“The ‘Best Men’ Fall“, Steve Fraser, posted at TomDispatch, 10 February 2009 — “How Popular Anger Grew, 1929 and 2009″
Introduction by Tom Englehardt
Sometimes it’s the small gesture that defines the end of an age. Richard Fuld, CEO of Lehman Brothers, the single financial firm the Bush administration allowed to collapse into bankruptcy in what may someday be thought of as the slow-motion Crash of ‘09, made one of those gestures recently. Just to be clear, we’re talking about a man who, between 1993 and 2007, took home a tidy $466 million in pay. (That’s no misprint, though it’s a pay level that it would take factories of workers cumulative lifetimes to reach.)
Then, in 2008, the year his firm would collapse, Fuld was awarded another $22 million in what was called “retirement pay.”
Fuld and the other CEOs, who lived fabulous lives in their many mansions and passed out money as if it were sand, have been slow to grasp changing times. After all, as late as last December, according to the Wall Street Journal, John Thain, CEO of Merrill Lynch, “let it be known” that he expected a $10 million bonus in a year in which the company he oversaw had a nifty $28 billion in losses. Like Fuld, these men have proven remarkably tin-eared as well as lead-fingered and, in a season of catastrophe for their firms and for so many Americans, they still managed to pass out a staggering $18.4 billion in bonuses.
It helps, of course, to have a memory. I mean a real memory, a deep sense of what happened once upon a time. Steve Fraser, TomDispatch regular and expert on American Gilded Ages, who has written Wall Street: America’s Dream Palace, a superb history of our country’s kaleidoscopic range of attitudes toward Wall Street, knows that this country went through such a moment with just such a set of tin-eared former titans once before. And while the two moments, 1929 and 2009, differ in striking ways, it’s instructive to know how it all fell out for the Richard Fulds of another age.
Obtuse hardly does justice to the social stupidity of our late, unlamented financial overlords. John Thain of Merrill Lynch and Richard Fuld of Lehman Brothers, along with an astonishing number of their fraternity brothers, continue to behave like so many intoxicated toreadors waving their capes at an enraged bull, oblivious even when gored.
Their greed and self-indulgence in the face of an economic cataclysm for which they bear heavy responsibility is, unsurprisingly, inciting anger and contempt, as daily news headlines indicate. It is undermining the last shreds of their once exalted social status — and, in that regard, they are evidently fated to relive the experience of their predecessors, those Wall Street “lords of creation” who came crashing to Earth during the last Great Depression.
Ever since the bail-out state went into hyper-drive, popular anger has been simmering. In fact, even before the meltdown gained real traction, a sign at a mass protest outside the New York Stock Exchange advised those inside: “Jump, You Fuckers.”
… Nothing, however, may be more galling than the rationale regularly offered for so much of this self-indulgence. Asked about why he had given out $4 billion in bonuses to his Merrill Lynch staff in a quarter in which the company had lost a staggering $15 billion dollars, ex-CEO John Thain typically responded: “If you don’t pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave.” …
Locked into the Bailout State
After 1929, when the old order went down in flames, when it commanded no more credibility and legitimacy than a confidence game, there was an urgent cry to regulate both the malefactors and their rogue system. Indeed, new financial regulation was at the top of, and made up a hefty part of, Roosevelt’s New Deal agenda during its first year. That included the Bank Holiday, the creation of the Federal Deposit Insurance Corporation, the passing of the Glass-Steagall Act, which separated commercial from investment banking (their prior cohabitation had been a prime incubator of financial hanky-panky during the Jazz Age of the previous decade), and the first Securities Act to monitor the stock exchange.
One might have anticipated an even more robust response today, given the damage done not only to our domestic economy, but to the global one upon which any American economic recovery will rely to a very considerable degree. At the moment, however, financial regulation or re-regulation — given the last 30 years of Washington’s fiercely deregulatory policies — seems to have a surprisingly low profile in the new administration’s stated plans. Capping bonuses, pay scales, and stock options for the financial upper crust is all well and good and should happen promptly, but serious regulation and reform of the financial system must strike much deeper than that.
Instead, the new administration is evidently locked into the bail-out state invented by its predecessors, the latest version of which, the creation of a government “bad bank” (whether called that or not) to buy up toxic securities from the private sector, commands increasing attention. A “bad bank” seems a strikingly lose-lose proposition:
- either we, the tax-paying public, buy or guarantee these securities at something approaching their grossly inflated, largely fictitious value, in which case we will be supporting this second gilded age’s financial malfeasance for who knows how long, or
- the government’s “bad bank” buys these shoddy assets at something close to their real value in which case major banks will remain in lock-down mode, if they survive at all.
Worse yet, the administration’s latest “bad bank” plan does not even compel rescued institutions to begin lending to anybody, which presumably is the whole point of this new financial welfare system.
Why this timidity and narrowness of vision, which seems less like reform than capitulation? Perhaps it comes, in part, from the extraordinary economic and political throw-weight of the FIRE (finance, insurance, and real estate) sector of our national economy. It has, after all, grown geometrically for decades and is now a vital part of the economy in a way that would have been inconceivable back when the U.S. was a real industrial powerhouse.
Naturally, FIRE’s political influence expanded accordingly, as politicians doing its bidding dismantled the regulatory apparatus installed by the New Deal. Even today, even in ruins, many in that world no doubt hope to keep things more or less that way; and unfortunately, spokesmen for that view — or at least people who used to champion that approach during the Clinton years, including Larry Summers and Robert Rubin (who “earned” more than a $115 million dollars at Citigroup from 1999 to 2008), occupy enormously influential positions in, or as informal advisors to, the new Obama administration.
… Progressive-minded people in and outside of government must find a way to make re-regulation urgent business, and to do so outside the imprisoning, politically self-defeating confines of the bail-out state. Just weeks ago, the notion of nationalizing the banks seemed irretrievably un-American. Now, it is part of the conversation, even if, for the moment, Obama’s savants have ruled it out.
The old order is dying. Let’s bury it. The future beckons.
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For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest are:
Posts about theft pretending to be solutions
- Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
- The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks, 30 September 2008
- A reminder – the TARP program is just theft, 24 November 2008
- A solution to our financial problems: steal wealth from other nations, 2 February 2009
- Stand by for action – more theft of our money being planned in Washington, 4 February 2009
- Update: yes, the Paulson Plan was just theft, 14 February 2009
Some other posts about the crisis on the FM site:
- We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions.
- Geopolitical implications of the current economic downturn, 24 January 2008 – How will this recession end? With re-balancing of the global economy — and a decline of the US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.
- What will America look like after this recession?, 18 March 2008 — The recession will change many things, from the distribution of wealth within the US to the ranking of global powers.
- Consequences of a long, deep recession – part I, 18 June 2008
- Consequences of a serious US recession – part II, 19 June 2008
- Consequences of a long, deep recession – part III, 20 June 2008
- The most important news of the month. Perhaps the year., 29 September 2008 — Warnings from our foreign creditors.
- Forecasting the results of this financial crisis – part I, about politics, 13 October 2008
- Forecasting the results of this financial crisis – part II, a new economy for America, 14 October 2008
- A look at the next phase of the crisis, as it hits the real economy, 31 October 2008
- A look at out future, 2009 – 2010 … and beyond, 9 November 2008
Originally published at Fabius Maximus and reproduced here with the author’s permission.