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Burn it Down and Salt the Earth
The Wall Street Journal reports that the good times are rolling again:
Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.
....Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion — and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.
I sort of feel like I've run out of things to say about this. There's an insanity here that's almost beyond analysis. Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair's breadth — said hair being an 11th hour emergency infusion of trillions of taxpayer dollars — and then turn around and use those trillions to return to bubble levels of profitability within a year. And they can do it even though the rest of the economy is still suffering through the worst recession since World War II. It's mind boggling.
Is there any silver lining here? Probably not, but I'll try: If Wall Street can shrug off the worst recession of our lifetimes as if it's a minor fender bender and get the party rolling all over again in less than 12 months, it means the next bubble is already in the works and its collapse will be every bit as bad as this one. That in turn means it will almost certainly happen while today's politicians are still in office. So maybe news like this will finally spur lawmakers to realize once and for all that the financial industry needs to be cut down to size. Half measures won't do it. Self-regulation won't do it. Compensation limits won't do it. Byzantine, watered-down rules won't do it. Something like a Morgenthau Plan for Wall Street is the only thing that has even half a chance of working.
Will Congress finally get this? Probably not. The financial lobby is just too strong. But we can hope.
What is a
Morgenthau Plan for Wall Street?
Nothing happens when I click the non-link.
Same As It Ever Was
When the only compensation offered is a large sum of money, we shouldn't be surprised that we've created a financial system based upon nothing but greed.
If we substituted non-monetary rewards for the high salaries on Wall Street, we would most likely select for employees who would better steward our financial system.
that plan reference was
that plan reference was sarcasm or humor depending on one's view ... try the wikipedia article from below link's results http://goodsearch.com/Search.aspx?Keywords=Morgenthau+Plan+for+Wall+Stre...
Barry Rithotz says: "Much Ado About Nothing"
Well, not exactly, but that's his title:
http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-...
humility, anyone?
I know these people have a lot chutzpah, but you think they might want to be a little more humble considering the mess they made. Apparently, they don't see it that way.
you foolish short-sighted
tagged as:- result
you foolish short-sighted poor person, don't you realize the mess was not the fault of bankers? deceptive greedy househungry poor people decieved the bankers into making loans that never should've been made and now that the bankers found a way out and to make the Dow believe its over 10,000 they certainly deserve even more money than they are paying themselves, so they see it, anyhow, go figure.
Wall Street
What else do you expect from a bunch of sociopaths ?
My take on the original
My take on the original problem which is being repeated: financial firms raised real money from investors and depositors, used the money to borrow much more money, developed financial products that they then traded between themselves declaring huge profits with each trade, paid themselves based on these pretend profits until all the real money and part of the borrowed money is gone, and had/have no real money to pay investors/depositors their money back. Where is the money coming from that they are paying themselves? The FED? Saudi royal family? Are investors buying something from these companies with real money and the expectation they will get their money back with interest?
The idea that banks could recapitalize themselves with profits only works if they hold the money rather than pay it all out to employees. I'm about to throw in with Ron Paul and demand they buy gold and keep it in their vaults.
The money isn't gone
"until all the real money and part of the borrowed money is gone..."
The money isn't gone, it's in the pockets of the finacial managers and traders. Why should they change this wonderful game. They know the party will not last forever, so they grab while the grabbing is good.
And what have they to fear? Sit through a few hours facing a panel in congress and showing off some sad faces.
And then, there is no success like success. And now that they're successful again people with the $-signs in their eyes will force their money on them again.
France 1788
Maybe after the next burst bubble we can have a full-on Depression, and that'll make the point.
I feel like we're living in France 1788. System about to collapse and revolution/guillotines are just around the corner.
jimBOB: "guillotines are
jimBOB: "guillotines are just around the corner"
You're a hopeless optimist.
Pitchforks
Pitchforks will do it. And that's what they will see if the bubble they're currently blowing really does burst within the time frame you are predicting. Cause I doubt that another '11th hour emergency infusion of trillions of taxpayer dollars' will be forthcoming. And nothing radicalizes the middle class as quickly and as much as loosing its livelihood. For a case study, cf the Weimar Republic.
Oh, and if the politicians currently in power believe that they will escape that wrath, they are might delusional.
But bubbles are where the
But bubbles are where the fun is, where the real profits are. Everyone on WS is a degenerate gambler so its not surprising to see them up and running again. Reminds me of Saddam after the first Gulf war when he said, I'm not dead, then I survived, I lived. And off he went again.
There won't be any pitchforks either because you and I will start making a little in the markets as the bubble grows and pretend we can predict when to get out.
And really as long as you take a moderate financial approach and not put all your money with say one guy (Madoff), or buy a McMansion with 110% financing, the bubble is a good thing.
Now pass the Cristall please.
ammendment
I would say only that everyone on WS is a degenerate, and leave it at that.
Damned regardless
First, this comment is incoherent: "Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair's breadth — said hair being an 11th hour emergency infusion of trillions of taxpayer dollars — and then turn around and use those trillions to return to bubble levels of profitability within 12 months. And they can do it even though the rest of the economy is still suffering through the worst recession since World War II. It's mind boggling."
Your complaint is that rather than pissing away capital to nationalisation, and greater losses, "Wall Street" managed to rebound is nothing short of bizarre, in particular as if they had not, without a shred of doubt you would be in high dungeon about the state of affaires.
So, it would appear that perhaps the financial industry players may be able to repay the bailout cash after all, despite the wailing and dire predictions. So missed schadenfreude is a reason to burn things down?
Now, I can well understand how Wall Street pay may appear galling, although merely Big Numbers tells you nothing that useful. Rather more interesting is the cash or non cash properly linked to long-term performance in real ways. One suspects not. But if deferred and not easily changed, your howling is empty.
Has Wall Street learned anything?
The problem is that it's the same players playing the same game. You might want to give the article below a read.
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/01/AR200909...
Problem is the damage done, not the compensation
From William Black's HOW THE SERVANT BECAME THE PREDATOR
What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector's current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.
1. The financial sector harms the real economy.
2. The financial sector produces recurrent, intensifying economic crises here and abroad.
3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.
4. The financial sector's predation and its leading role in committing and aiding and abetting accounting control fraud combine to:
• Corrupt financial elites and professionals, and
• Spur a rise in Social Darwinism in an attempt to justify the elites' power and wealth.
5. The CEOs of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.
http://www.huffingtonpost.com/william-k-black/how-the-servant-became-a_b...
Freudian Slip?
"...in high dungeon" is doubtless where many of the Masters of the Universe belong; we proles have to settle for being in high dudgeon.
Nice try
The Depression is still full-on. You forget, as have almost everyone, that Trillions in losses still hide on (ie Off) Banks' balance sheets. Trillions more in defaults lay ahead.
Let those DEAD banks die. Remember, like we told Japan to do, when people still listened to us.
Now, elite Japanese students spontaneously burst out in laughter when Taxcheatgeithner assures them of the safety of U S Treasuries- the flotsam of a Republic.
And why does almost no one call for clawbacks of ten+ years of ill-gotten gains, more painful than jail to these thugs.
Actually, Compensation Packages Tell Part of the Story
Though I won't go so far as to claim that your own response is "incoherent", it nonetheless misses the mark completely. Instead of spending the trillions loaned to them realigning projected earnings with real earnings and providing equitable loans to small businesses and individuals who could repay those loans (thereby jump-starting a dying economy), these "too-big-to-fail" banks have continued speculating on other banks' "investments" (while giving themselves absurd buckets of Benjamins to boot).
The financial giants have managed to make such tremendous profits in spite of massive industrial and service sector recession by continuing to bet on risky ventures and cooking their books. Massive profits can't be generated with moderate loans and safe bets; though moderate loans and safe bets *would tremendously help the ailing economy. This is the first rule of money-lending.
But the biggest banks, since Glass Steagall, have moved ever farther away from money-lending and ever deeper into the murky waters of financial speculation. At the same time, they have been given more and more control over their own accounting, a problem we saw quite clearly with other giants such as Worldcom and Enron. This is where the money went.
The banks that *have been able to repay their loans, JP for instance, were the ones with seats when the music stopped. That is, they weren't holding nearly as much in toxic assets as, say, B of A. But even JP is down 13% is share-holder value. Credit unions, which took little govt. money, are comparatively much better off, though they too have been hit by snowballing house foreclosures, which lower even solvent neighbors' net-worth.
In short, I find your argument silly and too colored by your obvious laissez-faire bias.
Turned on NPR and heard that the DOW had closed above 10,000.
Much giddy commentary was then quoted.
And my first thought was that is truly obscene for Wall Street to be partying like it's 1999 when the rest of the country is suffering so.
It is even more obscene that all of our elected leaders, including President Obama, and most of our media cannot find anything wrong with this.
What we call that
Out here in the rest of the world, we call that blackmail.
I can't believe Kevin said that
They will crash and again, nothing will happen. They have the gold, they make the rules, period.
But for the Family......
But for the Family, my pitchfork would be sharpened and waiting.
Because they have blinders the size of Asia.....and inhibit our Liberty through their selfishness...
"We have a right, also, in various ways, to act upon our unfavorable opinion of anyone, not to the oppression of his individuality, but in the exercise of ours."
- John Stuart Mill
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
- Thomas Jefferson
Shoulder shrug
I'm with Kevin, it seems like all that can be said has already been. A few folks seem to be sharpening the pitchforks, but all too many are stuck in a Beck/O'Reilly/Limbaugh induced haze of ignorance.
In Case You Missed It
Progressive Taxation
I start to feel like a broken record. Kevin -- who I most often agree with -- posts about this with some regularity, increasingly with real frustration about how come these things keep happening. And I (and others, too) usually pop up to mention that there is a very clear relationship between the skyrocketing corporation compensation levels -- that is, from when they really started their upward trajectory -- and the effective gutting of most of the progressive income tax system by Reagan.
Man, it is just so stinkin' simple. If corporate executives know that they can earn very handsome livings -- let's say, 15-30 times that of the average starting level worker -- and pay a high-but-not-impossible marginal tax rate on it, they will do so and generally be very productive. If at the same time they know that raising their salaries and perks much above that level will result in about 85-95% of each additional dollar being promptly taxed away, they won't do it. Why bother? The shareholders wouldn't tolerate it, and the executives themselves will see the futility of it.
We don't have to guess about this dynamic. It IS what the U.S. had for many, many decades ... decades during which plenty of brilliant people made fortunes in business, and there was no lack of top executive talent clambering for jobs. Indeed, all through the 1940s-1960s, American managerial know-how was considered the best in the world. Funny, that occurred even though top marginal tax rates were at times as high as 92% or thereabouts.
Now we have a "progressive" tax code that is barely such. Capital gains are taxed at significantly lower rates than the top income tax brackets, so of course any wealthy person who can arrange it is quick to accept lower income in favor of higher capital gains. But since the top tax rates themselves have been slashed down so much, there is EVERY incentive -- if you're the one setting your own group's salaries -- to jack those salaries as high as you possibly can. So, for example, corporate compensation committees are famous for almost always thinking that the top executives should be earning vastly more, year after year. (Didn't I read a few months ago that the top 5 executives in each of the Fortune 500 companies -- 2,500 people -- consume as salaries and perks about 20% of ALL the pre-tax profits of those companies?).
Wall Street may be slightly greedier than the average, or maybe it's just getting more public exposure, but these obscene compensation levels (few of which have a damned thing to do with actual real-world productivity) can be stopped ONLY by restoring the progressive tax system. Show me any other good way, and I'll be very open to hearing about it ... but right now I'm pretty skeptical of any other schemes. Clearly, expecting executives to be shamed into being less greedy is a fool's game.
Ano, no, I don't expect Obama or anyone in leadership to suddenly announce support for restoration of the progressive income tax. This is an idea that will NEVER be adopted unless liberals dedicate themselves to a long-term, multi-year campaign of public argument and education and movement building. Which, sadly, I can hardly imagine living to see.
Progressive taxation
And another reason for a more progressive corporate tax policy would be that the profits would be, ideally, reinvested in the company for things such as higher wages, expansion, R&D and all the things that actually enrich the company. Not the corporate executives' pockets.
Kevin, it isn't very hard to
tagged as:- solution
Kevin, it isn't very hard to analyze: Wall Street can get away with that because the government, not even Obama, pushes back against them hard enough. The worst of the crowd on Capital Hill (not all Republicans by far) aren't just flabby but active conspirators in making it worse. You do realize this, as per acknowledgment of the power of the Money Lobby/Party.
We have to push back real hard, and press for reforms. But we don't need to burn it down and plow with salt (maybe with the left-over's from Erickson's salting of Olympia Snowe?) You've heard of the usual regulatory ones, but a sales tax on all financial trades would really bring the bubbles down to earth, and fast.
Hey The Lounsbury, you
Hey The Lounsbury, you forget that if these people get all that money for themselves, there's less to pay back TARP money from us, etc. And it isn't the value of stocks going up per se that Kevin is bemoaning (that would be an indication of actual productivity and regrowth of the real economy, in a "real economy" and not a speculative one.) Kevin spoke of the compensation rates, and note complaints here about reduced capital gains taxes, that stock goes up now more because the company cut costs like labor force instead of just doing more business under the previous model and set of labor relations and relative pay, etc.
What are you on about?
Your comment is an incoherent illiterate muddle.
It seems you think that paying commissions on profits is robbing yourself of profits.
It is not. Only innumeracy and the magical impression of Big Numbers leads to such reactions.
The legitimate issue is whether the profits upon which the commisions are paid are sustainable or that income booked now but at risk over several years is being fully compensated up front.
You ignore facts,
And you conveniently ignore hundreds of Billions in guarantees on the banks worthless debt, without which the Communist (to each....) Bankers would be gone.
The banks have NOT paid back what they have been given, the dirty beggers.
When the S&P slices through 500 the middle class will demand, and get, retribution.
The filthy politicians will offer up the bankers and Raters to save their own skin.
Arturo Di Modica's
Arturo Di Modica's "Charging Bull" of Wall Street may someday be converted into Perillos of Athens "Brazen Bull" used to great effect in ancient Rome. ;)
Good Post, Kevin
I think you got it exactly right, exact perhaps for the pessimistic part at the end. There will be short term pain, but it will come soon enough to prompt real change...
!
You must be one of those making the money off the rest of the taxpayers.
no economic plurality for America's future
Because the entire political class has been co-opted into the finance industry, which accounts for the largest portion of the economy's income now, nothing will be done to reign the finance industry in with regulatory change or other well known remedies like progressive taxation. Instead the finance industry's portion of income and wealth will continue to grow, until it has taken full charge of the economy's wealth, revenue and potential, monopolizing all economic activity. Like global warming, the dictatorship of finance is probably too late to stop. With the means of the state at its disposal, as well as all industries, it will be very difficult for democratic forces to use the constitution to wrest ownership of the economy back to a plural ownership.
Pitchforks, right. I never
Pitchforks, right. I never saw sheep with pitchforks. Don't hurt yourselves, guys.
"....Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion — and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels."
So last year, when the world blew up, remuneration was down only 10% from the record year with the biggest pay-day? And in that record year (Jan 2007) any fool could have seen which way the wind was blowing and that the pay-outs were basically getting the money out before the ship sank? And Kevin is only getting upset *now*, because the world is not blowing up and they're giving themselves a little bit more?
Let's see. A lot of that money Wall Street is raking in is coming from the sales commission on 2 trillion dollars of debt that the government has issued this year. You think you can emit that amount of Treasuries without paying a sales commission?
If you didn't want to be beholden to the financial world, don't go into debt. Can't do it? Then stop crying.
Wall Street
Words fail. What a thoroughly disgusting place Amerika has become.
Wall Street delenda est!
Wall Street delenda est!
Did they really need the TARP then?
@The Lounsbury
"Wall Street" managed to rebound is nothing short of bizarre, in particular as if they had not, without a shred of doubt you would be in high dungeon about the state of affaires.
So, it would appear that perhaps the financial industry players may be able to repay the bailout cash after all, despite the wailing and dire predictions. So missed schadenfreude is a reason to burn things down?
Does that not beg the question of whether the "crisis" was really that bad after all? If the government, and through proxy, us, can bail these "too big to fail" banks out with trillions of dollars and they are able to pay it back in less than a year and give out record bonuses as well then did they really need TARP in the first place. If the answer is no, then we were scammed. If the answer is yes, then what bubble teat are they sucking on now that has the money flowing again because it sure isn't based on how well American enterprise is doing.
Not any more than an insurance payout means I should not insure
The crisis was and is clearly profound and bad. It was needed. That the insurance payout (the bailout) has allowed an interim return to profitability is a statement of *initial* success. a couple of quarters are not the resolution of the crisis. 1929 dragged out to 1933....
Insurance?
The bankers bought no insurance, unless you mean that buying politicians of both parties is "insurance". We used to call it "protection".
The Trillions wasted in the bailouts will not stop this Great Depression, which will be dated to 1999. But instead of using this money to help hungry people, the Communist bankers sucked it all up, abandoning all claim to being "capitalists" in the process.
JPMorgan Chase is Insolvent, let them die, for the good of us all. The US does not need Zombie banks.
"the next bubble is already
"the next bubble is already in the works "
This has already happened with respect to banks. Almost 3000 banks failed in 1982-1992 (and about as many S&Ls). There are less than 7000 left now. Some people learned from this; big bankers learned how to get the government to pay for their mistakes. Others, such as those in Congress then and now, did not learn, or were persuaded by bank money to continue to deregulate.
For all the ranting and
For all the ranting and raving about Wall Street, you fail to realize you want the government to do the exact same thing. Right now, Wall Street is making money off of debt. This, to you, is bad. Except when it comes to the federal government. Then, spending and deficit spending and raising the debt is A-OK.
Right now, Wall Street is not creating wealth, or investing it. It's making money off of debt. The federal government, no matter what you think, does not create wealth. At best, it spends its citizens' wealth. These days, mostly it spends our debt. You can only create wealth in the private sector.
Quit crying about Wall Street. When shareholders get tired of paying these compensation packages, they will stop. But right now, they are perfectly willing to pay them because making money off of debt is pretty much the only way to make good money in today's market.
You want America to get back to creating wealth and jobs and real companies and not financial entities that trade debt back and forth? Great. Me too. Now make it easier for companies and persons to do so. A great way to do that is encourage the entreprenurial spirit, rather than taxing it to kingdom come.
Letting people know that they won't be soaked by some health-care "reform" and cap-and-trade taxes would also be good, but I know that won't go far in this crowd.
You're wrong, but you're right
MacGruber: "Letting people know that they won't be soaked by some health-care "reform" and cap-and-trade taxes would also be good, but I know that won't go far in this crowd."
You're wrong on the first count, but correct on the second, so bugger off.
wealth
Why does this myth persist that only the private sector can create wealth? (OK, I know the answer.)
Government has more to do with creating wealth than we have been lead to believe – not only indirectly, through tax and tariff policies, for example, but also directly. WHO spends the money is not nearly as important as WHAT the money is spent on. A tax-supported government expenditure on renewable energy subsidies, for example, is far more stimulative and beneficial to the economy, I would argue, than a rich person's tax-break-supported purchase of a diamond ring – or whatever the latest schlocky fad is that we poor schlubs might be chasing and will likely end up in a landfill in a few weeks.
You mistake us for them
Many of "us" are free market capitalists.
It is the Communist, begging, failed Bankers who got so greedy, and criminal, that they broke the system.
Most of us have no problem with bonuses, high pay, low taxes etc.
Just don't allow criminals to take over.
Try enforcing the rules that already exist.
Try to remove the Golden Egg without ripping open the Gooses A**hole.
Let's take back this debate!
Wealth creation...
The federal government, no matter what you think, does not create wealth.
It creates the possibility of creating wealth.
The invisible hand of
The invisible hand of Washington cronyism.
To everyone but MacGruber
Right, right, right, right, right.
The problem has been clearly identified. A couple good solutions exists. What are we lacking?
A champion. He must come from the ultra-rich, and he must be able to rally his peers around his cause.
Lacking a champion we are facing revolution, a global revolution, with all that entails.
Tell me I'm wrong.
Tripp
"Tell me I'm wrong." OK. I
"Tell me I'm wrong."
OK. I won't simply because you asked me not to.