Wall Street's Ten Biggest Lies for 2010

What a great year for Wall Street: profits up, bonuses up and, best
of all, criticism down, especially from Washington. Somehow Wall Street
has much of America believing its lies and rationalizations. We're even
beginning to forget that Wall Street is largely responsible for the
economic mess we're in.

So before we're completely overtaken by financial Alzheimer's, let's
revisit Wall Street's greatest fabrications for 2010. (For the full
story, please see The Looting of America.)

1."Honest, we didn't do it!"
Two years ago Wall Street's colossal greed crashed our economy. Our
financial elites created and spewed highly leveraged toxic assets around
the globe. These poisonous "innovations" pumped up the housing bubble
and Wall Street grew insanely rich in the process. When it all burst, we
learned that the big Wall Street institutions that had caused the crash
were far too big to fail -- and too connected. High government
officials came to their rescue with trillions in cash and guarantees --
underwritten, of course, by we taxpayers. Everyone knew this at the
time. But if you asked just about anyone on "The Street" they denied all
culpability and pointed the finger everywhere else: Fannie, Freddie,
the Fed, the Community Reinvestment Act, tax deductions for home buying,
bad regulations, not enough regulations, too many regulations, too much
consumer debt, the rating agencies, the Chinese -- and on and on.
Sadly, their blame-shifting strategy worked, bamboozling the media and
people across the political spectrum. The GOP members of the Financial
Crisis Commission are so drunk with this Kool-Aid that in their minority report,
they refuse even to use the words "Wall Street" or "speculation" in
assessing the causes of the crash. Hypocrites? Crooks? Morons? Take your
pick.

2."The overall costs will be incredibly small in comparison
to almost any experience we can look at in the United States or around
the world."
Ever since Treasury Secretary Timothy Geithner screwed up his tax returns we knew he was numerically challenged. But his statement to Congress
on December 16, 2010, on the cost of the bailout shows a willful
inability to count. Yes, Wall Street has paid back most of our bailout
funds. Whoopee! Our economy is in shambles, and millions of people are
suffering. With his offensive "no big deal" analysis, Geithner glosses
over all this human misery, and sidesteps the hidden costs of the
bailout, including the financial insurance we taxpayers provided to
every giant financial company in the country via the Fed. On the open
market, that insurance -- which guarantees trillions of dollars in toxic
assets -- would come at a very steep price. We coughed it up for free.
But that's still chump change compared to the human costs of the worst
employment crisis since the Great Depression -- the lost income, the
depleted savings, the ravaged neighborhoods. Then there's the capsized
state and local budgets, the public service reductions, the laid off
teachers, firefighters and police officers -- all resulting from a
plunge in public revenues caused by Wall Street's crash. Why aren't
these costs on Geithner's balance sheet? A cynic might think Tim was
priming us to accept the latest round of Wall Street bonuses. Hey --
they paid us back, so why should we care how much they earn?

3. "It's a war. It's like when Hitler invaded Poland in 1939."
Steven Schwarzman is
supposed to be brilliant. After all, he made billions as head of the
Blackstone Group, a private equity company and hedge fund. But last
August, as some members of Congress mulled about eliminating a very
lucrative tax loophole, he suffered a mental meltdown and saw an
impending Nazi invasion. But the awful attack never happened.
Schwartzman and his fellow hedge fund honchos all held onto their
unbelievable tax break: Hedge fund and private equity income is still
only taxed at 15 percent rather than at the top income tax rate of 35
percent. (That's because, inexplicably, it's considered "capital gains,"
not income.) Taxing Schwartzman's income as income would cost him
hundreds of millions of dollars -- and the prospect of this apparently
triggered a shock spasm that catapulted his foot into his mouth. I'm
sure my IQ isn't high enough to keep up with the genius logic behind
Steve's analogy. But just who is Hitler and who is Poland in his
scenario? Maybe in his grandiose conceit, his firm is as big as Poland?
Or it would require a Blitzkrieg to wipe out his tax loophole? In
reality, even if Schwarzman had to pay a 90 percent tax rate (as he
would have under Eisenhower), it would hardly have been a hardship --
let alone World War 3. He'd still have more money than he could ever
spend in his lifetime. Schwarzman should be proud though: He gets 2010's
Dumbest Wall Street Quote of the Year Award. Bravo! (In 2009 the honor
went to Lloyd Blankfein, CEO of Goldman Sachs, who claimed he was "doing
God's work."

4. "The hard truth is that getting this deficit under control
is going to require some broad sacrifice, and that sacrifice must be
shared by employees of the federal government."
But not by Wall Street. President Obama words
of November 29th came only days before he "compromised" with the
Republicans to continue the Bush tax cuts for the super-rich and to
bestow an enormous estate tax gift to the 6,600 richest families in
America. Mr. President, the "hard truth" is that you're slapping around
public sector workers because you don't have the nerve to take on Wall
Street. If you had the guts, you could raise real money by going to war
with Steven Schwartzman and eliminating the hedge fund tax loophole. By
the way, closing that loophole for just the top 25 hedge fund managers
would raise twice the revenue than you'll get by freezing the wages of
all two million federal workers! (See "The Wall Street Tax Debate that Never Was" )

5. "25 hedge fund managers are worth 658,000 teachers."
Nearly everyone on Wall Street sincerely believes that they are "worth"
the enormous sums they "earn." You see, their pay is determined by the
market, and markets don't lie. They reflect the high value our skilled
elites bring to the economy. So we shouldn't be shocked that the top 25
hedge fund managers together "earn" $25 billion a year, even at a moment
when more than 29 million Americans can't find full-time work. The
outrageous economic logic of Wall Street compensation has those 25
moguls taking home as much as 658,000 entry level teachers (they earn
about $38,000 per year). How can that be justified? It can't. These
obscene "earnings" are the product of 30 years of financial
deregulation, as well as the tax cuts and tax loopholes that our
government has just extended. The hedge fund honchos get most of their
money by siphoning off wealth from the rest of us, not by creating new
value. I dare Wall Street to prove otherwise.

6. "To bolster the economy we need .... an improvement in the
relationship between business and government (the current antagonism,
even if not the primary explanation for slow hiring and sluggish
investment, does seem to be affecting hiring and other business
behavior)."
In this op-ed,
Peter Orszag, Obama's former budget director, parrots the Wall Street
line that employers aren't hiring because of "regulatory uncertainty."
Mother of God, how much more certainty do they want? The Republicans and
Blue Dog Democrats aren't about to let Obama seriously regulate Wall
Street, even if he wanted to, which he doesn't. The truth is that
employers aren't hiring because there's insufficient consumer demand for
goods and services. But at least Peter Orszag is a man of his word. He
personally plans to "improve the relationship between business and
government" by tapping his government contacts at his new fat job at
Citigroup, the nearly failed mega-bank that he helped to save at
taxpayer expense. Orszag could have landed a coveted professorship at
just about any university in the world. But apparently the 42-year-old
wiz kid prefers Citigroup's multi-million dollar compensation package.
Any bets on how long it takes for Larry Summers to cash in?

7. "Lengthened availability of jobless benefits has raised the unemployment rate by 1.5 percentage points."
You see, the unemployed cause their own unemployment, at least if you believe this assessment from a March 17th research note from JP Morgan Chase.
(Next, Wall Street will call for a return of the Poor Houses.) The
theory is simple -- you give people money not to work and they won't
look for jobs. Still, it takes chutzpah for JP Morgan Chase, the
beneficiary of billions of dollars in taxpayer largess, to criticize the
unemployed for not finding jobs that aren't there, precisely because JP
Morgan Chase helped to destroy them! Dear JP Morgan research staff:
Five to six workers are now competing for every available job. If that's
too complicated for you quants to grasp, maybe you should try a game of
musical chairs in the trading room.

8. "Private employers, led by our revitalized financial
sector, will create the jobs we need -- that is, if the government would
just stay out of the way."
We now need 22 million new jobs to get us back to full employment (5
percent unemployment). In addition, each month the economy must generate
another 105,000 jobs just to keep up with new entrants into the
workforce. To get to full employment, the private sector would have to
create about 630 firms the size of Apple (35,000 employees each). These
numbers don't lie. Does anyone on Wall Street really believe that the
private sector alone can pull off this miracle? But really, why should
they care? They've got theirs, thank you very much. The painful truth
that both Wall Street and Washington refuse to face is that if the big,
bad government doesn't fund or create millions of new jobs, we'll face
crippling unemployment for decades to come.

9. "Tim Geithner extolled 'the benefits of financial innovation' to the American economy." (Wall Street Journal, August 4, 2010)
Sorry to beat up on Tim again, but it's sometimes hard to tell who he's
working for. Whenever you hear the phrase "financial innovation" put
your hand on your wallet. That's the phrase Wall Street uses to justify
its casinos and its outlandish profits and bonuses. People who talk
about "financial innovation" are either getting big bucks on Wall
Street, want more bucks on Wall Street, or hope to get a job on Wall
Street the nano-second their public service ends. My question for Tim
is: If Apple creates iPhones, what does Wall Street create? Warren
Buffett says it creates "financial weapons of mass destruction." Paul Volcker,
Reagan's Fed Chair, said there is not a "shred of evidence" that
"financial innovation" is beneficial. Volcker also believes that the
economy "was quite good in the 1980s without credit-default swaps and
without securitization and without CDOs." Volcker gets the Smartest Wall
Street Quote of the Year Award: "The most important financial
innovation I've seen in the last 25 years is the automatic teller
machine." How could Tim get it so wrong?

10. "I'm shocked, shocked to find that gambling is going on in here." Okay, okay, Claude Raines said that in Casablanca, not on Wall Street. But Wall Street and its defenders say exactly the same thing about their opaque derivatives games. Louise Story's excellent piece in The New York Times shows
how a handful of banks have cornered the market clearinghouses for
derivatives - entities that are supposed to make derivatives less risky.
The big banks are limiting competition, according to Story, because
they "want to preserve their profit margins, and they are the ones who
helped write the membership rules." Meanwhile, Wall Street is quietly
pushing to exempt its most profitable derivatives from even these rigged
exchanges. So don't be "shocked, shocked" when Wall Street crashes
again and we're asked to foot the bill. And that's when, not if.