UP@NIGHT

(Print, Southern Labor Archives.  Caption:  History Repeats Itself–The Robber Barons of the Middle Ages, And The Robber Barons of To-Day)

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Guess what?  The fat cats on Wall Street not only think that they will be doing as well or better this year than last, they think that any attempt to limit their outrageous salaries and bonuses will stifle innovation.   The following is from a Bloomberg.com story, “Bankers Expect Rising Bonus Pay to Break Records in Global Poll,” (Oct. 30, 2009).

Having shaken off the biggest economic decline since the 1930s, almost three in five traders, analysts and fund managers believe their 2009 bonuses will either increase or won’t change, according to a quarterly poll of Bloomberg customers. Only one in four see a decline. Asians are the most optimistic about pay and Americans and Europeans somewhat less so.

“The large banks are knocking the cover off the ball,” said Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC. The industry is “making money, though with government help.”

Worldwide, a majority of market professionals in the survey also turn thumbs down on government attempts to limit compensation, with 51 percent saying restrictions will stifle useful innovation. Only about 38 percent think pay limits will control excessive risk-taking.

In the U.S., where President Barack Obama has chided Wall Street for being “motivated only by the appetite for quick kills and bloated bonuses,” 65 percent say the restrictions will damp innovation.

So, we are supposed to believe that if “market professionals” lose some of their bonuses, it will decrease their capacity and motivation to think about new ways to make money.  This claim is as lame as it is self-serving.  You would think that some loss would only drive them to new heights of creativity, given their alleged professionalism.  Yet they keep managing to get away with offering ever weaker rationalizations for why they need ever increasing salaries and bonuses.  Laughing all the way to the bank(s).  It seems that we have our own version of the Robber Barons.  They may oppose tariffs, but they have the equivalent of monopolies in many areas.  They work for institutions that are, after all, too big to fail.   Yet these “professionals” should remember that Americans have a limited tolerance for aristocrats, and they are beginning to skate on the thin ice of class: they are becoming an entrenched moneyed aristocracy.

If you question my assumption about Americans’ limited tolerance for self-inflated moneyed folks, I ask you to take the Gilligan’s Island test.  Which character or characters on Gilligan’s Island do you least trust: Gilligan, the skipper, the millionaire and his wife, the movie star, the professor or Mary Ann?   (Hint: notice that there is only one character not looking at you.)

AP/photo Boston.com

There is a cottage industry in the making: “Obama the socialist” paraphernalia.  One of the striking features of this industry is the confusion that stands behind it.   As revealed in pictures above, some people don’t know the difference between National Socialism (fascism, Nazis; image one above: Nazi Brown Shirt/Obama) and Communism (sometimes called socialism; image two: Lenin/Obama).  The two groups hated each other and fought bloody wars.   Yet, for some, hey, a socialist is a socialist.  And they want to make you believe that Obama is one, which will help to kill health care reform, for the fifth or sixth time in U.S. history.

Fool me once, shame on you.  Fool me twice, shame on me.  Fool me three, four and five times, hand me the clown suit.

If one were to believe Fox News, the fear of socialism is running rampant in the Land.   Folks who regularly depend on government sponsored hearth care, for example, the Medicare program and the Department of Veterans Affairs, or who will someday depend on them, appear to feel no compunction about attacking the public option in Obama’s health care plan.  For some reason, it is socialism, but Medicare and Social Security are not.   Of course, these are not the only individuals attacking Obama.  There are radical free marketers who in principle just hate the idea of the government getting involved in anything.   They would even kill Social Security.   (I wonder how many of them don’t have health care or are in danger of losing theirs.)  After all, if the government gets involved, it will undermine the private insurance companies, and with this undermining the fall of capitalism and America can’t be far behind.

What is the main argument against a government sponsored alternative:  the government, which can’t seem to do anything right, will undermine well-run insurance companies, because a government sponsored option will be non-profit.  The counterargument: if we don’t have good non-profit competition, the price of insurance will continue to skyrocket and help bankrupt the country.

There is a lot of fear in insurance land.   We seem to have here companies that are afraid to compete with a government run program.  I wonder why.  Fear that their bloated profits might shrink?  Fear that they will be put out of business?

But the magic of the market should be able to find a place for private companies, even with a government sponsored alternative.  Does every vet choose the services of the Veterans Administration over private health care?   Surely not.  If the private insurance companies have good products to market, they will find patients, even with a public option available.  The public option that Obama is recommending is not going to be so attractive that it will drive out of the market well-run and reasonably priced private insurance.  But if the insurance companies don’t provide good service at reasonably prices, it should be their problem, not ours.

To return to socialism.  The funny thing about this debate is that few young people have any idea about the dangers of socialism.  That’s because they have grown up in a world in which there aren’t any dangers from socialism, at least not in the way in which the over 50 set remember.   And those who seem to be most concerned (look at the crowds at some of the town halls),  appear to be those currently benefiting from Social Security and Medicare or those who will be benefiting within a decade or two.  This form of “socialism” is quite fine and dandy.  (Just try to find a Republican member of the Senate who wants to do away with these programs.)

The danger for the young is not socialism; it is a capitalism that is malfunctioning and cannot compete.  One way to hamstring the American system is by perpetuating the endlessly wasteful health care system that we now have.  Many in big industry recognize this.   The question is rather simple for them: how do we compete against countries whose overhead for manufactured goods is markedly less than ours because their health care expenses eat less of the pie?

If we let fears from another era get the best of us now, we will have no one to blame but ourselves and (some special interests) for a declining standard of living in the years to come.

We have all wondered how the financial wizards down on Wall Street managed to help tank the economy.  No doubt creative accounting played a substantial role.   This clip will explain to you, in a straightforward and easily accessible fashion, just how simple creative accounting can be.

RockefellerJ.P. Morgan in action

Obama’s budget is smart and far-sighted.  I wish I could say the same about the bank bailout.  We are certainly not out of the woods on this one.

On April 1st, the New York Times ran an Op-Ed piece by the noble winning economist, Joseph Stiglitz.  (There is an excerpt and  link below.)  It’s about as clear a presentation of the issues involved as I have seen (in a short piece). And it lays out why we should be concerned about the plan, which is no doubt the work of Geithner and Summers.  I worry, as many do, that the red-herring rhetoric of “nationalizing” the banks will prevent us from properly addressing the situation.  I worry that Geithner and co., for all of their good intentions, are too close to Wall Street not to be sucked into the myth that “nationalizing” must mean socialism or the appearance of socialism.  (The irony here is that this is precisely the rhetoric that the right has used so successfully in the past to prevent such needed programs as universal medical insurance.)   I worry that this plan is viewed as a shrewd move to get the Wall Street/banking crowd on board by Geithner and co., but will end up providing the banks only a temporary boost in liquidity, yielding “profits” that will once again allow them to laugh all the way to their own banks.

J.P Morgan headquarters

My hope is that if the plan doesn’t work, the Administration will quickly turn around and say, we tried, and move on to a solution more appropriate to the problem.  I am confident that Obama the pragmatist would make such a move.  The question at hand: how hard will his own soft ideologues fight to avoid the appearance of “nationalizing” the banks?

Obama’s Ersatz Capitalism (excerpt)

by JOSEPH E. STIGLITZ

THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency. . . .

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

In times such as these, our times, when unregulated capitalism has once again proven that it can bring down the house, literally, it’s worth reminding ourselves about the voices that have spoken so eloquently in favor of selfishness over the years.  (Not Adam Smith, by the way; he thought that sympathy was a basic feature of human nature.)  Here is Colbert discussing one of the leading lights of selfishness, Ayn Rand.

The Word – Rand Illusion | March 11th | ColbertNation.com

On Capitalism Run Amok, readers might want to check out Sullivan’s site today, March 23rd, “Are The Jacobins At The Gates?” Let’s just say, a bit over the top, but worth a look.  (Btw, Sullivan thinks of himself as a conservative.)

P.S.  Interesting fact:  Stephen Colbert was a philosophy major at Hampden-Sydney College.  Training in philosophy has its uses.

At today’s Congressional Hearing:

“We are meeting today at a high point of public anger,” said Mr. Liddy, a former chief executive of Allstate who was installed as A.I.G.’s chief when the Federal Reserve announced its rescue package. “I share that anger. As a businessman of some 37 years, I have seen the good side of capitalism. Over the last few months, in reviewing how A.I.G. had been run in prior years, I have also seen evidence of its bad side.”  NY Times,  March 18, 2009.

I watched a good portion of Edward M. Liddy’s testimony before Congress today.  I hadn’t planned to.  I got caught up.   Liddy took on the job of CEO at A.I.G. for 1 dollar a year.  He appears to be a man sincerely dedicated to the service of his country.  However, while by no means clueless about the possible reaction of the American people to the AIG bonuses, he did not realize that his arguments amounted to telling the American people that we had been blackmailed.  If he hadn’t agreed to pay the executives of the compromised division their bonuses, they would have walked, AIG would have tanked, and our economy would have headed into a death spiral.  Or so he claimed.  Liddy needed to retain these folks.  And he could only do so by paying out millions.  (Yes, he made it clear time and again that there were contracts that had to be honored,  but as congressmen pointed out, the company could have chosen not to pay and accepted the possibility of being sued.)

“Of the 418 employees who received bonuses, 298 got more than $100,000, according to the New York attorney general, Andrew M. Cuomo. The highest bonus was $6.4 million, and 6 other employees received more than $4 million. Fifteen other people received bonuses of more than $2 million and 51 received $1 million to $2 million.” NY Times,  March 18, 2009

The danger to the nation due to a complete financial collapse is far greater than the danger of terrorism.  And this is just what Liddy was claiming might happen if these executives walked and AIG tanked. So we have people dying in the fight against terrorism, but we have others insisting on the entire amounts of their bonuses in order to cooperate and prevent financial ruin. As patriotic Americans (that is, those who are Americans), they should have offered to work for a small portion of what they were being paid, especially the top earning executives.

Each contract with each employee had its own unique structure, reported Liddy.   They simply couldn’t hold back the funds.  However, today he reported that he has asked the executives to return 50% of the money.  They don’t have to, but as good Americans they might.   (Why didn’t he ask this of them last week? or a month ago? or ask for more?) Think about this, as you think about all those who are on the street without jobs, including Wall Street people.  Think about the sense of entitlement that these AIG executives have.   Think about why so many of us didn’t see this sense of entitlement as dangerous to the well-being of our nation until very recently.

The American people have been sold a bill of goods for almost two generations now, and it goes something like this: if we take advantage of the magic of the market, if we just look out for number 1, the free market will reward us as a nation.  Yes, there are folks in the military who sacrifice, and there are those who volunteer for civilian service, but at the end of the day we serve our country and communities best by seeking our own fortunes.

I am putting this too starkly you say?  Perhaps.  But it became the mantra of Wall Street.  And as they once said about GM, what’s good for Wall Street is good for America.   Just watch those 401k’s grow, and never take any money out of them.  The market always makes a profit in the long run.   (Of course what they forget to tell you is that the long run can be very long indeed.)

The party’s almost over, as so many have declared.  The party, however, is not just about living the high life in good financial times.  The party is about having a set of beliefs that comfort and aid us in getting on in the world.  And one set of these beliefs has involved the goodness of capitalism and the free market.  We have spoken about them as if they are gods.  They are not.  Capitalism can be an exceedingly productive economic system, but only when operating under proper guidance and regulation.  There are no free lunches and there are no entirely free markets.   Believing so is exceedingly dangerous, especially when this ideology replaces our common sense about the sacrifices and labors required to build and maintain communities and a nation.