Joseph Stiglitz: Wall Street is Fooling You... Again
This is predictable: Wall Street is messing with you.
At a Paris conference on new approaches to capitalism last week, Nobel winning economist Joseph Stiglitz told reporters that "Wall Street is talking up the recovery because it would like to sell stocks." This is consistent with the financial industry's shady tactics that David Corn and Kevin Drum discussed last Friday on Bill Moyers' Journal. Instead of acting morally, Wall Street executives will do whatever they can to make a buck. And it's all legal under our easygoing financial regulations.
In the current issue of Mother Jones, Stiglitz attacks this moral bankruptcy head on. If we know that these economic villains knowingly trashed our economy, he asks, why do we let them get away with it? Here's an excerpt:
How the market has altered the way we think is best illustrated by attitudes toward pay. There used to be a social contract about the reasonable division of the gains that arise from acting together within the economy. Within corporations, the pay of the leader might be 10 or 20 times that of the average worker. But something happened 30 years ago, as the era of Thatcher/Reagan was ushered in. There ceased to be any sense of fairness; it was simply how much the executive could appropriate for himself. It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance. In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high. The bankers knew—or should have known—that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses.