The Bill Moyers Journal on PBS did a whole episode on the economic crisis last night. Bill Moyers paints this picture near the end of his show (reprinted on Thuthout (Moguls Steal Home While Companies Strike Out):
From our offices in Manhattan, we look out on the tall, gleaming skyscrapers that are cathedrals of wealth and power – the Olympus ruled by the gods of finance, the temples of the mighty, the holy of holies, whose priests guard the sacred texts of salvation – the ones containing the secrets of subprime lending and derivatives as mysterious and elusive as the Grail itself.
This last couple of weeks, ordinary mortals below could almost hear the ripcords of golden parachutes being pulled as the divinities on high prepared for soft, safe landings – all this while tossing their workers like sacrificial lambs into the purgatory of unemployment.
While I know I shouldn’t be surprised, it is astounding how the very CEOs and board chairs who brought their financial corporations to disaster are so richly rewarded.
During the last five years of his tenure as CEO of now-bankrupt Lehman Brothers, Richard Fuld’s total take was $354 million. John Thain, the current chairman of Merrill Lynch, taken over this week by Bank of America, has been on the job for just nine months. He pocketed a $15 million signing bonus. His predecessor, Stan O’Neal, retired with a package valued at $161 million, after the company reported an $8 billion loss in a single quarter. And remember Bear Stearns’s Chairman James Cayne? After the company collapsed earlier this year and was up for sale at bargain basement prices, he sold his stake for more than $60 million.
Daniel Mudd and Richard Syron, the former heads of Fannie Mae and Freddie Mac – aka the gods who failed – are fighting to keep severance packages of close to $24 million combined – on top of the millions in salary each earned last year while slaughtering the golden calf. As it is written in the Gospel According to Me, when the going gets tough, the tough get going.
Guess we won’t find this bunch on street corners selling apples in the coming Depression.
According to the New York Times, the Bush administration wants Congress to “grant it far-reaching emergency powers to buy hundreds of billions of dollars of distressed mortgages despite unknowns on how the plan would work.” Bush’s treasury secretary says “that the upfront cost of the rescue proposal could easily be $500 billion,” while “outside experts predicted it could reach $1 trillion.” Locally, WaMu is holding their breath that this will bail them out. Why do I not feel very reassured about all this?
Moyers interviewed first Grethchen Morgenson and Floyd Norris, business and financial columnists from the New York Times. None of what’s going on with Wall Street makes a lot of sense, especially, as much as I can make out, common sense.
Morgenson describes part of the situation (from the transcript):
There was a lack of accountability where a banker didn’t care whether the loan was repaid. And the Wall Street firm that sold the securitization trust didn’t care if it ever got paid back, because they were happy with their commission. The broker making the loan didn’t care, because he got, all the way up the ladder to the CEOs of these companies, who are allowed to walk away from a financial cataclysm with huge payments.
Then there was the speculation by companies like Lehman:
FLOYD NORRIS: I believe Lehman believed it. Lehman, consistently during this, has believed that the bottom was upon us.
So they were buying as this started down last year, taking advantage of what they believed to be a temporary ridiculous decline. And they never quite realized that they were wrong. The prices on many of these assets now probably are ridiculously low. But buying them on heavy leverage is risking if you’re a little wrong, you can die. And that’s what happened to Lehman.
Gambling on borrowed money is probably never a good idea. Ironically, though, Lehman’s biggest problem, given the way the current situation is set up, is that they weren’t big enough.
GRETCHEN MORGENSON: Well, the problem is that now, everything in our financial markets is super-interconnected. And so, one failure has the potential to push over other dominos.
BILL MOYERS: But why AIG and not Lehman?
GRETCHEN MORGENSON: Because AIG was so enormous, it’s almost a paradox. It’s almost perverse. Lehman was not big enough in the derivatives market.
That has counterparties, where if you fail, then they might then push over another domino. Lehman was not large enough in those areas. AIG was enormous. AIG had those derivatives from European banks, which may have failed. And so, you see, it’s a worldwide problem.
FLOYD NORRIS: To let AIG go under now would have created an awful lot of problems for an awful lot of other institutions. And the government doesn’t have any way to know exactly who and how much. And they were scared. And they probably were right to be scared.
Moyers then interviewed Kevin Phillips, author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. Phillips is pretty harsh on the roles of Alan Greenspan and both the Republicans and Democrats in their bi-partisan creation of the conditions that led to this mess.
Again, from the transcript:
BILL MOYERS: You’re very hard in here on Alan Greenspan’s tenure at the Fed.
KEVIN PHILLIPS: Well, I know Alan from the Republican campaign back in 1968. He was always a very scholarly, data-driven guy. But I think, for some reason or other, his chairmanship will be remembered as turn on the spigots.
BILL MOYERS: Turn on the spigots?
KEVIN PHILLIPS: Turn on the spigots. He started in 1987 with a crash that was a wicked one in one day in 1987. And he turned on the spigots. And they had the huge growth of the tech bubble in the 1990s. And then right after the tech and the stock market bubble blew up in 2000, you had 9/11. So there was a need for more stimulus. And they ginned up the stimulus again hugely.
And the upshot is that during Greenspan’s tenure from 1987 to 2006, what they call total credit market debt in the United States quadrupled, quadrupled from about $11 trillion up to $44, $45, $46 trillion. And finance got the great bulk of it. And Greenspan would do nothing to disturb finance.
He wouldn’t puncture a bubble. He wouldn’t crack down on the exotic mortgages. He really wouldn’t do much of anything except give obscure speeches in which, you know, he mumbled the different directions so nobody would know what he meant. But basically he gave finance what they wanted.
Then on the bi-partisan mess, especially Robert Rubin from the Clinton administration (and currently one of Obama’s economic advisors; and with McCain’s campaign being run by Phil Gramm, who also pushed through all this, it’s still a bi-partisan mess):
BILL MOYERS: And you write also that during this period the Clinton Administration aided and abetted this kind of speculation. Bill Clinton’s economic advisor, Bob Rubin, who later became Secretary of Treasury — wanting to fuel this, right?
KEVIN PHILLIPS: It’s been a bipartisan phenomenon. You can go back to the 1980s and say Reagan and George Bush, Sr., got a bubble started. Clinton got in and got an even bigger bubble going. And then George W. Bush with the biggest bubble of all. But it’s not that the Clintonites didn’t play. They did. Bob Rubin as Secretary of the Treasury — I mean, if he was a Hindu and he was being reincarnated, he’d come back as a pail because this guy bailed out everything you can imagine. They had the Mexican loan bailout. They had the long-term capital management bailout, the Russian Southeast Asian currency bailouts.
Rubin was also central — Democrats more than Republicans in a lot of ways with the Clinton Administration — in getting rid of Glass Stiegel, was the old restriction that the banks couldn’t tie up with brokerage firms and insurance companies. Well, basically after they made their reform led by Clinton and by Bob Rubin, you had like four-color linguini here in a bowl. It’s all mixed up together.
BILL MOYERS: So you have it — for this disaster has bipartisan parentage.
KEVIN PHILLIPS: Absolutely.
Do we have hope? I will say, from his statement on the economic crisis and bailouts (from a Truthout article), that Obama seems to not only get the crisis, but expresses his outrage at what’s going on. He’s calling for help for Main Street, not just Wall Street (and, indeed, he has been speaking about these issues all along). He’s calling for responsibility on Wall Street (and calling out the golden parachutes). Obama is also calling for “tough new oversight and regulations of our financial institutions.”
Then he really nails how we got into this situation:
One last point. We did not arrive at this crisis by some accident of history. What led us to this point was years and years of a philosophy in Washington and on Wall Street that viewed even common-sense regulation and oversight as unwise and unnecessary; that shredded consumer protections and loosened the rules of the road. CEOs and executives got reckless. Lobbyists got what they wanted. Politicians in both parties looked the other way until it was too late. And it is the American people who have paid the price. The events of this week have rendered a final verdict on that failed philosophy, and it will end if I am President of the United States. We must build upon the ideas I have laid out over the last several years about how to modernize our financial regulation in this country, and establish commonsense rules of the road for our financial system to help restore confidence in our financial system.
Which is all really great, but. . . Obama’s financial advisors are still Robert Rubin and Lawrence Summers, who helped bring us this mess during the Clinton administration (with the bi-partisan help of people like Phil Gramm).
Kevin Phillips doesn’t hold out much hope for real change from Obama (though he has considerably less hope for any change from McCain):
KEVIN PHILLIPS: He doesn’t seem to have anything very specific to say. That’s part of the problem. A second problem is, for me at least, you know, just as I can’t believe that John McCain ever wanted to get his economic advice from Phil Gramm. I mean, Phil Gramm, a former Texas Senator, appalling. He and his wife were known as Mr. and Mrs. Enron because they were so flagrant, that’s McCain.
But then you’ve got Obama with Bob Rubin and he doesn’t have any problem with the hedge fund types. I mean, one of the Chicago people was a major financer of his. He gets a guy to pick his vice-president. Turns out to be somebody who was part of the Fannie and Freddie mess.
So I don’t exactly see Obama as this fellow riding in on a horse who represents all kinds of reformism. It’s an important thing probably to have to change from the Republicans but I don’t see that he is free of the ties to finance and Democratic Party financial types.
Phillips does mention Obama in the past telling him he read one of Phillips’ books, and said he would be impressed if Obama came in January and leveled with the American people (but doesn’t hold out much hope for Congress really wanting to deal with it other than a New Deal quick fix).
Here’s a thought for Obama. Why not have Kevin Phillips as one of your campaign economic advisors and/or Treasury secretary? Or Gretchen Morgenson or Floyd Norris?
Or is there really hope for that kind of change, when the reality is the Wall Street money helps fund both parties?
Don’t get me wrong. I still think Barack Obama is our best hope, and will be the best President I’ve had a chance to vote for in my lifetime. It’s just that the realities of who really funds the campaigns and has any politician in their back pocket, no matter how many of us send in $25 donations when we can afford it, makes real change really doubtful.