Will High-Profile Hearings Sink Wall Street Pirates?
(L-R) Lloyd Blankfein, CEO of Goldman Sachs Group, Inc.; James Dimon, CEO of JPMorgan Chase & Company; John Mack, chairman of the Board of Morgan Stanley; and Brian Moynihan, CEO president of the Bank of America Corporation testify during the first public hearing of the Financial Crisis Inquiry Commission hearing on January 13, 2010 on Capitol Hill. (Photo by TIM SLOAN/AFP/Getty Images)
By Roger Bybee
Blackbeard the Pirate never had to face a dilemma about how much plunder to sail away with: He just grabbed everything. But sometimes he had so much it was hard to stash it all.
How little times have changed. The modern-day pirates of Wall Street have to figure out how much of their ill-gotten booty they need to bury out of public sight. On the eve of congressional hearings on Wall Street practices that produced the cataclysmic economic meltdown, a Sunday New York Times headline gave a sense of the stratosphere in which top Wall Streeters have floated: "For Top Bonuses, 7 figures or 8?"
The question’s answer is fueled not by the amount of bonus money sloshing around, but by the political calculation of what they can get away with handing out in front of a watchful public, given the immense bailouts the investment banks and insurance firms like AIG received.
BURIED TREASURE: $90 BILLION IN COMPENSATION
Like Blackbeard burying his treasure, vast amounts of bonuses have already been set aside for top Wall Street investment bankers. "During the first nine months of 2009, five of the largest banks that received federal aid–Citigroup, Bank of America, Goldman Sachs, JP Morgan Chase and Morgan Stanley–together set aside about $90 billion for compensation," the Times reported January10.
Goldman Sachs alone put aside $16.7 billion during the first three quarters of 2009, headed toward a compensation pool of about $21 billion by the end of the year. But Goldman Sachs, realizing that it and the other banks are under a microscope, is making only microscopic changes in compensation in an effort to cool down the public.
For example, it is reducing the share of total revenues going to compensation from 50% in the first quarter down to 48% and 43% in the next two quarters. But if the total profit is shooting up, the lower percentage doesn’t hurt the guys at the top a bit.
WILL HEARINGS UNEARTH THE TRUTH?
While the banks are proudly proclaiming how much of the approximately $1 trillion in direct aid from the TARP program they repaid, they have evaded discussion of the true amount of total federal assistance, direct and indirect, extended to them from a host of federal financial agencies. That figure is a stunning $17.5 trillion, according to Nomi Prins, a former Goldman Sachs executive and author of It Takes a Pillage. But that total rarely makes it into the news.
Much of public has been praying that the Financial Crisis Inquiry Commission hearings started this week and led by Congressman Phil Angelides (D-Calif.) would turn out to be a replay of the famous 1930s hearings led by the Ferdinand Pecora.
The legendary Pecora managed to translate the complex and shady manipulations of that era’s Wall Street pirates and provide the entire American public with a major lesson about the inner workings of the economic system. Although Angelides is a canny operator well-versed in finance (he formerly served as California state treasurer), his committee had trouble inflicting any major damage on the bankers, according to Les Leopold, author of The Looting of America.
BANKERS SPENDING TO BLOCK AGENCY
The Inquiry Commission, for example, failed to get the bankers to confess that their banks are paying huge sums for lobbyists to smother the creation of a Financial Consumer Protection Agency. The proposed Consumer Protection Agency is absolutely imperative if we are to prevent the rip-offs of consumers on sub-prime home mortgages.
Such exploitation of homebuyers through incomprehensible provisions in the small print is helping to fuel a nation epidemic of home foreclosures, which are taking place at a daily pace an amazing 10 times higher than during the Great Depression, according to Nomi Prins.
But the rip-offs of investors and homebuyers are of course only part of the picture. The financial sector’s collapse last fall due to its reckless, deregulated operations last fall produced a cascading effect throughout our economy, adding more than seven million to the ranks of the jobless.
SUCKING CAPITAL OUT OF REAL PRODUCTION
But the bigger and more important point here is that the financial sector has grown to such gargantuan proportions only by sucking capital out of our productive base. Unlike the ballooning size of Mark McGwire and Barry Bonds, it wasn’t steroids. It was the draining of resources away from real production toward the production of profits based on manipulating values.
Over the last three decades, numerous corporations have decided to seek higher profits in finance, real estate, or energy than were available in manufacturing. For example, although US Steel’s mills, were on average, 17 years old compared to 10 years for its fast-rising Japanese competitors, US Steel devoted $6.2 billion to Marathon Oil instead of going for long-term competiveness by updating its mills.
US Steel reached out for faster, higher profits in oil, with unionized manufacturing jobs being either needlessly eliminated in steel so capital can be deployed more profitably in some non-productive financial game or shipped off-shore to exploit workers at near-starvation wages.
‘MORE LIKE MONACO THAN GERMANY‘
Similar patterns have occurred across industry after industry, with disastrous outcomes for both workers and the economy’s long-term health. AFL-CIO President Rich Trumka observed:
The loss of more than 5 million manufacturing jobs and the closure of over 50,000 manufacturing facilities have undermined our nation’s technical capacity to innovate and to make things, while at the same time decimating our middle class.
With the manufacturing share of the nation’s gross domestic profit (GDP) withering to 12 percent (from 15.9 percent in 1995) and the financial sector growing to 22 percent, the structure of the U.S. economy looks more like Monaco than Germany.
In fact, the ratio of financial workers to manufacturing workers has shifted stunningly, from 7 to 1 in 1950 to 1 to 1 now, Leopold noted in his recent book.
United Electrical Workers Western Regional President Carl Rosen has neatly summarized how the financialization of the economy has hammered working families, stating:
The only thing that has kept the economy going since Reagan is one sort of artificial bubble or another, because Corporate America has been destroying real production.
This economy is failing because workers cannot buy back what they are making. Corporations are being bailed out and workers are being sold out.