RALEIGH, North Carolina (Reuters) – Video game makers leave behind a year of slow sales in 2010, but are hopeful that a new generation of games for tablet computers, mobile phones and Web social networks will spur a return to growth in 2011.
Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees. The shocking truth is that those who did the damage are still in charge. Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.
Yes, in the recent mid-term elections, the American people did replace 63 Democrats with a like number of Republicans, but will that really change things for the better? Time will tell, but I doubt it. Neither do I see the Obama administration, with all its good intentions, succeeding in the areas where the public has suffered the most: jobs and home values.
The stock market has recovered beautifully from a Dow low in the Great Recession which began in December 2007 and technically ended in June 2009. The current Dow hovers around 11,500. But how many millions of people out of fear, lack of market knowledge, or the need to cash in their market holdings simply to survive the years beginning in 2007 when the Great Recession began until now, didn’t receive the benefit of the market recovery?
We do know that the current unemployment figure is 9.8 percent, which represents 15 million people. But that figure does not include those who are no longer looking for a job, those who are underemployed, or those whose salaries and benefits have been slashed. Worst of all, there are millions of people in their 50s, 60s and 70s who will never be employed again.
Then there are those who lost their homes to foreclosure and those who will lose them. Why is it that when Congress adopted the current bankruptcy law in 2005, it decided to uphold the principle of moral hazard, which in the housing context means that those who purchased homes they could not afford, lured to do so by banks and the federal government, must not be helped by the federal government to keep those houses when coming out of bankruptcy proceedings?
On the other hand, rapacious banks, Wall Street investment firms, and automobile industry giants who overextended themselves financially while seeking unconscionable profits or who engaged in poor management practices were rewarded with astronomical federal government bailouts.
The absence of accountability is also evident in state government. State legislators voted for pensions for state and city employees when they knew or should have known that these pensions were unaffordable. The expectation is that some states will not be able to pay their current bills and the interest on their general obligation bonds. There is now a fear that those states will collapse and become unable to provide basic services including Medicaid and education. Newspaper editorials are commenting and bond holders are beginning to worry about the state and municipal bonds in their portfolios which, according to a New York Times article of December 9, 2010, are valued at $2.8 trillion dollars.
Legislators running for office throughout the country were overwhelmingly reelected in the recent state and federal elections. Very few were punished with defeat. I’m aware of no law that can be used to hold them accountable for their poor decisions in administering the affairs of the states and localities they represent. But surely there are laws that could be used to pursue Wall Street operators who beggared the country and as a result of federal bailouts – remember too big to fail – are richer today than ever.
Millionaires continue to have tax loopholes available to them which allow them to take deductions reducing their tax payments to ludicrously low levels. Let me repeat what I’ve reported several times in prior commentaries:
One of the least known tax injustices was revealed by the New York Times when it pointed out that the top 400 taxpayers who earned $250 million on average in 2005 paid income taxes at a 17.2 percent rate. That rate is lower than that of a family making between $50,000 and $75,000 a year, which is 17.4 percent. It is a continuing outrage that under our tax code some of the wealthy pay a lower percentage of taxes on their income than the middle class.
As a result of President Obama’s negotiating a deal with the Republicans in the lame duck session of the Congress following the Congressional election of 2010 which will give Republicans a majority in the next House of Representatives, he gave the Republicans what they wanted – a two-year extension of the Bush tax cuts for millionaires and to the top one percent of taxpayers, 26.8 percent of the extended tax reductions.
Leona Helmsley infamously but perceptively said that only the “little people” pay taxes. We know life is unfair, but that doesn’t mean the “little people” have to allow their government to continue to oppress them.
This morning’s Politico features another piece (“Obama and Wall St.: Still Venus and Mars“) in a continuing series that present Wall Street people whining about all those times White House higher-ups have ever-so-mildly allowed certain language to slip from their larynxes that makes the financial industry out to be some kind of villain for that time its over-leveraged, incompetent speculation led to the near-collapse of the entire economy and required taxpayers to shovel untold billions of dollars at too-big-to-fail banks so that they could survive. They are sad, you see, and the record-setting profits they have made are no comfort to them, because hey, maybe The Huffington Post will say something really mean! That is literally a thing that appeared in a newspaper, today!
But despite recent White House efforts to reach out to Wall Street, bankers believe Obama is much more worried about perceptions on the left.
As evidence, bankers point to recent White House meetings with labor leaders, Geithner’s dinner with the heads of progressive groups, and Vice President Joe Biden’s recent pledge to fight against the top-rate tax cuts again in two years.
And it is this, as much as anything, that gets under Wall Street’s collective skin.
“All that people in this White House seem to worry about is what the Huffington Post is going to say if they do something, anything, remotely pro-business,” one financial executive said. “They really don’t care what we think at all.”
Should I begin by assuaging their fears? Because if we define “pro-business” as “a policy that would allow investments to be made in an actual physical business, spurring economic growth and jobs development,” and not “policies that allow Wall Street to return to a regime of creating non-productive casino games based upon the amount of moneydust that can be leveraged from rubbing two ten-dollar bills together to create an ornate daisy-chain of swaps,” then we are never going to issue a discouraging word! Also, to the extent that we have criticized members of the White House for their fealty to the latter system of moneymaking, I can assure you, we have the more solid claim to make in the field of “They really don’t care what we think at all.”
At any rate, so many people share so many feelings! And if those feelings were generically critical of the White House, those people received a gift from Politico:
In an effort to understand such animus POLITICO interviewed a dozen senior Wall Street denizens, including C-suite executives, investment bankers, traders and financial lobbyists, who were promised anonymity in return.
Right at the outset, you meet some guy who is miffed that he wasn’t invited to some dumb meeting:
On the mental list of slights and outrages that just about every major figure on Wall Street is believed to keep on President Barack Obama, add this one: When he met recently with a group of CEOs at Blair House, there was no representative from any of the six biggest banks in America.
“If they don’t hate us anymore, why weren’t any of us there?” a senior executive at one of the Big Six banks said recently in trying to explain his hostility toward the president.
Oddly, that same anonymous executive immediately walks this back (“Who cares about one event?”) and allows that “it makes political sense for the White House to stiff-arm Wall Street.” It makes you wonder, then, why this makes top-billing in this piece, until you remember that this is Politico and it’s written for an audience of people who truly do consider not being invited to some powwow at Blair House to be the most cutting social slight of the century.
Here is some more mansplaining:
A senior Wall Street lobbyist explained his feelings: “This president came into office in the midst of an economic crisis and started off by demonizing insurance companies and then going after Wall Street banks. Never did he try to bring together CEOs and say, ‘We are in this together, we are Team America and we are going to go out and get things done.’ That’s the power you have as president. Instead this White House pushed people away and they did it consciously and they are still doing it.”
I really must recommend that this Wall Street lobbyist read Too Big To Fail maybe? Because Hank Paulson most definitely held those meetings of “Team America” in the halls of the New York Federal Reserve, where Timothy Geithner collected the private phone numbers of all the major players, who he calls on the regular to this very day. As far as “pushing people away,” while it’s certainly true that the president has occasionally taken up some populist rhetoric to allay the anger of taxpayers (remember, it “makes political sense to stiff-arm Wall Street”), they also have very famously dispatched emissaries to soften the blow in advance.
Basically, the complaints from Wall Street boil down to a bunch of hurt feelings. No one has anything negative to say about any specific policy that’s been deployed to tame Wall Street. And how could they? Apart from the possibility that Elizabeth Warren might fight a lonely war to get credit card companies to be less obtuse in the language they use to enshrine all of their consumer traps, no such policy exists.
Rather, the White House has been on the forefront of cheerleading how successful the Troubled Asset Relief Program was, and how the taxpayers have nearly gotten all of their money back, so everyone should put away the pitchforks and calm down. That is to say, we’ve been repaid most of the amount that anyone was nominally keeping track of — the billions that too-big-to-fail institutions received from the discount window at the Fed never show up in these calculations. (And yes, you can basically imagine the “Fed discount window” as some Lovecraftian Taco Bell drive-thru where Jamie Dimon waves a toxically-tranched derivative burrito at the cashier and is given billions of dollars in return.)
There is some attempt on the part of Politico to comport with reality: the fact that “big-time bonuses at bailed-out banks are back” and that “corporate America has turned in its most profitable quarter in history and the stock market is at a two-year high.” But I think this article from Bloomberg today does a much better job at properly chronicling the current state of play:
Wall Street’s biggest banks, whose missteps caused a global financial crisis and economic slowdown two years ago, were more agile when it came to countering the political and regulatory response.
The U.S. government, promising to make the system safer, buckled under many of the financial industry’s protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives. Higher capital and liquidity requirements agreed to by regulators worldwide have been delayed for years to aid economic recovery.
“We continue to listen to the same people whose errors in judgment were central to the problem,” said John Reed, 71, a former co-chief executive officer of Citigroup Inc., who estimated only 25 percent of needed changes have been enacted. “I’m astounded because we basically dropped the world’s biggest economy because of an error in bank management.”
The last two years have been the best ever for combined investment-banking and trading revenue at Bank of America Corp., JPMorgan Chase & Co., Citigroup, Goldman Sachs Group Inc. and Morgan Stanley, according to data compiled by Bloomberg. Goldman Sachs CEO Lloyd Blankfein, 56, and his top deputies are in line to collect more than $100 million in delayed 2007 bonuses — six months after paying $550 million to settle a fraud lawsuit related to the firm’s behavior that year. Citigroup, the bank that needed more taxpayer support than any other, has a balance sheet 14 percent bigger than it was four years ago.
Here’s a fun fact: that very story from Bloomberg was the top story in today’s Politico Playbook. We must thus offer some praise and gratitude to Mike Allen, because it’s much more informative than the piece that Politico‘s P.R. team was pimping to the nation’s reporters (by which I mean, “Obama and Wall St.: Still Venus and Mars”).
So, thank you, Bloomberg, for that dose of Real Talk. And in that light, let’s go back to Politico‘s unnamed lobbyist, committing what I think qualifies as a “Kinsley gaffe:”
“It’s true that markets aren’t in the crapper and the tax-cut thing was very encouraging. The guy is not a socialist,” the lobbyist acknowledged. “But there is still not a lot of capital investment. It is the exception. People are hoarding cash. And the profits are attributable to all that cash-hoarding and big spending cuts and employment cutbacks. It’s not sustainable. The new track has got to be about inspiring growth and encouraging risk-taking, and this White House hasn’t done much on that front.”
What’s the White House supposed to do about that, exactly? There isn’t a lot of capital investment, no. And people are “hoarding cash.” And that’s because they are stocking up on capital for the moment when someone has to actually reveal the true value of assets that have thus far been allowed to be marked-to-fantasy. If that day comes and say … CitiGroup isn’t sitting on a mountain of wealth, we suddenly come face-to-face with The Walking Dead.
Let’s be specific! This “new track,” that “inspires growth” and “encourages risk-taking,” is basically an explicit, signed-on-the-dotted-line promise to bail out the banks again — no questions asked — the next time they nearly cause the collapse of the economy. And what’s at risk if the White House can’t deliver on that promise?
The industry is a dominant campaign contributor and steered $15 million to Obama in 2008 compared to $8.7 million for McCain, breaking its traditional tilt to the GOP, which generally favors lower taxes and less regulation. And Obama enjoyed strong public support from the likes of Dimon, Mack and Goldman Sachs Chief Executive Officer Lloyd Blankfein.
Neither Mack nor Dimon is likely to support the president again. Blankfein, a lifelong Democrat, probably falls into the camp of Masters of the Universe who will quietly continue to support the president but won’t make many public comments or host big fundraisers.
Ha, ha: yes. After that week of joking around about the White House’s use of “hostage-taking” metaphors, we get to read a real live ransom note in the pages of Politico. Be nice to us, or we won’t fund your re-election! For maximum effect, this whole article should be rendered on the page as if the words had all been cut out from magazines.
I’ll leave you with the thoughts of “one executive at a top bank”:
“You have to understand, it is very personal. He raised money from us,” one executive at a top bank said. “Then he started calling us bad people. So forgive us for not wanting to buy him a drink after getting punched in the eye.”
You know, I do not actually know what it feels like to be “punched in the eye” by a fist holding billions of dollars that I can keep for my very self after “Fight Club” is done for the night, so I’ll allow: it might make me very, very sad!
An Open Letter To: Lee Bollinger, President, Columbia University
Dear President Bollinger,
Pleased as I am to be invited to speak at Columbia Business School in February, there’s something on my mind that we need to talk about before I show up, and that is Columbia Business School’s absence of an ethical disclosure policy.
What am I talking about?
Professors there advise private clients to the tune of hundreds of thousands of dollars in fees, advocating policies that serve the interests of those clients, and fail to disclose this to their students or the public — all while enjoying the prestige of a ‘neutral’ Ivy League perch.
This lack of disclosure came to my attention via the documentary, Inside Job, (shortlisted for the Oscar, by the way) in which director Charles Ferguson does an excellent job of explaining the origins of the financial crisis that overtook global banking in 2008 and 2009, and which was rooted in the deregulated culture of Wall Street.
Among the many revelations in this film is the corruption that has poisoned the departments of the nation’s top business schools and chief among them, Columbia’s.
Two Columbia professors come in for humiliation. Read the full post here…
Conservative columnist Charles Krauthammer recently dubbed Barack Obama the “comeback kid,” because of the President’s resurgence after the brutal midterm elections. In just the last few weeks, despite being handed historic losses in the House of Representatives, the President has helped usher in a great deal of important legislation, including one of his campaign pledges to end “Don’t Ask, Don’t Tell,” With the leadership of the President, the lame duck session of Congress wasn’t lame at all.
In addition to ending DADT and passing the START Treaty (over the objections of his old nemesis Senator John McCain), the President was able to work with Republicans and moderate Democrats to pass an extension of the Bush tax cuts and extend unemployment insurance for millions of out of work Americans. While the progressive wing of the Democratic Party was none-too-pleased, this move to the political middle by President Obama, in my view, offers his best hope for re-election in 2012.
Finding opportunities for compromise with Republicans on more moderate “pro-business” policies will help put people back to work and could ultimately allow President Obama win another term in the White House. American companies need more confidence that burdensome legislation and overreaching government regulations will not negatively impact their ability to operate. The White House should be trying to stiffen the backbones of American businesses and urging them to use their large cash reserves to hire more workers and reinvest in our nation. You cannot on the one hand harshly regulate big business and with the other urge them to start hiring millions of out-of-work Americans. Fair or not, it doesn’t work that way.
In addition to working with centrist-Democrats and Republicans to identify pro-business legislation, the President can also use his administration to curtail heavy-handed regulations that make it harder for industry to prosper. In my last op-ed, I spoke of reigning in the Chemical Action Plans at EPA that seek to regulate chemicals that aren’t even known to be toxic. What else can the President do? He can, for example, oppose a bill that will require cosmetic makers to jump through rigorous hoops to prove to the FDA that their products, which are known to be safe, still do not harm consumers. Other possibilities include opposing harsh new regulations for antibacterial hand soaps (also known to be safe) and ensuring that for-profit colleges are reformed and improved, not eliminated all together. While none of these proposals will destroy our economy, combined, they do create a hostile operating environment for America’s innovators and job creators.
Another reason the President will be well served by moving to the political center is because in 2012 he is going to need to win states like Pennsylvania, Florida and Ohio — all states where very conservative Republicans just won statewide. The only way he can get back these independent voters that he won in 2008 is to adopt more centrist positions and reduce unemployment. If he cannot, the President will be vulnerable to a Republican challenger who will appeal to these independent voters by campaigning on conservative policies to end the current employment slump. To keep the White House, we need a President who appeals to moderate voters — not just hope that Republicans nominate Sarah Palin.
The President’s press conference, just a few weeks ago, where he chastised both the far left and the far right for putting ideological purity over the need for compromise to achieve legislative progress, was a bold and welcome step by Mr. Obama. That willingness to compromise gave him the necessary political capital to move several Republicans and conservative Democrats to supporting passing the START Treaty and ending Don’t Ask Don’t Tell. So, while moderation and compromise aren’t perfect, they are better than never-ending stalemate. Even progressives must applaud the President’s recent efforts to keep this year’s lame duck session from being lame.
It’s been over three years since credit markets started shaking with the early tremors of the subprime crisis, and two years since that spread into a marketwide collapse. Prosecutors, regulators, Congress and journalists have spent the year uncovering the financial shenanigans that brought the market to its knees. It’s been marked by a few blockbuster settlements and more revealing investigations — as well as by some no