Welcome To The New Gilded Age, Fueled By Your Money
Remember all of those banks that were "too big to fail" and had to be bailed out? Newsweek's Niall Ferguson is out with a report today pointing out that a year after the collapse of Lehman Brothers signaled the start of the bailout boom, they're still big, and thanks to the safety net you tossed them, they're "back to making serious money and paying million-dollar bonuses. Meanwhile, every month, hundreds of thousands of ordinary Americans face foreclosure or unemployment because of a crisis caused by ... a few Wall Street giants."
The Newsweek article summarizes the litany of complaints that have been raised over the past year, including the failure of the government to create a strong regulatory framework to keep big banks from playing Texas Hold 'Em with your money. Ferguson's biggest concern is the fact that a handful of financial companies now control the majority of the country's wealth: "Between 1990 and 2008, according to Wall Street veteran Henry Kaufman, the share of financial assets held by the 10 largest U.S. financial institutions rose from 10 percent to 50 percent." That share has only grown since last year. And, as the article points out, the old saw about "the bank owning you" if you're a small borrower is truer than ever:
...[W]hat makes the losers in this crisis really mad is the fact that there's now one law for the small debtors and another for big ones. If you lose your job and fall behind on your $1,500 monthly mortgage payment, no one's going to bail you out. But Citigroup can lose $27.7 billion (as it did last year) and count on the federal government to hand it $45 billion.
How does Ferguson propose we dig ourselves out of this mess? For one thing, by letting those "too big to fail" banks fail, or at least shrink down to a more manageable size. "What's needed is a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are "'too big to fail.'" Failing that, there are always pitchforks: "...if the status quo persists, the danger of a populist backlash against both Wall Street and Washington will only grow," he writes. "Such a backlash has more than one precedent in U.S. history."
Wall Street's New Gilded Age [Newsweek]
(Photo: Nicora)
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Comments:
Hear hear!
I love all the "personal responsibility" advocates targeted anger at "irresponsible homeowners" and refusing a bailout, yet perfectly willing to accept a bailout of the financial institutions- because they're "too big to fail."
Fear teh Kitty!
Seriously, around this time last year, when CNBC was going off the wall saying OMG! we all doomed!!!1 I just turned off the TV.
I'm pretty sure that anyone facing foreclosure is at least *partially* to blame for their own situation yes?
Or is it ENTIRELY those evil, greedy, wall street fat cats?
I've got my pitchfork, where should we meet?
Heh, kidnap someone and hold them for random and you get "The United States doesn't negotiate with terrorists." Claim you're too big to fail and collaborate with other banks to let liquidity dry up, threatening to crash the economy and therefore holding up the lives of millions for ransom and it's "Here's some freshly printed money."
The Newsweek article summarizes the litany of complaints that have been raised over the past year, including the failure of the government to create a strong regulatory framework...
Lol, yeah, I can't wait to hear what glibertarian Consumerist readers have to say about that. "It was too much government regulation that was the problem in the first place," is the usual response.
@Triterion: How about in front of their headquarters? Does anyone know where the golden poo launcher is?
@Tightlines: I think the complaints stem from the idea that if you're going to do it, do it right, or don't do it at all.
The Federal Constitution of 1788 did not mention corporations, thereby leaving the chartering of corporations to the states, since the Constitution did not explicitly say otherwise. Due to experience as British Colonies and the accompanying corporate colonialism from British corporations chartered by the crown to do business in North America, new corporations were greeted with mixed feelings. Thomas Jefferson wrote in a 1816 letter to George Logan:[6]
I hope we shall... crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country.
@Triterion: First, AIG headquarters, later, BOA headquarters. That should cover the morning. For lunch, we'll crash at Bernie's place. Afterwards, its Citibank and finally, what's left of Lehman Bros.
Oh, forgot Merrill Lynch, we'll have to find room for them!
@JGKojak:
Screw that. Everybody who played fast and loose with money from borrowers on up to lenders should have had to deal with the consequences...
@smartmuffin: How many people would be to blame if they didn't try to chop up loans into market securities? I'd wager if banks didn't get to offload so much risk by this method they'd have been more conservative about giving out loans they knew they weren't going to get back.
I hate to say it, but a lot of conservatives were of the "let them fail" thinking. Honestly, I have no idea which side is right.
There's also the little tidbit that the spanish banking system, which is much more tightly regulated than ours is, suffered even worse losses.
Regulation works wonders in ensuring transparancy for all involved, but beyond that tends to have as much or more cost than benefit. There is no free lunch after all...
@Triterion: Well, first please come to my place to take care of all this hay I've got laying about. Then we can storm the castles, 'k?
@JGKojak: I'm not sure you understand how capitalism works. We privatize the profits and socialize the losses. DUH.
I don't know that if was sitting in the President's shoes I would have let major financial institutions fail. The result could have turned this recession into something worse than the Great Depression and I understand why he didn't want to take that chance. But now that the government is reporting that the worst is over (and seem to have statistics to back up that statement) might it not be time to do some reasonable regulation? For starts, I would separate banking from investment banking. We used to have the Glass-Steagall Act that did this but it was repealed. Bring it back so that banks had to earn their profits from banking, not from dabbling in the securities markets. Second, since the money paid as executive compensation is such a hot button issue, allow companies to pay as much as they want but unless the company is generating a profit, impose a 100% tax on the bonus compensation. Compensation shouldn't be paid to reward people for losing money.
Aside from that, I like the idea of pitchforks.
@pecan 3.14159265: Agreed. Big business wants hands-off free-market capitalism? That means when companies fail, we don't bail them out. We let other companies absorb them and their market share and move on. Yes, crashes happen. They also recover much faster without interference.
Big business wants bailouts? Ok, then we need to regulate and legislate the crap out of your business to be sure these bailouts are never necessary in the first place, or minimized if they are.
The problem, as mentioned many times, is when we privatize the gains but socialize the losses. I'll second nova3930's comment that other systems that were more regulated also failed hard, and add to that that our regulatory agencies completely failed to detect Madoff's scam despite the numerous regulations in place to prevent it, so laws and regulations don't actually work unless the government follows through with them.
*sigh* As much as it would've fucked everything over to let them fail, at least we could cut our losses and get back on track instead of swerving right back onto the path of destruction, just past the first roadblock.
@smartmuffin: I think you should read The Jungle. Old, but still relevant, when they show the family buying the house.
For example, in today's world:
Lender: See, you're payment will be $800, and taxes should be around $100, and your assessment will be $100, so your total payment will be $1000/month.
Realtor: Yup, that's right
Developer: Yup.
So you move in, and it turns out your taxes are really $200/month, and as soon as the building is full, assessments jump to $300/month, so your payment is now 30% higher than you had expected. You trusted the people working for you, and they screwed you.
@dragonfire81: I'll still pick up my guitar and play, just like yesterday, but I'll get on my knees and pray that we don't get fooled again.
They should have let all of those sorry ephers go out of business. Someone would have eventually bought all of the foreclosed homes. Which would have let the market determine their true value. The government should start making the lenders, real estate agents, home inspectors, and appraiser make payments back to bail out fund. They all had a big part in it too.
When time permits, YouTube.. : 'Obama Decept ion'. That should piece together some interesting points for you with regards to this matter.
Cheers
@OMG! SP00N: There's an old saying in Tennessee - I know it's in Texas, probably in Tennessee - that says, fool me once, shame on --- shame on you...
@H3ion:
"unless the company is generating a profit, impose a 100% tax on the bonus compensation. Compensation shouldn't be paid to reward people for losing money."
In general, the problem wasn't bonuses paid when the company lost money, it was bonuses paid for making deals and bets that earned money in the short term, but lost money in the long term.
@FatLynn: "You trusted the people working for you, and they screwed you."
Except for me, my trust is quite difficult to earn, and if I give it to someone who turns out to be undeserving of it, I consider it my personal mistake.
If someone fell for one of those Nigerian Prince e-mail schemes, you'd call them a moron. As far as I'm concerned, anyone who fell for a "here's this low payment adjustable rate, don't worry, it'll never go up" scheme is just as dumb.
Does this mean we're headed for a new Progressive Era? Trust-busting and constitutional amendments abound!
@JGKojak: Not true... the too-big-to-fail advocates are not one and the same as the personal-responsibility advocates. Not even close.
@Mr_Human: Even though I'm on the liberal side with Tri-Dep, Mostly Harmless, etc., I agree with this with some big caveats:
1) We don't let banks get "too big to fail."
2) We establish an agency, division, etc. whose job it is to quickly and efficiently take over a failed bank and help sell off the assets. We have one now, but it needs to have more power and to be more agile.
3) We increase the FDIC fees for banks to make sure sure that we can cover account holders of failed banks without having to dip into treasury funds or other tax payer money. They should always have enough reserves to cover anticipated losses.
@SkokieGuy: And don't forget Lincoln's warning later in US history (one of my favorite quotes):
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war. God grant that my suspicions may prove groundless."
@smartmuffin: The ones who bought too much house are are facing foreclosure, perhaps they should accept some responsibility. The one who lost their job because their company went under during this crisis, and they're now facing forclosure? Not so much.
@ARP: Yup.
I'd add that there should be no third-party derivative contracts, and I'd like to see a return to mortgage lenders not being able to palm off the loans either.
@Mr_Human: It was a matter of timing. Normally, we'd be happy to watch a Too Big To Fail institution crash and burn. Or better still, never let them get that big or diversified in the first place (thanks, Glass-Seagal!) At that particular moment, however, it would have destroyed EVERYthing. So we were adult enough to put away our boyish, emotionally driven impulses, hold our noses and rescue the freaken' global economy.
But never forget: it was the Free Market Fundamentalists that piled the tinder high, poured the gasoline then struck the match. We'll clean up their messes (as - sigh - adults always must) but this time around, we need to take their matches away and send them to the attic with Crazy Uncle Phil.
As long as money has such an influence on politics, this sort of thing will never end. Step one, ban campaign advertising outright. That would tremendously reduce a politicians demand for money and cut money's ability to influence and essentially buy votes (via advertising...)
@nova3930: The Canadian banking system was also more tightly regulated than ours and had far FEWER losses. I think pecan 3.14 has it right. There's regulation, and then there's GOOD regulation. We pretty much had neither. Now we specifically need the latter.
When Mel Brooks said, "It's good to be the king!" -- he was wrong.
What he should have said was "It's good to be the banker!"
Like I said one year ago, all bailouts are bad. All.
@Mr_Human:
How much of that was bluster though? They "knew" they couldn't let the banks "fail" without consquences.
Personally, Marx predicted the failure and bailout just as perfect as Rand. I'm kind of torn as to whether I should head for Galt's Gulch or start a Proletariat revolution.
FYI I would have made the bailouts a takeover and shred the company bailout.
Too big to fail = too big to exist.
@Mr.Duke:
Nope, they should have bailed them out. Then they nullified the contracts, fired the management, and sold the assets off in packs to smaller companies.
Too big to fail = too big to exist.
Welcome to the new and amazing future!!!111!1 oh wait, sorry. Its the same.