In this next-to-last post in this series (but probably not on this topic), I want to look at how senior Wall Street executives saw their profession as some sort of game in which the goal was to extract more personal benefit than the next executive, leading to a leap-frogging of various forms of compensation packages that would leave ordinary people gasping.
These executives were taking risks with other people’s money that left many ordinary people ruined while they themselves were benefiting:
The chairman of Lehman Brothers, Richard Fuld, still has his mansion in Greenwich, CT, his oceanfront estate on Jupiter Island in FL, and his Park Avenue co-op in Manhattan.
Many at Lehman blame Fuld for dallying while his investment bank went bust, taking risks with other people’s money while he cleared over $40 million in salary and stock in the last year alone.
. . .
Fuld isn’t the only top executive who remains well-off despite his firm’s collapse. Former Bear Stearns CEO Alan Schwartz collected more than $38 million in salary and bonuses in the last three years for which figures are available.
These people live in a different world from you and me. The report describes the ‘hardships’ being undergone by the Wall Street executives as a result of the current financial situation.
“A lot of those people will have to sell their homes, they’re going to cut back on the private jets and the vacations. They may even have to take their kids out of private school,” said Frank. “It’s a total reworking of their lifestyle.”
He added that it’s going to be no easy task.
“It’s going to be very hard psychologically for these people,” Frank said. “I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he’s ever done.”
And now we are supposed to bail out such people when their actions have resulted in other people losing their jobs or their only (modest) homes?
Some lawmakers are furious at what they are being asked to approve by the Bush administration, the Federal Reserve, and their own leadership. One anonymous Congressperson sent an email in which, in addition to demanding major reforms in the financial sector in return for the bailout, he/she also wants them to be publicly humiliated for what they have done to the country, and demanding that Congress should not be bought off with some trivial considerations.
I don’t want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few [expletive] bridges. I want reforms of the industry, and I want it to be as punitive as possible.
. . .
I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.
I think this congressperson is merely channeling the deep reservoir of anger in the general public at what they rightly see as little more than a fraud perpetrated on them.
When poor people get into trouble because they make stupid or greedy decisions, they are lectured to by the rich on the need to be prudent and live within their means and to suffer the consequences of their actions. When the very rich do the same thing, the government rides to their rescue. ‘Throwing money at the problem’ (a favorite phrase used by the rich to denigrate any attempt to fund initiatives that help ordinary people, like education or health care) becomes the desirable mode of action when the recipients are Wall Street or the defense industries.
Meanwhile on the House floor Rep. Marcy Kaptur of Ohio tells it like it is:
As I have said repeatedly, the leadership of both parties are already bought and sold by Wall Street like any of the other commodities they trade in. They are simply looking for a face-saving way to capitulate and give away the store and a grand ‘bipartisan compromise’ is what they seek, so that one party cannot take advantage of public anger by accusing the other of selling out to Wall Street. It is only the ‘minor’ members of Congress who are not beholden to these interests that can stage a revolt.
I think that most people, even if they are not sure exactly what is going on, are suspicious that this is a sweet deal for insiders by insiders. Apparently opposition to the bailout is running at between 10-to-1 to 100-to-1, if measured by the calls and emails received by members of Congress. But just like in the run up to the Iraq war, regular Congresspeople can be frightened into thinking that they will be blamed if they oppose their party leaders and the group of ‘wise experts’ who solemnly tell them that they know what the best of action is.
As former Labor Secretary Robert Reich says:
Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don’t agree, you risk a meltdown of the entire global financial system. Your own constituents’ savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.
Now – quick — what do you do? You have no choice but to say yes.
But you might also set some conditions on Wall Street.
The public doesn’t like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity.
Reich lists five conditions, the first of which is that “The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.”
There are alternatives. It has been pointed out that Sweden faced a similar crisis in 1992 but took a very different attitude and solved it with almost no cost to the taxpayers. (Thanks to Norm for the link.)
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
Why should we not get what, say, Warren Buffett or JP Morgan Chase got when they invested in troubled firms like Lehmans or Washington Mutual? Why should the taxpayers not be treated as investors and have the same risk/reward expectations as any other investor? Why should we pay for something for which there is no clearly discernible public good?
It is time for people to get really angry. We should not take the word of sober-voiced people in suits who soothingly tell us that although they were the ones who created this mess and did not even see it coming, we should now unquestioningly trust them to solve the mess by giving them virtually everything they want.
We are being told that it is imperative that we ‘calm the markets’, as if the trillion-dollar financial sector is a colicky baby in a restaurant. We are being told that we must restore ‘confidence in the markets’ as if the market is a shy teenager about to go on a first date. Why should we care about confidence? And whose confidence are we talking about?
They are taking us for suckers and we will have only ourselves to blame if we allow them to do so. We, the people, technically own the government but it has been co-opted by the financiers. It is time to take it back from these usurpers.
POST SCRIPT: Imminent threat, anyone?
Jon Stewart reminds how Bush is using the same scare tactics to push the $700 billion giveaway plan that he used to push the Iraq war.