This blog is about skepticism toward America’s financial services sector: Wall Street, big banks, hedge funds, etc., as well as the lobbyists, politicians, and professors who collude and conspire with the industry’s many bad actors. I’m talking about capitalism and power run amok. Greed. I just watched Inside Job, by remarkable filmmaker Charles Ferguson. America has such a complex financial and political landscape, I want to criticize, but it is hard to know where to begin. I will crack my knuckles and give you what I’ve got.
It is worth noting, however, that few institutions are left untouched – the highest levels of government power, a huge portion of business dominated by greed, lobbyists, and deregulation, and a public who was either too asleep or too powerless to affect change. The whole phenomenon was amazing because it was as though we were on the Titanic – and had a crystal ball. We knew we were going to crash, but we just couldn’t turn the ship. The whole world was drastically, horribly affected. It was a cataclysm of American making. I want to chew on this topic and try to show the values, the philosophy, and the politics of it all.
I was floored by the expose. I knew much that was presented in the amazing documentary about the lead-up to the financial collapse of 2008, but Ferguson presented many new, disturbing, and ominous facts. Perhaps I shouldn’t feel bad about missing this movie all these years: “In America, we debate everything except capitalism. If there’s an institution in your society that’s above criticism, you’re giving it a free pass to indulge all of its weaknesses and darker tendencies,” notes prominent critic of capitalism,
The documentary is a horrific story, a depressing nexus of government and industry, and a prescient cautionary tale. I seriously could not believe some of the things his interviewees were saying. He was a true investigative journalist, and we all owe him a great debt. The greed and unscrupulousness he exposed were just amazing. He must have garnered 40-50 interviews with movers and shakers, analysts, professors, government officials, whistle-blowers, fat-cats, true believers, and woeful narcissists. The bottom line: greed was legal, it was highly remunerated, and it was virtually bereft of good values.
The Chicago School of economic thought and the Austrian School of economic thought (roughly characterized as libertarian ideology) saw the malaise and the “stagflation” of the late 1970s as a reason to usher in a new era of free market capitalism. If you ask a libertarian, they will tell you that we don’t have laissez-faire capitalism, we have crony capitalism.
Richard Rahn writes this about the phenomenon: “The opponents of capitalism have succeeded in clouding the minds of many, by failing to distinguish between free-market capitalism and crony capitalism. Crony capitalism exists when politicians and government bureaucrats collude with business people to restrict competition and obtain monopoly advantages. Examples abound with everything from sole source government contracts and special tax treatments to restricting the number of taxicabs through the sale of ‘medallions.’”
In this piece entitled Crony capitalism against the real thing: collusion between government and business corrupts the free market, in what I would consider the marriage of greed and institutionalized power, Rahn continues: “When President Trump and others talk about the “swamp” of Washington, much of what they are referring to is crony capitalism. From the time of organized governments, rulers found it useful to make special deals with merchants. The father of modern economics, Adam Smith, in his great classic, Wealth of Nations published in 1776, had many warnings about the dangers of business people colluding among themselves or with government officials against the interests of the people. This was long before Karl Marx labeled the naturally evolved private economic system as ‘capitalism.’”
Well, that was a useful tangent, but I was previously noting that libertarian philosophy saw, probably rightly, that America had become sclerotic and dysfunctional due to regulations that amounted to price-fixing and other mandates that made it difficult for businesses to compete against big, established players. The airline industry is an example: ticket prices were set by the government. Globalization was just beginning to have an awesome influence. Throw in a heaping teaspoon of anti-Communist sentiment and you can see why libertarians such as Milton Friedman, Arthur Laffer, Martin Feldstein, and Donald Regan sought to make that actor of a president in 1980 their boy. He did, with amazing alacrity. We saw what happened to the debt, to inequality, and to domestic jobs as a result.
How did the first attempt at reducing onerous regs on industry so that “jobs could be created” or whatever go? “The Reagan Administration, supported by economists and financial lobbyists, started a 30-year-period of financial deregulation,” Ferguson indicates. Fast-forward one mere step and you have a stunning example of financial mismanagement, risk-taking, and societal irresponsibility known as the Savings and Loan Scandal (fueled by what – you guessed it: greed).
“In 1982, the Reagan Administration deregulated Savings and Loan companies, allowing them to make risky investments with their depositors’ money. By the end of the decade, hundreds of savings and loan companies had failed.” The price tag for this confluence of industry greed, in which the sheepdogs acted more like lapdogs: $124,000,000,000 in 1983 dollars. Many lost their life savings. It was a horrible example of government reducing oversight and accountability at the behest of the libertarians and their well-paid lobbyists.
Tom Brokaw said it was “maybe the biggest bank heist in our history.” Did anyone have to pay the piper, and stand when the music stopped? Yes indeed: thousands of S&L executives went to jail. The government sent the sheepdogs packing, and in the rash of sheep slaughter that followed, the government had the guts to at least acknowledge the issues and see some justice done. Greed was permitted, but at least, punished when the free market turned out to be not free, but extremely expensive for society.
When I ask myself: What can the Tea Party wing of the political Right and I agree on, the number one thing must be a recognition that America has left the sane, regulated, prosperous, boring, safe, responsible world of 1945-1975 long behind. Relatively speaking. We are now sitting neck-deep in a pile of shit that was slowly, carefully wrought by the financial services industry, their 5,000 lobbyists, and the politicians they hold sway over. They are the NRA and the “moral majority” plus one. It is a highly corrupt system of bribery, chicanery, and greed.
I seriously don’t have the will to summarize the entire documentary, lest I never get to sleep tonight, but I can tell you that it is a fantastic look at greed, rule-bending, cronyism, profligacy, chicanery, injustice, and danger. I welcome you to read about it here. The period from 1988-2008 is a remarkable one. We put libertarian philosophy to the test in this country, and Iceland did exactly the same. Many countries got on the free market bandwagon. Ironically, however, even though free-marketeers claim that Socialism requires big government to manage the economic system of a country, libertarian philosophy writ large also became corrupted by big money, industry strength, compliant politicians, and peoples’ darker natures.
The Tea Party and I agree that greed and chicanery are going on. The people have been displaced by the powerful people. It is dangerous when government is allowed to become a lapdog (instead of the watchdog). It becomes a gamed system when those who are morally-bereft and ill-educated, who think they are smart and invulnerable, fresh out of business schools, play fast and loose in pursuit of profit – and then get involved in government, too. Donald Trump is only the most recent (and probably, the most stunning example). This institutionalized greed, culminating in global financial collapse, skyrocketing debt, and a revolving door between the halls of power and the big banks on Wall Street, costs flesh-and-blood people their real assets, security, and no doubt, lives. The resultant wealth and income inequality (and all that those entail) are odious and not befitting our republic. It will not get better under a Donald Trump Administration and a Republican-controlled Congress, I can say with certainty.
It is my hope that we listen to the Bernie Sanders and Elizabeth Warrens of the world – the Elliot Spitzers, the Carl Levins, the Nouriel Roubinis, the Alan Greenspans, the Henry Waxmans, the David McCormicks, the Dominique Strauss-Kahns, the Robert Gnaizdas, the Joseph Stiglitzes, the Andrew Lo’s, the Allen Sloans, the Frank Partnoys, the Christine Lagardes – and repudiate the Ben Bernankes, the Jerome Fonses, the Timothy Geithners, the Hank Paulsons, the Lawrence Summerses, the Scott Talbotts, the Martin Feldsteins, the Raymond McDaniels, the Glenn Hubbards, the Richard Porteses, the Stan O’Neills, the Louis Blankfeins, the Jamie Dimons, the Frederic Mishkins, the John Campbells, the George W. Bushes, and yes, the Barack Obamas in government, Wall Street, ratings agencies, and economics professorships of major private universities.
If we can do so, we will have a genuine downward shift in power that is unprecedented in recent memory. Some of these men (of course, they are mostly men) are so odious that I wouldn’t let them dogsit my dog, let alone appoint them to their powerful positions. They are the Machiavellis, the Himmlers, and the Richelieu’s of modern society. Their greed, wanton immorality, and lack of good character make them more suitable for castigation and banishment than multi-million dollar bonuses and $200,000 consulting fees. It’s truly an outrage. It’s the 1% in garish display.
Unfortunately, besides Bernie Madoff and a handful of other executives, all the major players have evaded responsibility. This is not the case in Iceland, interestingly. Iceland’s foray into the world of libertarianism-meets-politics turned out terribly, and they sought justice as a society. Many went to jail. In America, not so much.
The massive economy-wide profligacy and morally wanton behavior that led to bailouts and a propping up of a corrupt and sick system was never really remedied well. Bonuses were given out after the bailouts in many cases. As soon as the lights went out, the lobbyists came out, like roaches, to influence politicians and peddle influence. Truly, values have been pretty transparent to all who care to look at all these actors with a critical eye.
A campaigning Barack Obama said: “The era of greed and irresponsibility on Wall Street and in Washington has led us to a financial crisis as serious as any that we have faced since the Great Depression.” Charles Ferguson noted that “When the financial crisis struck just before the 2008 election, Barack Obama pointed to Wall Street greed and regulatory failures as examples of the need for change in America.” Indeed, Obama also said: “A lack of oversight in Washington and on Wall Street is exactly what got us into this mess,” and: “We want a systemic-risk regulator; increased capital requirements. We need a consumer financial protection agency; we need to change Wall Street’s culture.”
A President Obama, however, appointed Tyson, Geithner, Summers, and Bernanke to advise him after campaigning on cleaning up the whole mess of a system – while claiming to support the Occupy Wall Street Movement. He chose not to seek some kind of American truth and reconciliation commission (taking a cue from South Africa) or true reckoning for all the damage. Here is his speech in 2008. It sounds as though he is going to kick ass and take names, but that was not the case. Congress did haul some of the worst actors in front of committees, but it obviously got nowhere significant. Meanwhile, pensions have been lost, banks are too big to fail, and CEOs make 250 times what the workers make on average. It’s still very much “Let them eat cake!”
Ferguson points out: “As of mid-2010, not a single senior financial executive had been criminally prosecuted, or even arrested; no special prosecutor had been appointed; not a single financial firm had been prosecuted criminally for securities fraud or accounting fraud. The Obama administration has made no attempt to recover any of the compensation given to financial executives during the bubble.”
Andrew Sheng adds, sensibly: “Why should a financial engineer be paid four times to a hundred times more than a real engineer? A real engineer builds bridges; a financial engineer builds dreams. And, you know, when those dreams turn out to be nightmares, other people pay for it.”
The relationship between savings and loan institutions and Wall Street should be minimal. No institution should be “too big to fail.” Regulations should curb sociopathic behavior on the part of financial wizards. Economists should not be colluding, and neither should ratings agencies. The revolving door should be sealed; one should be a government servant or a financial services sector employee, not both. If financial services is to continue to exist, it must not only justify its authentic need, and be pared down in size and influence. “We must be active and positive about what can be done, or nothing is going to change. If we believe that nothing will change, it won’t. If we tell ourselves we don’t have power, then we don’t have power,” noted economist-with-a-conscience,
Thankfully, these greedy movers and shakers are currently too cowed to get involved in derivatives, credit default swaps, shorting, and all manner of greed-based gambling behavior. If there is any hope, it is that those who are enlightened on the left and the right can see eye-to-eye on this matter, to some degree. It is a dark and tangled web of power, greed, and subterfuge, and it’s enough to keep one up at night – if one is not a member of the privileged financial class who can weather another such storm (actually, benefit from it, as the rich did since 2009).
Here is a resource that is anti-crony-capitalism and anti-greed: http://www.againstcronycapitalism.org
Here is Charles Ferguson being interviewed. https://www.youtube.com/watch?v=vS0hj4kiqsA
Quotations on topics discussed in this blog can be found in The Wisdom Archive.
To end, one of the best-suited individuals to refute the greed and opportunism and institutionalized corruption endemic to the financial/political system is the Nobel Prize-winning professor and author Joseph E. Stiglitz. Here are some quotations by him about greed, inequality, and corruption you might find reassuring – perhaps not because they are optimistic, which they rather aren’t, but because they are at least, truthful:
“There are two visions of America a half century from now. One is of a society more divided between the haves and the have-nots, a country in which the rich live in gated communities, send their children to expensive schools, and have access to first-rate medical care. Meanwhile, the rest live in a world marked by insecurity, at best mediocre education, and in effect rationed health care―they hope and pray they don’t get seriously sick. At the bottom are millions of young people alienated and without hope.”
“If economic power in a country becomes too unevenly distributed, political consequences will follow. While we typically think of the rule of law as being designed to protect the weak against the strong, and ordinary citizens against the privileged, those with wealth will use their political power to shape the rule of law to provide a framework within which they can exploit others.”
“Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity in which fair play, equality of opportunity, and a sense of community are so important.”
“There are two ways to become wealthy: to create wealth or to take wealth away from others.”
“Opponents of regulation always complain that it’s bad for business. Regulations that prevent pollution, of course, are bad for businesses that would have otherwise polluted. Regulations that prevent child labor are bad for businesses that would have exploited children. Regulations that prevent American companies from engaging in bribery or abuses of human rights may be bad for businesses that engage in bribery or human rights abuses. As we’ve seen, private rewards and social returns often differ; and when they do, markets don’t work well. The task of government is to align the two.”
“The success of an economy can be assessed only by looking at what is happening to the living standards—broadly defined—of most citizens over a sustained period of time.”
“Especially in the United States, it seems that the political system is more akin to one dollar one vote than to one person one vote.”
“Individuals can often be better motivated by intrinsic rewards—by the satisfaction of doing a job well—than by extrinsic rewards (money).”
“The six heirs to the Wal-Mart empire command wealth of $69.7 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society.”
“The failures in politics and economics are related, and they reinforce each other. A political system that amplifies the voice of the wealthy provides ample opportunity for laws and regulations—and the administration of them—to be designed in ways that not only fail to protect the ordinary citizens against the wealthy but also further enrich the wealthy at the expense of the rest of society.”
“Throughout its history, America has struggled with inequality. But with the tax policies and regulations that existed in the post–World War II war period—and the heavy investments in education, like the GI Bill—matters were improving. The tax cuts at the top and deregulation that began in the Reagan years reversed that trend.”
“The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live.”
“It may seem to readers that I talk too much about the bankers and corporate CEOs, too much about the financial crisis of 2008 and its aftermath, especially (as I’ll explain) since the problems of inequality in America are of longer standing. It is not just that they have become the whipping boys of popular opinion. They are emblematic of what has gone wrong. Much of the inequality at the top is associated with finance and corporate CEOs. But it’s more than that: these leaders have helped shape our views about what is good economic policy, and unless and until we understand what is wrong with those views—and how, to too large an extent, they serve their interests at the expense of the rest—we won’t be able to reformulate policies to ensure a more equitable, more efficient, more dynamic economy.”
“During the 2008 crisis, corporate welfare reached new heights. In the great bailout of the Great Recession, one corporation alone, AIG, got more than $180 billion—more than was spent on welfare to the poor from 1990 to 2006.”
“It shouldn’t, of course, come as a big surprise that some of the wealthiest Americans are promoting an economic fantasy in which their further enrichment benefits everyone. It is, perhaps, a surprise that they’ve done such a good job of selling these fantasies to so many Americans.”
“The same is true for the market economy: the power of markets is enormous, but they have no inherent moral character. We have to decide how to manage them… For all these reasons, it is plain that markets must be tamed and tempered to make sure they work to the benefit of most citizens. And that has to be done repeatedly, to ensure that they continue to do so.”
“Part of the reason for this is that much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.”
“What’s worrying is that those in the 1 percent, in attempting to claim for themselves an unjust proportion of the benefits of this system, may be willing to destroy the system itself to hold on to what they have.”
“I believe it is still not too late for this country to change course, and to recover the fundamental principles of fairness and opportunity on which it was founded. Time, however, may be running out. Four years ago there was a moment where most Americans had the audacity to hope. Trends more than a quarter of the century in the making might have been reversed. Instead, they have worsened. Today that hope is flickering.”
“Since so much of the increase in inequality is associated with the excesses of the financial sector, it is a natural place to begin a reform program. Dodd-Frank is a start, but only a start. Here are six further reforms that are urgent: (a) Curb excessive risk-taking and the too-big-to-fail and too-interconnected-to-fail financial institutions; they’re a lethal combination that has led to the repeated bailouts that have marked the last thirty years. Restrictions on leverage and liquidity are key, for the banks somehow believe that they can create resources out of thin air by the magic of leverage. It can’t be done. What they create is risk and volatility.2 (b) Make banks more transparent, especially in their treatment of over-the-counter derivatives, which should be much more tightly restricted and should not be underwritten by government-insured financial institutions. Taxpayers should not be backing up these risky products, no matter whether we think of them as insurance, gambling instruments, or, as Warren Buffett put it, financial weapons of mass destruction.3 (c) Make the banks and credit card companies more competitive and ensure that they act competitively. We have the technology to create an efficient electronics payment mechanism for the twenty-first century, but we have a banking system that is determined to maintain a credit and debit card system that not only exploits consumers but imposes large fees on merchants for every transaction. (d) Make it more difficult for banks to engage in predatory lending and abusive credit card practices, including by putting stricter limits on usury (excessively high-interest rates). (e) Curb the bonuses that encourage excessive risk-taking and shortsighted behavior. (f) Close down the offshore banking centers (and their onshore counterparts) that have been so successful both at circumventing regulations and at promoting tax evasion and avoidance. There is no good reason that so much finance goes on in the Cayman Islands; there is nothing about it or its climate that makes it so conducive to banking. It exists for one reason only: circumvention.”
“The 1 percent has captured and distorted the budget debate—using an understandable concern about overspending to provide cover for a program aimed at downsizing the government, an action that would weaken the economy today, lower growth in the future, and, most importantly for the focus of this book, increase inequality. It has even used the occasion of the budget battle to argue for reduced progressivity in our tax system and a cutback in the country’s already limited programs of social protection.”
The above were Joseph Stiglitz quotes in which he exposed the greed, selfishness, and crony-capitalism beneath both the 2008 financial disaster and wealth and income inequality. More quotations on topics such as these can be found in The Wisdom Archive.