Daddy, Did Wall Street Win the War?

Les Leopold

Traders work on the floor of the NYSE in November 2008, shortly after stocks had fallen below 8,000.

All you have to do to feel the outrage over the continuing flow of bonuses on Wall Street is to take a walk down Main Street.” ~ Reuters, September 82009

A year ago, Wall Street was on life support. Its entire fantasy finance casino had crashed, wiping out years of record profits in a matter of days. The entire phony edifice of structured finance based on junk debt came tumbling down.

The financial sector imploded as banks and investment houses watched their triple-AAA-rated securities turn toxic. Lending ceased as banks realized that all of their trading partners also were loaded with junk. No way would they loan money to anyone.

In a modern society, a credit freeze means instant death to the real economy, since virtually every enterprise, big and small, runs on credit. When the financial sector froze, it pushed the real economy off a cliff.

We were on the verge of the Great Depression II. We all knew what screwed up. The fantasy finance fiasco created and run by the largest banks in the world, totally failed us. And the dogma of deregulated markets screwed up even more.

We relearned the painful lessons of the Great Depression: deregulated finance leads to a speculative casino, then to bubbles, and then to busts, taking us all down. That’s what deregulated finance does.

The credit system needed to be resuscitated in a hurry or the economy would crash even further and faster. For better or for worse, we needed the banks to maintain that credit system, so the banks had to be rescued in the process.

(Many readers have suggested that we should have let the banks and investment houses fail. After all, they gambled and lost, period, the end. In retrospect, this is a very tempting idea. But the consequences to everyday people would have been enormous. It’s possible, even likely, that the unemployment rate would doubled over the present rate.) 

It was understood that the public’s largess would come with conditions, and those conditions were obvious: 

  • Sky high financial salaries would have to come down. Wall Street’s pay expectations were outrageous and unjustified, especially since they were based on phony profits and massive social harm. 
  • Banks would have to get out of the fantasy finance business. No more opaque derivatives. No more CDOs squared, cubed, sliced and diced. It was time for banking to get back to basics and stick to them for good. 
  • In short, Wall Street would have to learn to serve America and not the other way around. Really it didn’t seem like that was asking for too much, given that we were providing Wall Street with over $17.4 trillion in TARP funds, liquidity and asset guarantees.

It didn’t happen. None of it. Let us count the ways. We bailed out AIG and allowed it to pay off its credit default insurance to Goldman Sachs and other major banks, at full value, even though AIG was kaput. Goldman walked off with 13 billion and then a few months later, lo and behold, declared record profits. They were daring the government to do something about it. A windfall profits tax would have been more than justified….Nothing happened.

We were up in arms about the rating agencies and how their bogus grades misled the world into buying toxic assets. You just wait, big reforms were coming. Instead they now are rating new derivatives that are as bogus as the old ones, with no oversight. They are still paid by those they rate for their impartial services….Nothing happened.

We set up a Pay Czar to do something about outrageous pay packages. The Czar is examining GM officials, small-time pension managers and the top paid people at several decrepit banks. Then we discover that Andrew J. Hall, an oil speculator, is going to earn” a cool $100 million from CitiGroup. His contract, we are told, was exempt even though CitiGroup was only alive because we had given it over $350 billion in loans and asset guarantees. We could have easily reduced Hall’s pay package to next to nothing, given the fact CitiGroup only exists because of taxpayer largess….Nothing happened.

We engaged in a good deal of discussion about controlling fantasy finance derivatives in order to prevent systemic risk and new bubbles. Yet before our hot air rhetoric cools, Goldman Sachs starts to market them again. Wall Street decides to build new death bonds” around life insurance policies. Derivative traders are pouring millions into lobbyists to make sure the fancy, high fee stuff isn’t regulated. To date, none of it is regulated….Nothing happened.

We were charging ahead to form a new Financial Consumer Protection Agency to deal with rampant mortgage fraud and other abuses. The banks, using our TARP money, went on a lobbying binge to derail the process……Nothing happened.

You know what’s coming next? Bonuses – big fat ones, all around. Goldman Sachs and JP Morgan are just itching to cut up their pies, made of taxpayer receipts. We will be told that we can’t hold down pay too much or we’ll lose the best talent to hedge funds and foreign banks. God forbid! The Pay Czar will do next to nothing about it. When you step back and look it over this landscape, it sure does seem that Wall Street’s dons broke open the federal vault, walked off with trillions in TARP funds and guarantees, and then laughed all the way to their Swiss numbered bank accounts. We just watched the greatest robbery of all time….and nothing happened.

First of all, unemployment support put in place during the last depression has eliminated the bread lines and the full pain of unemployment. That’s why we don’t see upheaval from the 29 million or so who are unemployed or underemployed.

Second, New Deal reforms made sure our deposits are insured against bank failures. We have an orderly process to deal with those failures and depositors don’t have to line up to fight for their money.

Third, millions of us have 401ks and are rooting for them to come back to life. In fact, we are secretly rooting for the big guys on Wall Street to manipulate the market upwards. We don’t want Obama or Congress to mess with investor sentiment.” We want markets to go up and up to help us make it to retirement.

Fourth, unions have shrunk to the level where they can’t mount a national campaign on these issues. Unlike during the 1930s, there is no worker upsurge or powerful mass movement to challenge Wall Street’s power. Next, we have let the distribution of income and wealth get so out of hand that the entire political process can be bought and sold, in plain view. It’s hard to win significant reforms with all that money sloshing around.

Finally we have a horrific feedback loop where Main Street’s anger is directed as much against the government as it is against Wall Street. In fact, more and more people are turning against the administration because it looks as if it sold out to the banks. That is the ultimate Wall Street victory: bankers rob the Treasury, then the government gets blamed for the heist. You can hear the glasses clinking, come bonus time.

You lose the Wall Street war and you lose a lot more. The outrage-turned-anti-government has spilled into the health care debate and now undermines badly needed government intervention into our wasteful health insurance industry. If we roll over on the Wall Street fight, anti-government politicians will ride to power on populist anger.

Maybe an anemic economic recovery, even a jobless one, will halt serious financial reforms. But that’s not a good reason to quit. At the very least, I’d like to make it very, very hard for Andrew J. Hall to waltz off with our $100 million. No one deserves that much, especially from a failed bank during the biggest crash since 1929. I may be alone on this one-person crusade, but I’m not ready to hoist a white flag. 

And you?

Les Leopold is the co-founder and director of two nonprofit educational organizations: The Labor Institute and the Public Health Institute. He is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity — and What We Can Do About It (2209) and The Man Who Hated Work and Loved Labor: The Life and Times of Tony Mazzocchi (2008), both published by Chelsea Green.
The text is from the poem “QUADRENNIAL” by Golden, reprinted with permission. It was first published in the Poetry Project. Inside front cover photo by Golden.
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