Monday, July 13, 2009

Money Matters

I'm no economist , but two recent stories in print have usefully clarified the present situation for me. One is the up-close and ugly account by Michael Lewis in the current Vanity Fair of the egregious fraud carried out at A.I.G., at a cost to US taxpayers of $182.5 billion. This is old news, but it acquires poignancy with the article in yesterday's New York Times celebrating Goldman Sachs's triumphant 2nd quarter, with profits exceeding $2 billion. I have trouble grasping sums in the billions, but a more personal number was quoted in the article: of Goldman's 26,000 employees, the ones at the median make $600,000 annually, plus benefits. That's 13,000 employees whose pay exceeds that princely sum. And why not, when a company makes such high profits, because it is so skilled in speculative trading, as the article admiringly suggests.

What's the connection between these two stories? Well, at the very end of the Times article you can read what Lewis elaborates in considerable detail, namely that the A.I.G. bail-out was also, and perhaps primarily, a bail-out of the investment banks and other Wall St. entities, Goldman Sachs among them. It was their losses that A.I.G. supposedly 'insured,' but not really--the losses were too great. It seems these brilliant and richly rewarded Goldman traders had lost $13 billion betting on subprime mortgages, but no matter: they and the other banks and A.I.G. were all 'too big to fail,' so the government covered their losses, at 100 cents to the dollar, with our money. Now that they are back to their winning ways, they get to keep all the profits--it's only the losses that show up on the public balance sheet.

This whole sorry story was public knowledge last fall, when the Paulson plan set the bail-outs in motion--Secretary Paulson, you recall, was Goldman's former CEO doing a tour of duty at Treasury. But in the shock of November, 2008, economic virgins like myself found the whole thing hard to fathom. But no more. Somehow with Goldman's announcement of huge profits and huge salaries (with multi-million dollar bonuses to follow), the picture has come wonderfully into focus. The plan we can now call Paulson-Geithner-Summers is, simply put, a massive transfer of vast sums of money from taxpayers to the very wealthy. We ordinary Americans put ourselves in hock to the future, to the tune of trillions, so that the folks who created this debacle, working at Goldman and other such establishments, can make ten, fifty, a thousand times more money than ordinary decent working people. That's the financial system our president and his team have worked so hard to preserve.

But we had no choice, they said--and still say. If we hadn't acted, the "whole sucker," as President Bush so eloquently put it, was "going down."  And what a wonderful thing that could have been. Picture it: A.I.G. defaults, a dozen giant, over-leveraged, totally irresponsible banks go down too, with all their unbelievably greedy hands on board. Instead of covering their trillion-dollar losses and setting them back up to do it all over again, the government lets it collapse, then steps in and takes over. Instead of making good their speculative losses, the government takes its--our--trillions and infuses that capital directly where it's needed, into credit markets that are not just speculative but productive, that keep the real economy going. There was a moment, last fall, when such a thing might have happened. The system of capitalist finance had failed, utterly. That was the moment when we might have created a public financial sector, the one Olivier Besancenot has been talking about in France (and not a soul here in America, as far as I can tell). The time had come, the system really had crashed under the weight of its own irresponsibility and greed, we had every reason to replace it with a financial service in the public interest. Instead, Mr. Hope, Mr. Yes-We-Can and his team of Wall Street profiteers decided to refloat the whole thing with our money. And with today's Goldman story we're back in business, making the already rich even richer, selling out the rest of us. Our moment of historical possibility came--and went--and now we're left holding the bag. But not to worry--it will happen again, maybe soon. And next time, with the advantage of hindsight, next time we the people must be ready to take our destiny in hand.


At July 14, 2009 at 10:41 PM , Blogger Eric Brandom said...

my feeling is that if you're actually going to tell the ruling class (which they are) that they're screwed, you need a plan to replace them with something. a public financial sector is an absolutely meaningless solution.

you want to eliminate a class, you need to have an idea of how the social structure will change when they're gone. you can't just eliminate the one sector and hope the whole machine will keep puttering along.

put another way, eliminating investment bankers as a class is revolutionary. so then what? the contemporary left as far as i have heard, NPA or otherwise, has no meaningful program for this (semi-soviet) kind of revolution.

At July 15, 2009 at 10:33 AM , Blogger brent said...

"Public financial sectpr" is an undefined term, but I don't think it's "meaningless." Exactly how the Fed might have become or spawned such a public agency would be a long, complicated story--but not an impossibility. Such a 'revolution-in-one-sector' would be an incomplete 'revolution,' to be sure, but it's not just any sector--it's the kingpin. "Then what"? Well, lots--and I'd love to talk about it--but I think the conversation starts with a determination to move beyond the present dysfunctional system, starting with finance capital.


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