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Robert Creamer

By Robert Creamer
Political organizer, strategist and author

Ever wonder how Wall Street bankers manage to make tens — and sometimes hundreds — of millions of dollars? How do people who really don’t produce anything manage to siphon such gigantic sums from the pockets of the people who produce goods and services — who actually create the wealth?

The answer is that they have managed to gain almost monopolistic control of the keys to world financial markets, to sources of capital that are necessary to finance equity investments and bonds for everyone from the largest international corporations to new start-ups.

But, you may ask, how can this be? In the kind of competitive financial markets envisioned by Adam Smith, competition should create multiple gateways to these capital markets. What’s more, price competition should prevent massive overcharges by the underwriters of big financial deals.

On Friday, Aug. 20, Washington Post financial columnist Steven Pearlstein published an insightful article examining the reasons why there is so little price competition on underwriting deals between Wall Street’s big banks.

He points out that the big investment banks would normally stand to make almost $450 million in fees on the $15 billion stock offering by General Motors. In this case, though, the federal government owns most of the stock. Goldman Sachs — convinced that it would never be named lead underwriter because of its legal and PR issues — decided to do something that is never done on Wall Street: undercut the fee structure. It shocked its rivals by violating an unwritten law of the investment banking world — it engaged in price competition. (more…)

Richard Trumka

By Richard Trumka
President, AFL-CIO

So now we learn that as millions of America’s families were losing their homes, Goldman Sachs cheered because it stood to make huge money betting on a housing market gone bad. Is that Wall Street’s vision of American values? It’s not mine. And it’s not the values of the thousands of working Americans who are marching on Wall Street today in person with me and online.

Our message is simple: Big Banks tanked our economy and took our money when they needed a bailout. Now they’re thumbing their noses at our communities but making billions in profits. It’s time they pay up.

Pay up by investing in communities to create jobs for the millions of unemployed workers–like Terry in Florida, who was laid off a week before Christmas. Being forced to return his family’s Christmas gifts to the store was just the beginning of his pain. While the corporation he worked for is turning a profit, he fears his family will be homeless by summer.

Meanwhile, in 2009, 25 hedge fund managers were paid the equivalent of the salaries of 680,000 school teachers. That’s in 2009, when we taxpayers spent billions of dollars bailing out the financial sector. If Goldman Sachs is cheering at the collapse of the housing market, what’s the rest of Wall Street saying? Thanks, suckers?

Those may be Wall Street’s values. They’re not America’s.

In a stunning new Pew poll, more than half of those surveyed say within the past year a member of their household has been out of work–up 15 percentage points since last year. Fully 70 percent of Americans say they have faced one or more job- or financial-related problems in the past year, up from 59 percent in February 2009.

And homelessness no longer is a scourge of the most troubled of our society. Maria Foscarinis, executive director of the National Law Center on Homelessness and Poverty, describes the nation’s epidemic of homelessness as reaching crisis proportions not seen since the Great Depression–and it stems directly from the Big Bank-fueled recession in which millions of workers lost jobs and savings and can no longer afford their mortgage or rent.

Meanwhile, the Big Banks announced massive first quarter earnings–Citigroup, $4.4 billion; Bank of America, $4.2 billion; Goldman Sachs, $3.46 billion; JPMorgan Chase, $3.3 billion; and Morgan Stanley, $1.8 billion. It turns out that much of that money was made by the same risky trading practices that cost taxpayers a $700 billion bank bailout.

The damage inflicted has deepened economic inequality, which has gotten worse since 2007. The richest 10 percent now control nearly 70 percent of the wealth. Those with incomes in the bottom 50 percent have a little more than 2 percent of the wealth.

The bottom line is Wall Street should pay to clean up the mess they made and Congress must enact strong Wall Street reform. We are supporting four ways for the Big Banks to pay–President Obama’s bank tax, a special tax on bank bonuses, closing the carried interest tax loophole for hedge funds and private equity and, most important, a financial speculation tax levied on all financial transactions–including derivatives–that would raise more than $150 billion a year, according to the Congressional Budget Office. The financial speculation tax would have a negligible impact on long-term investors but would discourage the short-termism in the capital markets that led to so much destruction over the past decade.

Congress also must aggressively address the jobs crisis now–if not because it’s the right thing to do, then because of November 2010. That Pew poll I cited above? It found Americans united in the belief that the economy is in bad shape: 92 percent give it a negative rating.

Wall Street’s values are based on greed. The American people’s values are rooted in working hard, playing fairly and doing right by our family, neighbors and friends.

If you can’t march and rally with us on The Street, join us live online today at 4 p.m. EDT. We’ll be 10,000 strong on the ground and marching for tens of thousands more who have signed up to take part in our virtual march.

Working people are angry–and we are right to be angry at the betrayal of our economic future. Help us turn that anger into the energy to create jobs, fix our economy and build a stronger nation.

Leo W. Gerard

By Leo W. Gerard
USW International President

Recent stories about Wall Street contain a recurring theme: deceit.

For example, this week the CEO of the late Lehman Brothers, Richard S. Fuld Jr., with a completely straight face swore to Congress that he’d been utterly out to lunch on the issue of “Repo 105,” a sleight-of-hand accounting procedure auditors found Lehman used to conceal its debts.

Last week, the Securities and Exchange Commission filed a civil lawsuit charging  Goldman Sachs with securities fraud and describing a scheme in which Goldman defrauded clients by selling them a mortgage investment to bet on after secretly permitting selection of its component securities by a hedge fund manager who Goldman knew planned to bet against it.

Also last week, the Senate conducted hearings on failed Washington Mutual following a report by a Senate subcommittee that found the bank’s lending operations rife with fraud, including fabricated loan documents.

This deceit illustrates that America’s largest financial institutions can’t be trusted to refrain from crashing the world economy again. In fact, when the big banks announced their first quarter earnings recently — Citigroup $4.4 billion; Bank of America, $4.2 billion; Goldman Sachs $3.46 billion, and JPMorgan $3.3 billion; Morgan Stanley $1.8 billion – it turned out that much of that money was made by their trading divisions – the very ones that dragged them – and the U.S. economy – down during the crisis in 2008. These are the same risky trading practices that cost taxpayers a $700 billion bank bailout, their savings, their jobs, their businesses.

Clearly, these bankers can’t control themselves. And the “free market” has failed to moderate their behavior. Strict regulation is essential, including re-instituting the Glass-Steagall Act and other rules that will prevent financial firms from growing too big to fail; forcing the banks themselves to pay for liquidation of big financial institutions; placing on open markets trades of those secretive derivatives that brought down AIG and that the SEC says Goldman used fraudulently; and creating an independent consumer financial protection agency to stop practices like predatory lending, usurious interest rates and hidden fees.

Congress lifted bank regulations over the past three decades, including the Glass-Steagall Act passed after the 1929 stock market crash to reduce speculation and conflicts of interest and to prevent “too-big-to-fail” financial institutions by forbidding the combination of investment and commercial banks. Like gullible investors in subprime mortgage bonds, the politicians who reversed those rules bought the argument that the free market would regulate itself. This is the same argument 1,500 Wall Street lobbyists are using, along with millions of dollars, right now in attempts to persuade lawmakers to stop worrying their little heads about seriously regulating Wall Street.

Main Street, where foreclosures continue at a record pace and unemployment remains painfully near 10 percent, desperately needs its own 1,500 lobbyists and millions in influence dollars. It will have the power of thousands of voices at a “Make Wall Street Pay” rally April 29 in the heart of New York City’s financial district, one of several protests across the country organized by the AFL-CIO.

On Main Street the need to forcefully re-regulate to prevent another Great Recession is clear; it’s not in Washington, D.C. In fact, weakening the already-too-soft financial regulation bill proposed by Sen. Chris Dodd is a crusade for Senate Minority leader Mitch McConnell, whose campaign coffers have received more money from security and investment firms than from any other category — $1.3 million. Like a Wall Street banker, McConnell is using deception. For example, he harped all last week that an “orderly liquidation fund” in the Dodd bill was a “bailout fund.”

It’s not. It would be created with fees on banks – not taxpayers. And it’s not for bailouts that preserve banks. It is for bank liquidation. It would pay for the orderly closing of too-big-to-fail banks. Ezra Klein of the Washington Post ridiculed McConnell’s claims, and Katrina vanden Heuvel, editor of the Nation, described McConnell’s attacks on the bill as fraudulent.

All of the sudden on Monday, McConnell changed his mind about Dodd’s bill. Coincidentally, that was three days after the SEC filed the fraud suit against Goldman Sachs, making railing against financial reform appear not quite so politically wise to Republicans anymore. It’s all about the politics in Washington, D.C.

McConnell said he had new optimism that Wall Street reform would pass because Democrats had resumed bipartisan talks and, he said:

“I’m convinced now there is a new element of seriousness attached to this, rather than just trying to score political points.”

Listening to McConnell is like hearing Lehman’s Fuld, who got a $22 million bonus six months before his financial firm filed for bankruptcy, swear to Congress he knew nothing about the “Repo” accounting procedure Lehman used to conceal $50 billion in debts. Following his testimony, Anton R. Valukas, the examiner in the Lehman bankruptcy, told Congress that his investigators found a person who had discussed Repo with then-CEO Fuld and e-mails to Fuld describing it.

The problem with McConnell and his new-found eagerness to pass “bipartisan” legislation is that the Dodd bill needs to be strengthened, not weakened with compromises thrown to Senate Republicans, all 41 of whom signed a letter last week saying they’d vote against it.

Before compromises remove from this bill the power to effectively regulate, Congress needs to review what Goldman is accused of doing. Ezra Klein of the Post described it best:

“Goldman Sachs let hedge-fund manager John Paulson select the subprime-mortgage bonds that he thought likeliest to explode and put them into a package called Abacus 2007-AC1. Paulson, who guessed early that the market was heading for a crash, wanted to bet against these bonds. But he needed someone on the other side of the bet. So Goldman went out and found him some suckers, or, as Goldman called them, “counterparties.” .  .  .But here’s the rub: Goldman didn’t tell the counterparties that Paulson had picked the bonds. ‘Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,’  said Robert Khuzami, the director of the  SEC’s division of enforcement.”

Khuzami’s description makes Goldman’s behavior sound a lot like lying.

The real economy in this country – the one that manufactures, builds and produces tangible products – can’t afford a Wild West financial economy. The real economy depends on banks to finance business expansion and everyday transactions. All of that froze in the Fall of 2008 because of Wall Street’s reckless, inadequately-regulated gambling.

In a speech in New York City on Thursday, President Obama reinforced that some bankers “forgot that behind every dollar traded or leveraged, there is family looking to buy a house, and pay for an education, open a business, save for retirement.”

Obama also referenced the issue of dishonesty when he said this in New York:

“A free market was never meant to be a free license to take whatever you can get, however you can get it.”

If McConnell-style deceit about the financial reform bill continues in the Senate, serious regulatory reform won’t happen. Half measures won’t work. Only robust financial reform will end Wall Street’s freedom to deceive.

The heads of Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Bank of America came to testify and said… just about nothing.

Yes, they made mistakes. But gee, they had learned a great deal and they certainly didn’t cause the crash. They promised they are managing risk better, even though they claimed always to have done so. Also, they insist they are not too big too fail and they are reforming compensation so we shouldn’t worry about their sky-high compensation packages.

After these predictable pronouncements, Phil Angelides — the former Democratic California State Treasurer and Chairman of the Financial Crisis Inquiry Commission (FCIC) — came out swinging at Lloyd Blankfein, CEO of Goldman Sachs. But he ended up shadow-boxing.

Angelides threw his best punches at Goldman Sachs concerning reports that it provided toxic assets to customers while it was betting against them. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” said Angelides.

Blankfein easily parried the punches by explaining that that’s what market makers are supposed to do. He then diverted the conversation into technical language that few of the public can understand. Meanwhile, the big questions weren’t asked.

Angelides almost cornered Blankfein with the question of whether or not Goldman Sachs would have gone under had it not been bailed out by the taxpayer. Blankfein again successfully parried the punches by saying, No one knows. We were doing the best they could, and better than everyone else.

Angelides’ best punch came when he listed a slew of government programs that supported Goldman Sachs: TARP, the AIG pass through of taxpayer money, no-interest loans from the Fed, guarantees from the FDIC and more.

Blankfein bobbed and weaved. But Angelides missed the chance to nail him. It was the perfect time to bring up the fact that AIG gave Goldman Sachs our money to cover its bets at 100 cents on the dollar.

This is key to the allegations that Geithner pressured AIG to give Goldman Sachs $12.9 billion dollars to settle bets whose market value was about $2 billion. This was clearly a gift of taxpayer money that has directly fattened the bottom line of Goldman Sachs and their bonus pool. (See GeithnerGate)

Heather Murren, a former Merrill Lynch analyst chosen by the Democrats for the Commission, pushed Blankfein at bit more: “Did anyone ask you to take anything less than 100 cents on the dollar?”

Blankfein said other staff had that discussion but it never really came up to him. Unfortunately, she backed off and didn’t follow up with the obvious question: “Shouldn’t you have taken much less — yes or no — since you admitted already that you didn’t really need taxpayer support?”

The answer might have had severe consequences for Geithner and for Goldman Sachs’ outrageous bonus pool. Clearly, Geithner helped Goldman Sachs walk off with taxpayer money that it didn’t need then and certainly doesn’t need now. Tough public questioning might help provide Obama the basis for taxing it back.

Overall, the Commission let the big boys off the hook. Here are the kind of questions they failed to ask and if they don’t ask them soon, the American people will tune out.

1. Now that you’ve paid back TARP, how much government support are you getting currently from various government programs? This would punch through the PR spin that says the big banks have paid back the government. The reality is that these highly profitable institutions are still taking advantage of an array of government financial programs that are padding their bottom lines and bonus pools.

2. Given all the mergers that have taken place during the crisis, is your institution, right now, too big to fail? If so, shouldn’t we break you up? The committee should be setting up the basis for the break up of these giant companies. Keith Hennessey, a Republican, started to get there. The other commissioners should help him follow-up.

3. How do you justify having your employees earn 10 to 100 times the compensation earned by the leading neurosurgeons? The Commission needs to point out that the pay scale is wildly excessive in the financial markets and that it represents a distortion of our entire system. The free market alone cannot correct it. There is no economic justification for it.

4. Are your banks paying for lobbyists that are working against efforts to create a Financial Consumer Protection Agency? This is the perfect time to get these bankers to explain how they are lobbying against the public’s interest.

5. Given all the support you have received (and are still receiving), and given all the damage your industry has done to the economy and to the lives of millions of Americans, why shouldn’t the government place a windfall profits tax on your near record profits and bonuses? This might pressure the Obama administration to get back some of our money.

Dynamite from one Expert Witness:
In its second panel, the Financial Crisis Inquiry Commission heard from Kyle Bass, of Hayman Financial Advisors, who read a statement that had some juice to it. I don’t know this guy, but it’s pretty clear no PR flack scripted him.

He took direct aim at the fiction that top traders at troubled institutions like AIG must receive top compensation or we will lose the vital “talent” needed to unwind their complicated bets. Those traders at AIG placed more than $450 billion in bets on toxic securities. The traders, of course, made these bets because of the enormous fees and bonuses they received.

But why should we continue to pay these traders, given their disastrous track records and the fact that the taxpayer is bailing out AIG to the tune of more than $150 billion? Unfortunately, the Obama administration is going along with the myth that these traders need to receive large compensation packages because if they leave AIG, it will hurt the taxpayers’ investment.

But Bass demolished that argument by saying flat out that he knew of hundreds of unemployed derivative brokers who would gladly to do the job for $100,000 a year instead of for millions. The trading emperors have no clothes.

Too bad the commissioners didn’t bring up that argument to the CEOs before them in the AM session. The commission should hire Bass for its staff.

It’s only Day One of the hearings, but they let the big fish get away. Let’s hope they find other witnesses to help capture the public’s attention.

***

Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Les Leopold

By Les Leopold
Author “The Looting of America”

Say goodbye to 2009, the worst economic year since the Great Depression.

Say hello to the billionaire bailout society in which the super-rich gamble, lose and get bailed out by the rest of us.

To save the system from total collapse we poured trillions of dollars into the financial sector. The result? Banks still are refusing to lend. Thirty million Americans are looking for full-time jobs and 49 million are skipping meals including one out of four children. But Wall Street again is reaping record profits and bonuses.

Not only are we richly rewarding those who wrecked our economy, but also, we have to put up with hundreds of fabrications about how the big banks got us here. Here is my biggest, fattest lies list for 2009:

1. “Government programs for low-income home buyers caused the financial crash.” Wall Street defenders were quick to blame the Community Reinvestment Act, which urges banks to loan money in minority communities. In fact, almost none of the CRA loans are sub-prime and the vast majority are doing well, thank you. Blaming government programs deflects us from the real cause: Wall Street’s incredibly reckless creation, marketing, selling and trading of “innovative” new securities that supposedly removed the risk from pools of risky debt. It didn’t work. Wall Street, not the poor, crashed our economy.

2. “Income inequality is good for everyone.” Lord Brian Griffiths, Vice-Chairman of Goldman Sachs at least had the nerve to say what so many of the super-rich really believe:

“We have to accept that inequality is a way of achieving greater opportunity and prosperity for all.”

Unfortunately, the facts suggest otherwise. There is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that’s not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of America Chapter 11).

3. “The rising number of billionaires is a sign of economic health.” It’s accepted media wisdom that the more billionaires the better. China with 130 billionaires now trails only the US, which has 359, according to Forbes magazine. But in our billionaire bailout society, the rising number of billionaires signals a collapsing middle class. Ponder this statistic: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one. Does that look healthy to you?

4. “Paying back TARP means banks are no longer on government welfare.” Bank after bank is rushing to repay TARP funds during the worst economic year since 1937. They want to get out from under the Pay Czar (not that he’s been sufficiently tough on the banks under his purview.) Banks that were insolvent only a few months ago now say they have the financial strength to refund tens of billions of dollars to the government. Where did all that money come from? Much of it comes from other government welfare programs for Wall Street (over $12 trillion worth) that aren’t publicized. (See Nomi Prins’s excellent accounting.) It may be the case that our banks are paying us back with our own money. Now that’s financial innovation.

5. “Wall Street’s freedom to innovate must be protected.” Congressional leaders are tripping all over themselves to say new regulations will not discourage Wall Street innovations, something they claim is vital to our economy. Oh really? Do those “innovations” add anything useful to our country other than new casino games for the super-rich? Former Federal Reserve Chairman, Paul Volker, recently blew the whistle on this fabrication:

“I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two – Credit Default Swaps and CDOs – which took us right to the brink of disaster: were they wonderful innovations that we want to create more of?
…. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information….

The most important financial innovation that I have seen in the past 20 years is the automatic teller machine… How many other innovations can you tell me of that have been as important to the individual?” (“What Has Financial Innovation Done for You?”)

6. “To retain critically needed talent, Wall Street must be free to pay top salaries and bonuses.” Where would they flee if they just got paid like normal people rather than like gods? The British are putting in place a 50 percent tax on bonuses. Also, compensation is much, much lower in the European Union. But the real lie is that we need such “talent” in the first place. That kind of “talent” just crashed our economy. That kind of “talent” is widely overpaid – no way should bond traders receive 10 to 100 times what is earned by the best neurosurgeons in the world. Something is really wrong and it starts with the lie of banking “talent.”

7. “Overpaid American workers are the real cause of unemployment.” The New York Times writers who concocted this argument didn’t think they were lying. But this is one of the most preposterous ideas put forth during 2009. (“American Wages out of Balance” New York Times November 11, 2009) Edward Hadas, Martin Huchinson and Antony Currie informed us that:

“American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.”

They don’t mention that the average non-supervisory worker has already taken an 18 percent cut in real wages between 1973 and 2007. What’s worse, they claim that if workers don’t take these additional cuts, these “overpaid” working stiffs will be the cause of another Great Depression. They write:

“But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment.”

Not a word is mentioned about how Wall Street’s gambling caused all of this unemployment and how the continued failure of Wall Street banks to lend is stalling job growth, right now.

8. “I’m doing God’s Work.” Lloyd Blankfein, Chairman of Goldman Sachs said what too many Wall Street leaders truly believe: that they are so privileged and entitled that it seems as if the heavens bless their work. Why else are they earning hundreds of millions of dollars? Mr. Blankfein believes he is creating a virtuous circle by raising capital for corporations who create jobs and help our society prosper. But Goldman Sachs, JP Morgan Chase, Morgan Stanley and the rest of the apostles helped to bring the entire world economy to its knees. Does that mean God likes unemployment and widespread hunger?

9. “We’re out of money.” Who’s we? Yes, the middle class is tapped out but the super-rich haven’t even begun to pay their fair share for the mess they created. Yet the top 400 richest Americans alone are sitting on $1.27 trillion or so in wealth. Here’s a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to “only” about $100 million each? You wouldn’t be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.23 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.

10. “We are becoming a socialist economy.” Somewhere between 68 and 78 percent of the US GDP is private sector activity, the highest among developed nations. And much of the government expenditures go to private contractors as well. But there’s a kernel of truth in the socialist scare: What do you call a society that encourages the private accumulation of wealth without limit, and then when the super-wealthy get into serious trouble, we bail them out with taxpayer funds – largely from a declining middle-class? That’s not free-enterprise. That’s not socialism either. It’s something new and it deserves to be called the billionaire bailout society.

Here’s hoping that in 2010 we can begin to undo it.

***

Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Leo W. Gerard

By Leo W. Gerard
USW International President

In New York, the oldest and snobbiest financial and advising ventures are called “white shoe” firms.

This, they say, arose from the days when their hoity-toity employees wore white bucks to work. 

These days, white shoe firms bear names notorious outside New York, like Goldman Sachs and Morgan Stanley. That’s because their arrogance, risky investments and confounding dealing in derivatives caused last fall’s Wall Street meltdown, slaughtered white shoe firms like Lehman Brothers, froze credit nationwide, and threw the rest of us into the Great Recession. 

Now unemployment is up to 9.8 percent, a 26-year high. Banks repossessed 88,000 homes in September and filed foreclosure notices on another 344,000, according to RealtyTrac. Suicide hotlines report increases in calls, and a study released in July by researchers at several universities including the University of California documented the connection between unemployment, suicide and murder. Each percent increase in unemployment raised suicide rates by .8 percent and homicide rates by .8 percent, the research team found.

There’s blood on those white bucks. But the guys wearing them don’t seem to notice.

When bankers’ backs were up against the wall, the taxpayers of the United States bailed them out to the tune of $700 billion. Some, like Bank of America, took the welfare then repaid that generosity by doling out billions in bonuses. BofA got $45 billion from taxpayers, then gave $3.6 billion in bonuses to Merrill Lynch workers, just as BofA bought Merrill — which lost $25 billion in 2008. 

Banksters always argue that they must pay massive bonuses to reward and retain their best and brightest. Yet the best and brightest had managed to undermine Wall Street and lose $100 billion at the nine firms that received government welfare in 2008.  Realistically, finding lower-cost replacements for them shouldn’t be a problem since lots of unemployed bankers are pounding New York streets. The New York City Office of Management and Budget determined that Wall Street banks cut 30,000 jobs in 2008.

Still, Wall Street continues to reward incompetence. Morgan Stanley, for example, increased the proportion of its revenues to be paid as compensation and benefits – to total a whopping $6 billion by September — despite three straight losing quarters this year. This is how the London Telegraph characterized the decision in an Oct. 21 story:

“Investment bank Morgan Stanley has more than doubled the share of revenues it will hand out in pay and bonuses to its 62,000-strong army of bankers and brokers despite a 91 pc drop in profits last quarter.”

Right now, they’d each get $96,774, but Morgan Stanley has another quarter to add to that pool of pay.

Investment house Goldman Sachs has set aside $11.4 billion so far for compensation, setting a pace for an average Goldman worker to get $773,000. That would more than double last year’s earnings for the average Goldie.

Contrast that with the U.S. Census report that the typical worker nationwide lost $1,860 for a reduced wage of $50,303. Or compare it to the experience of the woman in the Oct. 21 New York Times story who competed with 500 other applicants for one $13-an-hour clerk job opening at an Indiana trucking company.

When America’s median income workers paid to bail out those white shoe swells, they thought something would change. “There is some failure in the finance industry to appreciate the level of public antagonism toward whatever Wall Street symbolizes,” Orin Kramer, a Democratic fund-raiser who is a partner in an investment firm, told the New York Times’ David D. Kirkpatrick earlier this month.

Dr. Daniel E. Fass, who was chairing a Democratic fundraising event with Kramer, told the Times’ Kirpatrick, “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.”

And, indeed, they’re acting like it never happened. JPMorgan Chase & Co. went out this year and made billions doing exactly what caused the crash last year – trading like crazy in derivatives. 

So a parent figure had to step in. The Obama Administration acted this week. The Federal Reserve announced it would crack down on pay packages at the nation’s 28 largest banking companies in ways intended to discourage risky practices. And the Treasury Department announced that it will order pay cuts and perk limitations for top officials at the firms still on welfare. They are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the automakers’ financing agencies.

This new lifestyle will be devastating for some of those on welfare. Their perks could be limited to $25,000 – only half of a typical American worker’s annual salary. And the cash portion of their salaries could be slashed by 90 percent and replaced by stock that cannot be sold for years. The point is to align their personal interests to the firm’s long-term financial health.  It is an attempt to discourage risky investments that seemed profitable for the purpose of immediate bonus payments but later exploded like the AIG derivatives scandal. 

The white shoe crowd, failing to understand that the president was trying to help them clean up the mess at their feet, immediately started whining and complaining. It just wouldn’t work, they said, because pay-pinched executives would run to firms unrestricted by the government. That’s all for the good because, again, there are 30,000 Wall Streeters searching for jobs.

The pay restrictions will set a proper tone. Perhaps Wall Street will hear it before, as the New York Times described it, “populist animosity toward Wall Street and corporate America” grows too great.

If that happened, the blood on their white bucks might be their own.

By Leo W. Gerard
International President

A decade or so ago, some states gave welfare recipients food stamp debit cards. Welfare mothers could use them to buy groceries with plastic, just like virtually everybody else in the check out line. Plastic made accounting easier for clerks because the debit cards failed to function for excluded items like cigarettes and alcohol.

That’s what America needs for Wall Street. When bankers get money from the $700 billion bailout called Troubled Asset Relief Program (TARP), they should receive it on plastic. A TARP debit card would restrict bankers’ spending. TARP plastic would fail to function if bankers tried to use it for excluded items like $18 billion in year-end bonuses, private French-manufactured jets and $35,000 inoperative toilets.

TARP debit cards are required because Wall Street’s wizards of finance have shown repeatedly they can’t or won’t control their own spending.

These are the guys who bankrupted their own financial institutions with unrestrained risk-taking. Then they went bawling to Congress for a bailout that was supposed to free up credit for the rest of the country. Not true to their word, the bankers didn’t extend credit, and businesses and municipal governments across the nation suffered the ugly consequences: that being, of course, unemployment. In the last quarter of 2008, more than 1.5 million Americans lost their jobs – the highest number in more than a quarter century.

Still, after causing all that devastation, and asking those same Americans to clean it up, Wall Street’s bankers don’t understand that they are on the dole. They’ve behaved as if their banks made profits, as if they had a credit card, not a big fat IOU to the American public.

Let’s start with the bonuses. The very financial institutions that already have taken $350 billion in taxpayer dollars to prevent their collapse turned around and gave away more than $18 billion in bonuses to employees. The average bonus was $112,000.

By contrast, the Social Security Administration reported that in 2006, the most recent year for which it has statistics, the average non-Wall Street American’s wages for an entire year’s work totaled $37,078.

Still, the Wall Streeters pouted about their bonuses. Of 900 surveyed by eFinancialCareers.com, a job search Web site, 46 percent said they thought they deserved more.

And no wonder. Look what their bosses get. The financial services industry pays its CEOs more than any other, an average of nearly $19 million in 2007, according to a study by Lawrence Mishel, president of the Economic Policy Institute. Think about 2007. That was one year before Wall Street crashed, taking the country down with it. And its CEOs were making $19 million while overseeing the bankrupting of the system.

The bankers are all claiming none of those bonus bucks they paid out at year’s end came from their TARP funds. But let’s look at it this way. Lehman Brothers didn’t get a TARP bailout. It failed in September, and its workers left the building with their belongings in boxes. None got a year-end bonus. If the U.S. taxpayers had permitted any one of the institutions that got tens of billions in TARP money to go bankrupt, their workers would be in the same shape as Lehman’s – carrying cardboard boxes not big fat bonus checks.

Of course, there’s also the in-your-face bonus behavior of John A. Thain, the former Merrill Lynch chief executive who spent $1.2 million renovating his personal office including that just-for-show toilet and a $1,400 trash can. Thain decided to hand out between $3 and $4 billion in bonuses while Bank of America was struggling to take over the failing Merrill with the help of billions in TARP welfare.

Thain tried to defend the bonuses by saying they are an essential tool banks use to keep their best people. Jon Stewart, host of “The Daily Show,” provided the only reasonable response to this assertion: “You don’t have ‘best people!’ You lost $27 billion! Do you live in Bizarro World?”

Yes. Yes, he does. This is a guy who asked the Bank of America board to give him a $10 million bonus in December after Merrill, the company he directed, lost $15 billion that quarter – for a grand total of  $27 billion in one the year.

Though Bank of America originally received $25 billion in TARP welfare, after Thane’s third quarter losses, it had to return to the taxpayers of America for $118 billion in government loan guarantees and an additional $20 billion in TARP welfare to complete the purchase of Merrill.

Bizarro World is right.

John A. Thane and his ilk, who blithely spend more on decorative toilets for their offices than middle class families can scrape together for a year of college tuition, need a rude awakening.

More than just the debit card, these guys ought to experience the humiliation of standing in a welfare line.

For some reason, when bankers get in trouble, the treasury secretary and the chairman of the Security and Exchange Commission have been running up to New York to huddle in weekend-long secret meetings in those fancy Wall Street offices with decorative toilets to solve their problems by handing them billions in taxpayer money.

No wonder those bankers act so entitled.

Let them drag their sorry lack-of-assets down to Washington, D.C. and stand in line and beg for taxpayer bucks in tawdry public offices like other welfare recipients must do.

When and if they qualify, hand them TARP debit cards that forbid expenditures on bonuses and $1.2 million office renovations for CEOs. Go ahead with President Obama’s plan to limit to $500,000 the salaries of CEOs who receive TARP welfare, but make sure that those wise guys can’t find sneaky ways to circumvent those restrictions with bonuses that come in the form of restricted stock, for example. Otherwise, CEOs will just be buying cigarettes with their taxpayer-funded TARP debit cards.

And then taxpayers, who despise the notion of welfare queens, will demand Congress “discredit” and dethrone the kings of Wall Street.

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

For some reason most of the discussion in Washington and the media of the bank bailouts is overlooking their central feature: taxpayer dollars are being used to sustain the income of incredibly rich bankers. The public should be furious over this upward redistribution of income.

The basic story here is very simple. If we got the government out and left things to the market, virtually the entire banking sector would be bankrupt. Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and almost all the other big banks, and thousands of smaller ones, would be out of business. (My bet is that even “healthy” banks like Wells Fargo would be in bankruptcy before too long. They hold plenty of bad debts, too.)

Most of the top executives of these banks would likely be sent packing, while those remaining would have their compensation (including “golden parachutes” and bonuses) set by bankruptcy judges who would be running the companies in the interest of the creditors, not the shareholders. The shareholders themselves would be out of luck for the most part. Many bank stocks have already lost 80-90 percent of their value over the last 18 months. Bankruptcy would likely eliminate what little remains.

However the banks are not in bankruptcy because the confused state of affairs and potential loss of creditors’ wealth created by large-scale bankruptcies in the financial sector would be a devastating hit to the economy. This is the rationale for the TARP, the various special lending facilities created by the Fed, and other measures to ensure the survival of the banking system.

The government has intervened in a huge way to keep the market from taking its course. But the key issue that has been buried in the debate in the media and political circles is the separation of the interest of the public in a functional financial system and the interests of bank executives in high salaries and shareholders in getting returns on their capital.

At this point, the banks are desperate — they would be dead without government handouts. This means that the government can set whatever terms it wants. And, for both economic and moral reasons, it has an obligation to set terms that do not reward the bank executives and shareholders.

The bank executives and shareholders took big risks that went bad. If they are rewarded with taxpayer handouts, then the message this sends to the financial sector is to keep taking irresponsible risks. The game becomes heads they win, tails we lose. If the bets pay off, then they are incredibly rich. When the bets go bad, the taxpayer gets the tab.

The moral reason for not rewarding executives and shareholders is that these rewards require the taxation of middle income people, like truck drivers and nurses, to transfer money to some of the richest people in country.

This sort of upward redistribution is difficult to justify. Usually people in the United States like to believe that the market determines the distribution of income. Many get outraged over the idea that a mother on TANF can get a check for a few hundred dollars a month from the government. In this case, the government is effectively handing checks of millions of dollars to bank executives who would be out of work if the market was left to run its course.

We have to keep the financial system functioning, but we can do this without transferring hundreds of billions of dollars from middle class taxpayers to the wealthiest people in the country. If the bailout conditions imposed by the Obama administration and Congress don’t effectively eliminate shareholder wealth in the bankrupt banks and bring compensation (in whatever form) of bank executives back down to main street levels then it is can only be explained by corruption. There is no excuse for this massive intervention to redistribute income upward.

Robert Borosage

By Robert L. Borosage
Co-Director Campaign for America’s Future

Focused on the election? Might be a good idea to watch your pockets at the same time. Here’s a glance at what’s happening to the Wall Street bailout.

Hank Paulson is, no doubt, the most impressive of the Bush administration cabinet members, (admittedly not a high bar.) He made hundreds of millions on Wall Street, ascending to be the head of Goldman Sachs. Now, as Treasury Secretary, he has brought in colleagues from Goldman to help manage the $700 billion bailout of Wall Street banks that are in trouble, including Goldman, and… Wait one minute. Doesn’t something ring false here? Hank Paulson no doubt is honorable, but even he has conflicted interests.

When the bailout bill was before Congress, a number of outside groups — including the Campaign for America’s Future which I head — pushed hard for the bailout to be managed by an independent agency, with an empowered board that included independent representatives of workers and consumers. Whatever the form of the bailout — Paulson’s initial demand for $700 billion left that undefined — it was vital that the transactions be accountable to more than once and future bankers.

And know we know why. After initially proposing to buy toxic securities from the banks at inevitably elevated prices, Paulson sensibly decided to follow the British model and inject capital directly into the major banks in exchange for equity. $125 billion is going into the first nine — Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Bank of New York Mellon and State Street Corporation. This plus a guarantee of new debt over the next three years is designed to reassure other banks of their solvency, and hopefully get them to resume lending to one another and to businesses.

But Mr. Paulson didn’t exactly cut a great deal for taxpayers. He didn’t get the terms that Warren Buffett demanded, putting up a lot less cash, to invest in Goldman Sachs. And as the New York Times editorial complained, he made government a passive investor, leaving in place the boards and the directors that led their banks into crippling losses.

He made no demands that the banks begin lending again, instead of just hunkering down, girding for future losses. And remarkably — unlike the British — he didn’t demand that the banks stop paying out dividends to shareholders. Nor is it clear that bank regulators will perform the triage needed, merging and purging the banks of excess capacity.

That failure is likely to be very costly to taxpayers and very generous to the very folks who led us into this mess. In a New York Times op ed, David S. Scharfstein and. Jeremy C. Stein show that, if paid at the current levels, the dividends will redirect more than $25 billion of the $125 billion to shareholders in the next year alone. One in five dollars will go out the door, and thus be unavailable to plug the large capital hole on the banks’ balance sheets.

Will those dividends be paid? Most likely, since the directors and officers of the nine banks are leading shareholders. Scharfstein and Stein estimate their personal take will amount to $250 million in the first year, nothing to sneeze at.

Worse, Paulson does nothing to curb the bloated compensation levels that characterized Wall Street in the days of debauch. Jonathan Weil of Bloomberg News shows the effect. Morgan Stanley, for example, gets $10 billion in taxpayers, dollars. Yet this year it has racked up $10.7 billion in employee compensation — the vast majority not yet paid out — even as its stock market value plummeted lost 34.7 billion since the beginning of the company’s fiscal year. With taxpayers help, Morgan Stanley may well pay those bonuses.

Weil reports that the ” five families of Wall Street” — Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Sterns — lost about $83 billion in stock market value from the start of the 2004 fiscal year. At the same time, they reported about $239 billion of employee compensation. For every dollar of shareholder value destroyed, the employees pocketed almost three. And that was before they got taxpayer money.

No one doubts that the bailout is needed to prop up the global economy. But under Paulson’s plan, we may end up, in Weil’s words, “throwing money at an industry that pays too many people more than they’re worth, to perform services the world has too much of already.”

What’s needed is an independent agency with summary powers and an independent board, to work with the FDIC and other agencies to sort out the solvent banks from the broke, those that need to be saved from those that should fail. And, as in the Chrysler bailout, a suspension of dividends to shareholders until the government has been repaid.

Now maybe Paulson is making the best choices possible given the extent of the crisis. He’s got more information and is far better banker than the rest of us. But with $700 billion in taxpayers’ money at stake, surely it would be wise to have an independent board that can hold him accountable.

By Dean Baker
Co-Director, Center for Economic and Policy Research

With all the urgency and frenzied debate around the Wall Street bailout, it is important that we not forget to still have some fun. With that thought in mind, let’s take a moment to mark the sudden transformation of the Wall Street free trade crowd, led by several of the top figures in the Clinton administration, into the Wall Street protectionist crowd.

As Wall Street free traders, these folks argued that we should get the government out of the economy. They wanted to remove the trade barriers that obstructed the free flow of goods and services (especially goods). If this meant that workers had to lose their jobs, so be it. Because they were nice guys, they promised benefits like job training and wage insurance.

But now the Wall Street crew no longer wants to leave things to the market.

Virtually all financial firms are now counting on the Securities and Exchange Commission (SEC) to prop up their stock prices by prohibiting short sales. It seems that there are many investors who think that Goldman Sachs, Morgan Stanley and the rest are not worth their current market price and are willing to bet that their price will fall.

However, at the urging of the Wall Street former free traders, the SEC has made it illegal for these investors to trade based on their assessment of market values. Of course such government intervention distorts market prices and leads to inefficiency. If the shorters are wrong and the banks are really worth more than they believe, their shorting efforts would allow other investors (including the former free traders) to swoop in and buy up shares at bargain basement prices. They actually should be delighted that the shorters are giving them such great buying opportunities.

But, the Wall Street crew is not very sophisticated when it comes to economics. So, rather than let the market run its course, they go running to the government for protection. And, being somewhat more powerful than autoworkers and textile workers, the Wall Street crew has been able to get their protection.

So, there you have it. The Wall Street free traders are now protectionists. It’s a new day. (btw, someone should check the listings to see if any of the big shareholders took advantage of the moratorium on shorts to dump large amounts of their holdings.)