Subject: [SocialistWorker.org] Bankzilla vs the rest of us
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Analysis: Eric Ruder
======== BANKZILLA VS THE REST OF US =========================================
While working people continue to suffer declining living standards, Bankzilla
is feasting on massive profits, explains Eric Ruder.
July 31, 2012
THE YEAR is 2009. Home values were in free fall, and tent cities were
springing up in cities like Seattle [1] and Reno [2] as a wave of
foreclosures began to wash over U.S. homeowners. The unemployment rate was
shooting up, and anxiety stalked the lives of tens of millions of people who
wondered if their job might be next on the chopping block.
Stock trader Steven Schonfeld, on the other hand, wasn't worried at all.
He told a /Wall Street Journal/ reporter that he had "earned" $200 million
the year before and his net worth was around $1 billion. He had just moved
into a $90 million mansion near Long Island Sound, with its own nine-hole
golf course. No one could use the golf course if he wasn't home. "It's not a
private golf course," Schonfeld explained [3]. "It's a personal golf course."
Schonfeld was making a few upgrades to the estate--like erecting a poolside
cabana designed to look like the Cove Atlantis resort in the Bahamas. "I
don't think it's putting anyone's face in it," he said. "I live in this
house."
Welcome to the Great Recession--as in /great/ wealth for the already
super-rich, and the worst /recession/ since the crisis of the 1930s for the
rest of us.
A year earlier--while Steven Schonfeld was making $200 million--the entire
world economy teetered on the brink of a financial meltdown brought on by the
crisis of American banks. The U.S. and other power governments hastily
assembled bailouts that they said would save the world economy.
The $700 billion Troubled Asset Relief Program (TARP) passed Congress with
the support of then Sen. Barack Obama and the Democrats and was signed by
then-President George W. Bush.
It's likely that only a few minutes passed before the titans of Wall Street
began popping corks.
Mega-bank Morgan Stanley received $10 billion in TARP money. Its profits were
down by 41 percent by October 2008--but it still managed to set aside $6.44
billion to pay out in bonuses for executives. Goldman Sachs also got $10
billion from TARP and paid out $6.85 billion in bonuses for 2008.
Sure, those numbers were down compared to the record-setting bonuses paid out
in 2007, but at more than $200,000 per employee--and certainly far more for
the top executives--that's pretty spectacular compensation for wrecking the
global economy and the lives of tens of millions of people.
TARP funds were used to purchase toxic assets like subprime mortgage bonds,
making the American taxpayer the proud owner of billions of worthless
financial instruments that the risk-taking bankers had invested in. Still,
the bailout was supposed to spur banks to begin lending again and get the
gears of capitalism moving again.
- - - - - - - - - - - - - - - -
TO THIS day, Bankzilla continues to terrorize whole communities of homeowners
while feasting on massive profits.
In May 2012, the Federal Deposit Insurance Corporation reported that U.S.
bank profits were the highest in nearly five years [4]--a total of $35.3
billion in the first three months of the year, which represented a $6.6
billion increase from the same quarter a year earlier and nearly double the
figure from two years before.
And the "too big to fail" banks that got us into this mess in the first place
just keep growing [5]. In 2002, the 10 largest U.S. banks accounted for 55
percent of U.S. banking assets. Today, the top 10 banks control 77 percent of
banking assets. The "big six" U.S. banks--Goldman Sachs, Morgan Stanley,
JPMorgan Chase, Citigroup, Bank of America and Wells Fargo--control assets
equivalent to about 60 percent of the entire annual economic output of the
U.S.
But did the bailout at least get the economy moving again? Are the banks
loaning out money again?
Nope. In the first three months of the year, JPMorgan Chase, Wells Fargo,
Bank of America and Citigroup cut their lending by a collective $24 billion
[6]. That almost completely reverses the $34 billion increase in lending at
the four banks in all of last year.
The slowdown was concentrated in the "consumer-lending sector"--that is, the
rest of us. Credit card loans fell nearly 6 percent and home equity credit
lines by more than 2 percent. While mortgage lending was up slightly, most of
the increase came from refinancing by homeowners seeking lower interest
rates, not new loans.
That's just one more sign of what most ordinary people recognize--that while
those at the top might still be making big profits, the economy is still
stagnant or worse for the rest of us.
A study by Northeastern University researchers [7] found that during the
first two years of the recovery following the official end of the recession
in June 2009, "corporate profits captured 88 percent of the growth in real
national income while aggregate wages and salaries accounted for only
slightly more than 1 percent" of the increase.
- - - - - - - - - - - - - - - -
IT DIDN'T have to be this way. Consider the fact that billionaire investor
Warren Buffett, one of the richest men in the world, also invested $5 billion
in Goldman Sachs--shortly before the U.S. Treasury gave Goldman $10 billion
in bailout funds.
In return for his investment, Buffett got a portfolio of preferred stock as
well as warrants to purchase common stock in the future. The preferred shares
pay a 10 percent dividend, and the warrants to purchase stock in the future
would make him a windfall when Goldman's stock price rebounded.
About three weeks later, Treasury Secretary Henry Paulson forked over $10
billion of taxpayer cash to Goldman Sachs. But the deal that Paulson
negotiated got only a 5 percent dividend and a fraction of the warrants--plus
those toxic assets that the federal government was now responsible for.
Of course, it could be that Paulson just wasn't as shrewd an investor as
Buffett. But a more likely explanation is the fact that Paulson himself made
$37 million in 2005 as CEO of Goldman Sachs before becoming treasury
secretary. Therefore, Paulson would have /wanted/ a bad deal for taxpayers,
which translated into a great deal for his friends at Goldman.
In fact, many mainstream economists thought the whole concept of
TARP--handing mountains of cash over to banks in exchange for taking
responsibility for toxic assets--was foolhardy. Many economists argued for a
stock injection plan--the same kind of deal that Buffett got--instead of
making the toxic assets the property of the Treasury Department.
The bailout bill passed by Congress actually gave Paulson the option of using
the stock-injection approach. Not surprisingly, Paulson didn't exercise his
"discretion" in this regard--and the main reason, according to economics
correspondent Adam Davidson of National Public Radio [8], was opposition to
the plan among powerful constituencies with a stake in the outcome.
>One group is conservative Republicans. "They just don't fundamentally, in
>their guts, don't like the idea of the U.S. government owning shares of
>private companies," [Davidson] says. "It just smells like socialism to them
>and they can't support it."
>
>Perhaps more importantly, banks really hate the idea. When the government
>took over insurance giant AIG, it essentially bought a huge share of the
>bank's shares and zeroed them out. All the shareholders lost billions of
>dollars and the chief executive of AIG was fired to boot.
>
Of course, the fate of AIG--whose gambling on esoteric investments pushed
them into bankruptcy--is an example of how the free market is supposed to
work, according to its defenders. They explain that their expertise and
willingness to take big risks is what justifies their obscene compensation,
and of course they insist that the essence of a free market is that bad
investments should not be insulated from bad outcomes by non-market forces,
including government bailouts.
But as the Wall Street bailout demonstrated, all this flies out the window
when it's the bankers' necks on the line. Suddenly, the only "reasonable"
approach is to push the losses off onto taxpayers--because the banks are just
too big to fail.
This outcome wasn't left to chance, either. According to Richard Eskow [9], a
senior fellow at the Campaign for America's Future:
>The banks have paid Washington lobbyists $50-60 million per year for the
>last few years--and they've gotten their money's worth. The White House has
>yet to indict a single banker for the events leading up to the financial
>crisis, although billions have been paid out in settlement fees for criminal
>activity. When you look at it in context, $150-200 million over three years
>is one of the best investments Wall Street has ever made.
>
- - - - - - - - - - - - - - - -
THE SAME corporate criminality that plunged the banking sector into crisis
five years ago continues unabated. The Libor scandal [10] and the attempt by
JPMorgan Chase to hide at least $2 billion in losses from investors are only
the latest examples.
The story behind the scandals is that federal regulators and the political
establishment continue to look the other way as the financial industry and
its executives return to profitability--and turn institutional positions into
private fortunes.
But apart from the criminality and cronyism, the latest economic turmoil is
also being milked for another purpose--to bolster the dynamic of exploitation
at the heart of the capitalist system.
Corporate profits are up 22 percent since 2007, while employers continue to
shed jobs. This has created healthy corporate balance sheets--and unhealthy
lives for workers.
Sylvia works in a massive warehouse in the middle of a California desert. In
an interview [11] with a reporter from /Mother Jones/, she described the
conditions:
>It's way bigger than a Wal-Mart, but with no air conditioning. Our
>temperature gets up to 115 degrees. Sometimes it feels so hot in there that
>you just can't breathe. You have a lot of people go home sick from the heat.
>To stay cool, people put towels around their necks. They go back and forth
>getting ice to chew on.
>
>We're given orders by scanning our badges and totes into a computer system,
>which tells us what to pull and how quickly it has to be done. Back when I
>started in 1999, the rate wasn't so bad, but for about a year, they've been
>gradually ratcheting it up. Say the old rate was 100 orders a day. Now
>they're up to 160, sometimes even higher.
>
>I've talked to some of the coordinators who add up the numbers at night.
>They've told me that it's impossible to meet the rate that they want with
>the amount of people that we have. So we have to work longer. We already
>worked 10 hours a day. Now we work another hour or two hours overtime,
>sometimes with last-minute notice. If we refuse to stay longer, we get
>disciplined.
>
This same intensification of work--falling on the people who still have
jobs--is true across the economy, whether in blue-collar occupations or the
service sector or in highly skilled professions like doctors.
According to an air traffic controller named Steven:
>You make a thousand decisions a day. Any one of them could not only cost you
>your job, it could cost lives or money...Now with all the publicity about
>fatigue issues, more facilities are doubling up on controllers. Well, where
>did that second person come from? They don't have enough guys, so some other
>shift is now short to backfill the midnight shift. For some people, it has
>made an unsustainable situation even worse...
>
>I can't tell you about all the suicides and the accidental deaths where I
>work. One year we lost more than a tenth of our controllers due to burnout.
>One guy was 38. He went home after a really long day, poured himself a
>drink, sat down in his armchair, and died.
>
>Stress hurts your body. When my dad retired in his late 50s, he looked like
>he was 90 years old. I'm only 45, and when I visit old friends they go, "You
>look from a distance like you are physically healthy, but when I see you up
>close..." And it bothers me because I love the job, and I've made this
>commitment that I'm going to see through to retirement, I hope. But at what
>cost?
>
As far as Corporate America is concerned, this is the new normal--lay off
workers and get the remaining employees to do the work they used to do.
According to economist Brad DeLong:
>[It used to be that] businesses would hold on to workers in downturns even
>when there wasn't enough for them to do--would put them to work painting the
>factory--because businesses did not want to see their skilled, experienced
>workers drift away and then have to go through the expense and loss of
>training new ones. These days firms take advantage of downturns in demand to
>rationalize operations and increase labor productivity, pleading business
>necessity to their workers.
>
From the Con Ed workers in the private sector to Chicago teachers in the
public sector, the pressures to do more for less are relentless. Needless to
say, the surge in productivity hasn't translated into higher wages. If median
annual household income had kept pace with the economy since 1970, it would
now be nearly $92,000, not $50,000 [12].
Instead, those gains have gone to the top of the income scale. Between 1979
and 2007, income growth for the top 1 percent of U.S. households was a
jaw-dropping 390 percent [13], according to the Economic Policy Institute,
but only 5 percent for the bottom 90 percent.
And even this slim increase in income for the rest of us has been more than
offset by the massive destruction of wealth--in home values and retirement
accounts, for example--since the onset of the Great Recession.
According to Christian Weller [14], a public policy professor at
UMass-Boston:
>American families lost a total of $19.4 trillion (in 2010 dollars) in
>household wealth from June 2007 to March 2009, when the stimulus started to
>take hold. First, it was the housing market, and then it was the housing and
>the stock market together that tanked. American families lost $6.4 trillion
>in home value during this period.
>
>Trillions of dollars are sometimes hard to grasp, so think of it this way:
>One complete house (at 2008 prices) was lost every 1.7 seconds during the
>Great Wealth Destruction. And this doesn't even count what happened to
>American families' rainy day funds and retirement savings.
>
This completes the story of the great bankers and bosses' robbery--of how
Bankzilla made out while we lost out. We're the ones who must tell it because
it's seldom told in the mainstream media.
Instead, when it comes time to find blame for the nation's economic woes, the
media tells us to blame ourselves for not working hard enough--while CEOs who
do nothing constructive pay themselves millions of dollars.
We're told to blame "greedy" public-sector workers--instead of the greed of
the bankers who manipulated the Libor rate to make handsome profits for
themselves, and in the process drained billions of dollars in fraudulent
interest payments from municipalities now struggling to make ends meet.
And we're asked to blame the unemployed--instead of the bankers who shifted
their losses onto taxpayers while keeping the profits for themselves.
One of the greatest indictments of capitalism is fact that while people are
unemployed, while millions desperately need goods and services, while
factories and offices lay empty, corporations are sitting on a record $1.7
trillion of cash that they won't invest to put people to work.
No wonder most people think the system is broken. It is--for them. But the
system is working exactly as it's supposed to for those at the top.
Capitalism puts profits and power ahead of all other considerations. We need
a different system altogether--a socialist society that puts the lives of
working people ahead of profits.
- - - - - - - - - - - - - - - - -
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[1] http://socialistworker.org/2009/07/06/tale-of-two-cities
[2] http://digitaljournalist.org/issue0811/reno-s-tent-city.html
[3] http://wallstreetjobreport.com/wall-streets-b-list-firms-trade-on-bigger-rivals-woes/
[4] http://finance.fortune.cnn.com/2012/05/24/bank-profits-rebound/
[5] http://endoftheamericandream.com/archives/29-amazing-stats-which-prove-that-the-rich-are-getting-richer-and-the-poor-are-getting-poorer
[6] http://finance.fortune.cnn.com/2012/05/01/bank-lending-shrinks/
[7] http://economix.blogs.nytimes.com/2011/06/30/the-wageless-profitable-recovery/
[8] http://www.npr.org/templates/story/story.php?storyId=95395712
[9] http://www.opednews.com/articles/3/Jamie-Dimon-s-JPMorgan-Cha-by-Richard--RJ-Esko-120515-853.html
[10] http://socialistworker.org/2012/07/10/caught-rigging-the-game
[11] http://www.motherjones.com/politics/2011/06/stories-overworked-americans?page=1
[12] http://www.motherjones.com/politics/2011/06/speedup-americans-working-harder-charts
[13] http://www.epi.org/publication/bp331-occupy-wall-street/
[14] http://www.americanprogress.org/issues/2011/03/bush_recession.html
