caused our
recent Great Recession...Therefore big banks are better? (Somebody
flunked their Logic 101 class.) Here's what our experience tells us.
Banks, both big and small, when left to play out in the street
unsupervised, often end up at the casino tables-- gambling with our
money. Big banks are an even bigger risk, because they have the power
to gamble with our democracy as well.

3. We'll continue to pay top hedge fund managers 26,000 times more than we pay teachers. This goes back to a question I asked in an earlier post: Are 25 hedge fund managers worth 658,000 teachers?
Apparently they are, since that's what they netted in 2009 during which
they enjoyed the benefits of our $8 trillion (not billion) bailout. We
rescued every hedge fund and bank, but left more than 30 million
Americans scrambling for full-time work. This soaring unemployment
caused tax revenues to tank, touching off fiscal crises in nearly every
state. So governments dramatically cut spending and axed tens of
thousands of teachers. The ultimate losers? Public school kids all over
the country who were hoping for a good education. The winners? The
bankers who caused the crisis. Even during the worst year since the
Great Depression.--the sun was still shining on Wall Street, with a
$150 billion bonus pool and a billion dollars each for the top 25 hedge
fund managers. We put no windfall profits taxes on those billions, even
though the money came directly from the U.S. treasury in the form of
bailouts. We even allowed that income to be taxed at lower capital
gains rates. That's rational?

4. Little countries that falter, like Greece, will continue to put the whole global economy at risk. We're
told that the Greeks have only themselves to blame: They retire too
early, drink too much retsina and often break into dance without
warning....all on borrowed money. Yes, they broke the EU's debt limit
rules. But they had a bit of help from Goldman Sachs, which made
hundreds of millions of dollars in fees for creating complex
derivatives to "help" the Greek government hide their debt. And yet
Congress still refuses to regulate these scary financial items because
they are "customized." Of course it was the global crash begun by our
big banks that sparked the Greek fiscal crisis in the first place. In a
sane world, the largest banks and the wealthiest investors in Greek
debt (who caused the crash in the first place) would be forced to make
reparations for the damage they caused. Instead, we have to make the
Greeks stop dancing? Sicko.

5. The deficit hysteria drumbeat will build to a deafening crescendo. Forget about taxing the super-rich--we've got to cut benefits for working people instead. Respected journalists like New York Times columnist David Leonhardt
warn us that we're all living beyond our means. It's time to tighten
our belts or we'll end up like Greece. No more tax breaks for health
and housing. We've got to retire later, with less money, and cut our
medical expenses. And our wages have to become more "competitive." But
who is "we"? Where are all these high-living people? The average
non-supervisory production worker in America (about 75 percent of the
workforce) has already seen an 18 percent drop in real wages since the
mid 1970s. Meanwhile productivity increased by more than 90 percent.
Yet now we've got to tighten our belts? Where did all that money from
the higher productivity go, if not to us? No surprise here: into the
hands of the few.

It all goes back to that most glaring symptom and cause of our
psychosis: our insane maldistribution of income, which gets worse and
worse every year. The richest 1 percent of Americans now earn more than
the bottom 50 percent. Back in 1973, the richest 1 percent of earners
collected 8 percent of the national income. By 2006, the top 1 percent
got nearly 23 percent of the national income -- the highest proportion
since 1929. Or look at the pay gap on the job: In 1970, the top 100
CEOs earned 45 times more than their workers, on average. In 2009 the
ratio was 1,071 to 1.

Here's an example of what this maldistribution is costing us: The
top 400 richest Americans have a combined wealth of more than $1.3
trillion. And that's enough money to endow every public college and
university in the country so that students could attend tuition-free in
perpetuity. (Hopefully some would decide to graduate before then.)

We need to return to Eisenhower era tax rates: 91 percent on those
earning over $3 million in today's dollars. The money would roll in,
and the deficit hawks would sound like parakeets.

The ultimate insanity of our current moment is that the richest
investors and the largest bankers in the world just crashed our system,
got bailed out by taxpayers, grew even larger, and now are back to
earning record profits and bonuses. They caused the biggest jobs crisis
since the Great Depression and drove the entire global economy into a
ditch--and they could do it again any minute. And now they're telling
us to tighten our belts and act more responsibly?

Here's the good news. The American people sense something is really
wrong. They're angry at Wall Street and anyone in its pocket. It's
taken a while, but the truth is seeping in. The angry public forced
Congress to bring those squirming bankers into their hearing rooms.
Unfortunately, Congress caved when it came to actually passing a strong
reform bill that would bust up the biggest banks, end windfall profits
and curb the gambling. Too bad the average citizen has no way to
register his or her anger except to vote the "ins" out. Since both
parties are largely in the pocket of the financial industry (and other
industries), it's hard, if not impossible, to be optimistic about the
new "ins."

Imagine if we could vote for something like a jobs and environment
party, free from Wall Street's money, that was dedicated to putting ALL
of our people to work building a truly sustainable economy? Now that
would be really insane.