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Peddling Poison for Fun and Profit
A quarter-century ago, in 1986, the biggest Wall Street banker paycheck went to John Gutfreund, the Salomon Brothers CEO. Gutfreund pulled in $3.2 million. Two decades later, in 2006, Merrill Lynch CEO Stanley O’Neal pocketed $91 million.
To understand the 2008 Wall Street meltdown that cratered the U.S. economy, suggests the new final report from the panel Congress appointed to probe the causes of that crater, you need to understand this enormous pay explosion — and the fierce incentive this explosion created for reckless and fraudulent behavior.
How reckless and fraudulent? In the years that led up to the 2008 meltdown, the Financial Crisis Inquiry Commission report released late last month details, Wall Street’s top bankers and financiers “made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective.”
These same bankers borrowed, based on these securities, tens of billions of dollars “that had to be renewed each and every night” and then traded these billions in totally unregulated, semi-secret, financial “derivative” gambles.
This frenetic financial folly would eventually leave four million homes lost to foreclosure and another four and a half million American families either ensnared in the foreclosure process or seriously behind on their mortgage payments.
“Nearly $11 trillion in household wealth has vanished,” adds the Financial Crisis Commission final report, “with retirement accounts and life savings swept away.”
The top five execs at Bear Stearns, for instance, all lost their jobs when that investment house collapsed in 2008. But in the eight years before that collapse, notes the Financial Crisis panel, these five “took home over $326.5 million in cash and over $1.1 billion from stock sales.” Their windfall exceeded the annual budget of the SEC, the federal agency that’s supposed to keep Wall Street honest.
The Wall Street pay explosion also helps explain why this Financial Crisis panel final report — a clear, compelling read — appears to be going nowhere. The 545-page paper, since its January 27 release, has sunk, like a rock, from public view.
Reports from blue-ribbon panels don’t, of course, always sink. They sometimes help crystallize public outrage and serve as a useful stepping stone to fundamental reform. In the Great Depression, the Senate Banking Committee’s celebrated Pecora Commission report played just that role.
But blue-ribbon reports, to make an impact, need political patrons, elected leaders who’ll talk the report content up, in news conferences and speeches, and demand immediate action to correct the ills that report content identifies.
The Pecora Commission report had plenty of those patrons, including President Franklin D. Roosevelt. The Financial Crisis Inquiry Commission has had virtually none. The White House has done next to nothing to give the report legs, and neither have many Democratic lawmakers.
Republicans, for their part, have followed the lead of the four GOP appointees on the panel. All four “dissented” from the main report, and their convoluted rebuttal to the majority report has allowed conservatives — and much of the media — to dismiss the Financial Crisis panel report as a purely partisan exercise.
Why all the haste to bury this report? Politicos on both sides of the aisle have essentially become too dependent on Wall Street. The report itself supplies the basic numbers: From 1999 to 2008, the financial industry dumped over $1 billion into political campaigns — and spent another $2.7 billion on lobbying.
That money has kept the Wall Street money machine percolating nicely. Total pay in the financial sector, the Wall Street Journal reported last week, topped $135 billion last year, a new record. Overall, concludes the Council of Institutional Investors, pay practices on Wall Street “have worsened” since the 2008 crisis.
The American people, meanwhile, remain absolutely outraged. Over 70 percent of Americans, a Bloomberg poll found this past December, want big bonuses banned this year at Wall Street firms that took taxpayer money.
People power, of course, can check money power, but only if organized. In the Great Depression, people did organize. The hugely influential Senate Banking Pecora Commission operated against the backdrop of a mobilized popular uproar.
The lesson for today? Even the most compelling blue-ribbon reports can’t, on their own, drive real reform. The pressure to end the pay excess behind the horrors the Financial Crisis Inquiry Commission has so exhaustively chronicled is going to have to come from average Americans.
The Financial Crisis Inquiry Commission has its final report available online, for free download. Interested in organizing, in your community or congregation, for economic security and justice? Check the Common Security Club network.
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New Wisdom
on Wealth
John Dominic Crossan, With Liberty and Justice For All: Why the Bible Promotes Equality, February 1, 2011. An eminent theologian explores the biblical “expectation of a world ruled by a fair and equitable distribution of its resources.”
Hugh Noble, The Spirit Level Revisited. A statistician demolishes the attacks on the 2010 British best-seller that exposed the heavy price societies pay for tolerating ever wider income inequality.
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A Business Case for Greater Equality
The Nordic Way: Shared norms for the new reality. A report prepared for the  World Economic Forum in Davos, Switzerland, January 2011.
President Obama has opened 2011 preaching a new gospel: competitiveness. To succeed economically, his argument goes, the United States must become more “competitive.”
So where do we start? How about looking at societies that are already competing quite nicely? Maybe they have lessons to share.
These societies, turns out, do feel they have lessons to share. Better yet, the four nations that rate highest on global “competitiveness” benchmarks seem to be in a sharing mood.
Last month, at the World Economic Forum in Davos, corporate and government leaders from these four nations — Sweden, Norway, Denmark, and Finland — brought a special report that lays out what they feel gives them their distinct competitive edge.
A distinct competitive edge — for Scandinavia? Conservatives all around the world would find this notion ludicrous. They’ve been arguing for years, as this new report wryly notes, that the Nordic economies are going to crash any minute.
In this conservative world view, the Nordic economies represent a compromise between socialism and capitalism that can’t possibly last — since “the costly and unproductive ‘socialist’ elements of the model were bound to overwhelm the productive ‘capitalist’ aspects that had been allowed to remain.”
But the Nordics, contrary to these dire predictions, are doing just fine. They’ve survived the Great Recession much better than the rest of the developed world.
The Nordics also boast budget surpluses and low public debt, not to mention “long-term political stability, transparent institutions, technological adaptability, flexible labor markets, open economies, and high levels of education” — all the elements that business analysts say make for competitive economic success.
The secret to this success? The Nordic business and policy leaders behind the Nordic Way report, a group that includes the chairman of the largest industrial holding company in Northern Europe, brought a somewhat surprising answer to their global corporate and governmental colleagues gathered in Davos.
The Nordic nations, these entrepreneurs and elected leaders maintain, value individualism, so much so that they make sure — through a tightly knit social safety net — that no individual ever has to feel beholden to another.
Individualism, The Nordic Way goes on to argue, “need not lead to social fragmentation, distrust, and short-term maximization of material interests.” Quite the opposite. Individual autonomy can “lead to greater social cohesion if it is done in an egalitarian way.”
And that’s what the Nordic nations have done. Sweden, Norway, Denmark, and Finland all rank among the world’s most equal nations. The resulting social cohesion nurtures a “high degree of trust” — a trust in each other, in the law, in the strong governmental institutions that guarantee the social safety net.
This trust, Nordic business leaders believe, translates into the “systemic advantage” that economists have labeled “low transaction costs.” People who do business in Scandinavia spend less time hassling with lawsuits and paperwork
Critics, The Nordic Way acknowledges, see “political and cultural drawbacks” to the Scandinavian “commitment to personal autonomy, a strong state, and social equality.” Such a commitment, the attack on the Nordics posits, generates “conformity, loneliness, and an intrusive bureaucracy.”
The Nordic Way sees a different Scandinavian reality: societies full of “citizens who feel empowered, accept the demands of modernity, and are willing to make compromises to achieve economic efficiency and rational decision-making.”
The ultimate “take-away” message that Nordic business and government leaders want their peers elsewhere to take to heart?
“In the Nordic countries,” The Nordic Way sums up, “social trust, confidence in state institutions, and relative equality coincide.”
In the United States, this trust, confidence, and equality have gone by the boards. To become “competitive,” we have work to do. A lot.
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About Too Much |
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Too Much, an online weekly publication of the Institute for Policy Studies | 1112 16th Street NW, Suite 600, Washington, DC 20036 | (202) 234-9382 | Editor: Sam Pizzigati. | E-mail: editor@toomuchonline.org | Unsubscribe.
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