Huck Kennedy
2009-09-14 22:00:52 UTC
No downturn for greed
A year after Lehman's collapse, Wall Street is more corrupt than ever
By Robert Reich, salon.com
Sep. 14, 2009 |
[ http://www.salon.com/opinion/feature/2009/09/14/reich/ ]
As he attempted to do with healthcare reform last week, the president
is trying to breathe new life into financial reform. He's using the
anniversary of the death of Lehman Brothers and the near-death
experience of the rest of the Street, culminating with a $600 billion
taxpayer-financed bailout, to summon the political will for change.
Yet the prospects seem dubious. As with healthcare reform, he has
stood on the sidelines for months and allowed vested interests to
frame the debate. Nor has he come up with a sufficiently bold or
coherent set of reforms likely to change the way the Street does
business, even if enacted.
Let's be clear: The Street today is up to the same tricks it was
playing before its near-death experience. Derivatives, derivatives of
derivatives, fancy-dance trading schemes, high-risk bets. “Our model
really never changed, we’ve said very consistently that our business
model remained the same,” says Goldman Sachs' chief financial officer.
The only difference now is that the Street's biggest banks know for
sure they'll be bailed out by the federal government if their bets
turn sour -- which means even bigger bets and bigger bucks.
Meanwhile, the banks' gigantic pile of non-performing loans is also
growing bigger, as more and more jobless Americans can't pay their
mortgages, credit card bills, and car loans. So forget any new lending
to Main Street. Small businesses still can't get loans. Even credit-
worthy borrowers are having a hard time getting new mortgages.
The mega-bailout of Wall Street accomplished little. The only big
winners have been top bank executives and traders, whose pay packages
are once again in the stratosphere. Banks have been so eager to lure
and keep top deal makers and traders they've even revived the practice
of offering ironclad, multimillion-dollar payments -- guaranteed no
matter how the employee performs. Goldman Sachs is on course to hand
out bonuses that could rival its record pre-meltdown paydays. In the
second quarter this year it posted its fattest quarterly profit in its
140-year history, and earmarked $11.4 billion to compensate its happy
campers. Which translates into about $770,000 per Goldman employee on
average, just about what they earned at the height of the boom. Of
course, top executives and traders will pocket much more.
Every other big bank feels it has to match Goldman's pay packages if
it wants to hold on to its "talent." Citigroup, still on life support
courtesy of $45 billion from American taxpayers, has told the White
House it needs to pay its 25 top executives an average of $10 million
each this year, and award its best trader $100 million.
A few banks like Goldman have officially repaid their TARP money but
look more closely and you'll find that every one of them is still on
the public dole. Goldman won't repay taxpayers the $13 billion it
never would have collected from AIG had we not kept AIG alive. (In one
of the most blatant conflicts of interest in all of American history,
Goldman CEO Lloyd Blankfein attended the closed-door meeting last fall
where then Treasury Secretary Hank Paulson, who was formerly Goldman's
CEO, and Tim Geithner, then at the New York Fed, made the decision to
bail out AIG.) Meanwhile, Goldman is still depending on $28 billion in
outstanding debt issued cheaply with the backing of the Federal
Deposit Insurance Corporation. Which means you and I are still
indirectly funding Goldman's high-risk operations.
So will the president succeed on financial reform? I wish I could be
optimistic. His milquetoast list of proposed reforms is inadequate to
the task, even if adopted. The Street's behavior since its bailout
should be proof enough that halfway measures won't do. The basic
function of commercial banking in our economic system -- linking
savers to borrowers -- should never have been confused with the casino-
like function of investment banking. Securitization, whereby loans are
turned into securities traded around the world, has made lenders
unaccountable for the risks they take on. The Glass-Steagall Act
should be resurrected. Pension and 401K plans, meanwhile, should never
have been allowed to subject their beneficiaries to the risks that
Wall Street gamblers routinely run. Put simply, the Street has been
given too many opportunities to play too many games with other
people's money.
But, like the healthcare industry, Wall Street has platoons of
lobbyists and an almost unlimited war chest to protect its interests
and prevent change. And with the Dow Jones Industrial Average trending
upward again -- and the public's and the media's attention focused
elsewhere, especially on healthcare -- it will be difficult to summon
the same sense of urgency financial reform commanded six months ago.
Yet without substantial reform, the nation and the world will almost
certainly be plunged into the same crisis or worse at some point in
the not-too-distant future. Wall Street's major banks are already en
route to their old, dangerous ways -- now made more dangerous by their
sure knowledge that they are too big to fail.
-- By Robert Reich
A year after Lehman's collapse, Wall Street is more corrupt than ever
By Robert Reich, salon.com
Sep. 14, 2009 |
[ http://www.salon.com/opinion/feature/2009/09/14/reich/ ]
As he attempted to do with healthcare reform last week, the president
is trying to breathe new life into financial reform. He's using the
anniversary of the death of Lehman Brothers and the near-death
experience of the rest of the Street, culminating with a $600 billion
taxpayer-financed bailout, to summon the political will for change.
Yet the prospects seem dubious. As with healthcare reform, he has
stood on the sidelines for months and allowed vested interests to
frame the debate. Nor has he come up with a sufficiently bold or
coherent set of reforms likely to change the way the Street does
business, even if enacted.
Let's be clear: The Street today is up to the same tricks it was
playing before its near-death experience. Derivatives, derivatives of
derivatives, fancy-dance trading schemes, high-risk bets. “Our model
really never changed, we’ve said very consistently that our business
model remained the same,” says Goldman Sachs' chief financial officer.
The only difference now is that the Street's biggest banks know for
sure they'll be bailed out by the federal government if their bets
turn sour -- which means even bigger bets and bigger bucks.
Meanwhile, the banks' gigantic pile of non-performing loans is also
growing bigger, as more and more jobless Americans can't pay their
mortgages, credit card bills, and car loans. So forget any new lending
to Main Street. Small businesses still can't get loans. Even credit-
worthy borrowers are having a hard time getting new mortgages.
The mega-bailout of Wall Street accomplished little. The only big
winners have been top bank executives and traders, whose pay packages
are once again in the stratosphere. Banks have been so eager to lure
and keep top deal makers and traders they've even revived the practice
of offering ironclad, multimillion-dollar payments -- guaranteed no
matter how the employee performs. Goldman Sachs is on course to hand
out bonuses that could rival its record pre-meltdown paydays. In the
second quarter this year it posted its fattest quarterly profit in its
140-year history, and earmarked $11.4 billion to compensate its happy
campers. Which translates into about $770,000 per Goldman employee on
average, just about what they earned at the height of the boom. Of
course, top executives and traders will pocket much more.
Every other big bank feels it has to match Goldman's pay packages if
it wants to hold on to its "talent." Citigroup, still on life support
courtesy of $45 billion from American taxpayers, has told the White
House it needs to pay its 25 top executives an average of $10 million
each this year, and award its best trader $100 million.
A few banks like Goldman have officially repaid their TARP money but
look more closely and you'll find that every one of them is still on
the public dole. Goldman won't repay taxpayers the $13 billion it
never would have collected from AIG had we not kept AIG alive. (In one
of the most blatant conflicts of interest in all of American history,
Goldman CEO Lloyd Blankfein attended the closed-door meeting last fall
where then Treasury Secretary Hank Paulson, who was formerly Goldman's
CEO, and Tim Geithner, then at the New York Fed, made the decision to
bail out AIG.) Meanwhile, Goldman is still depending on $28 billion in
outstanding debt issued cheaply with the backing of the Federal
Deposit Insurance Corporation. Which means you and I are still
indirectly funding Goldman's high-risk operations.
So will the president succeed on financial reform? I wish I could be
optimistic. His milquetoast list of proposed reforms is inadequate to
the task, even if adopted. The Street's behavior since its bailout
should be proof enough that halfway measures won't do. The basic
function of commercial banking in our economic system -- linking
savers to borrowers -- should never have been confused with the casino-
like function of investment banking. Securitization, whereby loans are
turned into securities traded around the world, has made lenders
unaccountable for the risks they take on. The Glass-Steagall Act
should be resurrected. Pension and 401K plans, meanwhile, should never
have been allowed to subject their beneficiaries to the risks that
Wall Street gamblers routinely run. Put simply, the Street has been
given too many opportunities to play too many games with other
people's money.
But, like the healthcare industry, Wall Street has platoons of
lobbyists and an almost unlimited war chest to protect its interests
and prevent change. And with the Dow Jones Industrial Average trending
upward again -- and the public's and the media's attention focused
elsewhere, especially on healthcare -- it will be difficult to summon
the same sense of urgency financial reform commanded six months ago.
Yet without substantial reform, the nation and the world will almost
certainly be plunged into the same crisis or worse at some point in
the not-too-distant future. Wall Street's major banks are already en
route to their old, dangerous ways -- now made more dangerous by their
sure knowledge that they are too big to fail.
-- By Robert Reich