Sunday, February 01, 2009

Give it Back!

Two of the major themes of the week are the continuation of mass layoffs as business's main stabilization strategy, and intellectual disarray in the economic and political leadership. Fr. Frank hits both notes today.

"What are Americans still buying," he asks. "Big Macs, Campbell’s soup, Hershey’s chocolate and Spam — the four food groups of the apocalypse."

Fr Frank does some nice bashing of Republican infantility, but we didn't expect them to be the source of ideas. The mass layoffs are more important, both for what they are doing to people's careeers and lives and for the unmet intellectual challenge they pose. In the decades that they were raising their salaries, as a multiple of the average line-worker's wage in their company, by more than a factor of ten, they came to define mass layoffs as part of the nature of things - and as their most brillant strategy for profit and share-price increases. This strategy damages individuals and society. It does nothing for economic development. Mass layoffs have to be criticized in they way that have been in places like France,

There is some emotional progress at least. Maureen Dowd outdoes herself in the NYT today - and not only because she chews the ass off the geniuses who sank the global economy but will pay themselves $18 billion in bonuses for 2008.

This in itself isn't actually news: Forbes guessed back in October that that the 2008 bonus pool would be between $19.9 and 23 billion, so the Masters of Disaster are a couple of billion below what they'd expected in the midst of the October crash.

Also last fall, Time estimated "rank-and-file investment banker" bonuses to average $625,000 for 2008, a bit more than half what they got the year before. This is a fraction of the rate for the top people - investment banking is the same feudal hierarchy of great-lord incomes as in the rest of the economy, only more so.

More to the point, the Masters have run the US economy with almost zero official criticism since, well, the death of Franklin Delano Roosevelt in 1945. The Depression was the last time the Captains of Industry sustained major damage from insiders.

Criticism of the way executives run the US economy has thus always had to come from outsiders. Ralph Nader's classic Unsafe at Any Speed (1965), revealed deliberate gross negligence of safety for the sake of maximized profits at General Motors set the tone for the 1960s - yes, they've been blowing off the constructive criticism that would have actually helped their company for 50 years. But it did not lead to a career as a legislator or respected expert who was regularly consulted in Washington, but to a career as an irritant and gadfly, influencing liberals and progressives from great distance from direct power or even expert commissions. The same has been true of civil rights leaders with critiques of the economy starting with Martin Luther King, whose Washington star was tarnished by the Poor People's March.

Washington has never listened to critics of capitalism or even to critics of the capitalists we actually suffer at any given time. Dowd is also pissed at official Washington. She wasn't impressed by Obama's comment that paying bonuses with taxpayer's money was the "height of irresponsibility," and cites Barney Frank, Congressional leader of the charge against the Bush solutions last fall, mumbling things like "“We got some preferred shares but I don’t think we could sue on that basis.”

The real question is why? Why is it that "Some Obama policy makers still buy into the notion that if they’re too strict, these economic royalists, to use F.D.R.’s epithet, might balk at the bailout, preferring perks over the prospect of their banks going belly-up"? Why do the Obamans care? If the banks go down so their execs can collect, the lawsuits will come from the shareholders. Meanwhile, economic royalism, which says that the people at the top should make all the important economic policy decisions by themselves, would be even more disgraced than it already is.

Obaman caution can only be explained by their desire to preserve the current system - royalist though it is. Obama's key financial advisors - Treasury Secretary, etc. - come from that system, e.g. the New York Fed - and were hired because of their record of seeking to fix and protect it. In his remarks Obama said that the government needs to "regulate Wall Street" so it starts doing things like lending money again. But if you need to regulate a system not just to keep it on the rails, but to force it to do its basic job, why are you hanging on to that system?

In contrast, Obama's actual and perhaps partially extemporized remarks were quite strong. The bonuses are the "height of irresponsibility. It is shameful." When he called on Wall Street to "show some restraint and show some discipline and show some sense of responsibility" he was accusing them of disloyalty to the overall economy. When he said that "taxpayers find themselves in the difficult position, that if they don't provide help, the system could come down on top of our heads," he was accusing them of extortion. When he repeatedly described Wall Street as consisting of people asking for help from the taxpayer, he reminded everyone of their combined weakness and hypocrisy. When he said the American people "don't like the idea that people are digging a bigger hole when they [the American people] are being asked to fill it up," he defined Wall Street's interests in direct opposition to the public's. When he pointed out that Treasury Secretay Geithner had had to "hold back" one firm that just received TARP money from buying a new jet, he implied an irresponsible selfishness was ingrained in Wall Street culture. "We shouldn't have to do that," he noted, "cause they should know better." But they didn't - and don't. He said that the American people are serious about moving forward. "I am serious," he added But Wall Street is the weakest link that is still feeding itself at the buffet table while the Titantic goes down.

Specialists know what occasionally leaks out to the press: investors often run strategies that help them while systematically damaging the economy. Reuters turned up one recently: a UK hedge fund earned nearly $400 million by massively shorting the stock of the Royal Bank of Scotland, which has been the recipient of 20 billion pounds in UK bailout money, and is now likely to be nationalized. (Enjoy the conservative Daily Telegraph likening the fired acquisitions maven, RBS's CEO Sir Fred "Fred the Shred" Goodwin to an "amateur property speculator," and calling him "a cipher for Brown's Britain – borrowing his and the bank's way to glory and riches.")

Another Principle for our list: Finance is as likely to undermine the real economy as to support it.

Is Obama's "new regulatory framework" really enough? A year ago I fantasized about "a day without a banker." The fantasy was prompted by research by Doug Henwood and others that suggests that the financial sector does not raise money for manufacturers and other operating companies, but extracts capital from them. If Wall Street in essence extracts a capital tax on the real economy, and uses it to pay its rank-and-file millions a year, and its executives tens or hundreds of millions, we can't afford it. We should get rid of it.

Dowd goes part of the way in translating "disgorgement." "Disgorgement," she writes, "is when courts force wrongdoers to repay ill-gotten gains. And I’m ill at the gains gotten by scummy executives acting all Gordon Gekko while they’re getting bailed out by us."

Amen, Ms Maureen! But we also need a Congressional investigation, Watergate-style, to find out who got what, how they got it, and whether cutting the Wall Street financing system is the tax cut the American people really need.

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