Just recently (October 5, 2010) on NPR’s All Things Considered, the host, Robert Siegel, permitted Herb Allison to claim that for about $30 billion the Administration had saved the country from the worst disaster since the Great Depression.
Herb Allison is currently Assistant Secretary of the Treasury for Financial Stability which places him in charge of the Troubled Asset Relief Program (TARP). A Stanford MBA, his career began in investment banking at Merrill Lynch where he rose to become President and COO. TARP allowed $700 billion in direct loans to the bankrupt big banks, and his assertion referred to the projected net cost. This flagrant half-truth ignored the $2 trillion expended by the Fed in purchasing the banks’ toxic assets. Ironically, Fed Chairman, Ben Bernanke, had just committed to further purchases, a fact ignored by both interviewer and interviewee. Here is the wake-up fact: the Inspector General’s office has warned the whole package could cost us over $20 trillion in a worst-case scenario.
In 2005 William K. Black published a book, The Best Way to Rob a Bank Is to Own One, subtitled How Corporate Executives and Politicians Looted the S&L Industry. The title makes clear what happened. It was quite simply a direct and rapid consequence of deregulation that let loose lending risks heretofore under careful check. In our recent troubles, it has been the banks aided by the government first blurring, then erasing the line between investment and commercial banking.
The propaganda that all government was bad and deregulation good really took off with the Reagan revolution here and Thatcherism in Britain. Both countries have suffered similar consequences. David Cameron, much praised by The Economist for his radical ideas, is busy gutting the British people’s safety net. Over here little remains of whatever safety net we had. Bill Clinton took care of welfare. Then they worked on Social Security by developing the fictitious “core rate of inflation” as the annual inflation adjustment.
No, for us the effects will be subtle but just as devastating as the dollar inflates progressively and consistently due to the massive deficits. It has already reached a 15-year low against the Yen, and gold keeps hitting new records. As Robert Scheer’s latest book, The Great American Stickup, amply demonstrates, the villains who brought this upon us have been leading the response, and this has been their solution: Pay the big banks 100 cents on the dollar to cover their gambling losses and let the Fed print the money. The insidious eventual cost to the taxpayers through inflation is slow pain while the culprits/policy-makers tout the advantages of a weak dollar for an export-led revival of the shattered economy.
Forget the fact that none of this would have happened if we had listened to Brooksley Born, the distinguished, straight-talking, Stanford lawyer who headed the Commodity Futures Trading Commission, and who wanted to regulate the toxic derivatives that ultimately unhinged the economy. She was shouted down by Rubin, Summers, Greenspan, Geithner et al who proceeded to abolish Glass-Steagall, which had long formed a separation wall between commercial and investment banks – a wall that had saved bankers from their own follies and served this country well for seven decades. All of this gave Sanford Weill the free hand he craved to expand Citigroup.
Thereafter, Treasury Secretary Rubin went on to a $15 million-a-year job at Citigroup and was also rewarded with $120 million in bonuses; Summers plucked a rich consulting harvest of $10 million, and Geithner got to head the New York Federal Reserve. But the richest spoils went to the granddaddy of them all: Sanford Weill sucked about a billion out of Citigroup before the taxpayer was left holding the bag.
Forget also the fact that Corporation-favored NAFTA passed by Bill Clinton exported jobs out of the economy denuding our skill base. As a result, highly-prized tool-and-die makers, skilled machinists and their like were obliged to work in low-paid service jobs. As we lost these skills and failed to compensate through, say, a concerted program with industry to train — as, for example, in Germany — a new generation of skilled workers prepared to meet the latest challenges of computer-controlled manufacturing, we made it impossible to generate well-paid jobs in the globally competitive manufacturing sector.
The consequences are easy to see: As unions lose their clout and middle class jobs evaporate into the globalism euphoria of the captains of industry, the disparity between rich and poor keeps getting worse. This increasingly bifurcated society of rich and poor is revealed by the Gini Index, which measures inequality. Our score is easily the worst in the developed world. At 40.8, we are handily beaten by Japan and the Scandinavian countries (around 25). We are also far behind Hungary (26.9), the Czech Republic (25.4) among many others — but here is the almost unbelievable surprise, Pakistan (30.6) and India (36.8) are also ahead of us. The poverty statistics issued recently merely confirm the pain. We now have the most Americans in poverty (43.6 million or 1 in 7) in the history of these reports. In fact, the situation is actually far worse than the numbers show because the poverty line has not been adjusted for inflation, and it is now only 27% of income as opposed to 48% originally. Had we maintained the same percentage instead of using absolute figures, the number in poverty would be much, much higher.
A direct impact has been the steady deterioration of schools in poor areas. Our system of local property tax funding leaves these students in cash-strapped districts at a severe disadvantage no matter how many ways we parse ‘no child left behind’ and manage results. For the young adult leaving a poor school with few skills and entering a world with even fewer jobs, there are few options. At 748 (per 100,000 population), we have the highest incarceration rate in the whole developed world. We are also way ahead of China (120) and India (32). The paradox of an increasing prison population when crime rates are dropping nationally is explained by the soaring incarceration rate in disadvantaged areas.
So who is doing well? If you ask a politician, he claims great sacrifice for public service. Here is one example: Rahm Emanuel, the current White House Chief of Staff left Clinton’s White House near the end of their term to work for Wasserstein Parella. He has a B.A. in Liberal Arts and a M.A. in Speech and Communication — no law or business education or experience to contribute. Yet in two and a half years, he was included in eight deals that ‘earned’ him $16.2 million. Of course, Mr. Clinton, his boss, has made a $100 million, half of it in speeches no doubt “feeling your pain” all the way to the bank. Scandal envelops senior powerful House and Senate leaders like the Chairman (Charlie Rangel) of the House Ways and Means Committee, or Senator Chris Dodd, Chair of the Senate Banking Committee.
In a world favoring lobbyists and campaign contributors, it is hardly a surprise if hundreds of billions taken from our taxes and trillions in obligations have been paid to cover the losses of those whose greed caused the economic crisis — the victims paying off the culprits as the profits racked up stay private while losses are socialized. Despite promises of ‘change you can believe in’, those responsible for dismantling the controls that had served us so well since the depression are back in the saddle. No wonder nothing has been done to prevent a recurrence … just a toothless reform bill that made Wall Street so happy banking stocks soared when it passed. A few million in campaign finance and and they have trawled in trillions — surely a much surer investment than mortgage-backed securities.
Far from the banksters’ threat of disaster if their big banks had been allowed to fail, the Fed had all the power to keep the system running and the FDIC the skills to administer the banks — it may come as a surprise to some but they deal with bankrupt banks every week. Had these big players lost claim to the trillions of dollars of the nations’ wealth, who would have gained? One can think of it as a game of Monopoly: when a player goes bankrupt, who gets his assets? The other players in the country’s economic game are us; we would have been richer and the economy moving forward faster instead of being hamstrung by debt.
There are no easy solutions when for a small lobbying outlay and some strategic campaign donations, the looters are running the country. But a first step in getting our country back is real campaign finance reform — public financing and a shortened campaign are one answer — and a law that forces elected representatives to recuse themselves on issues involving their contributors.