Archive for February 17th, 2012
9 Kick-Ass Things Obama Should Do In a Second Term
The chances are rising for an Obama second term. But what do we really want him to do?
February 17, 2012 |
Lady Luck may be smiling once again upon President Obama. The unemployment rate is coming down from post-WWII highs, the Grand Old Party is having a grand old time demolishing itself, and the chances are rising for an Obama second term — this week his favorability ratings went into positive territory for the first time in months. His chances of re-election are running at 60 percent on Intrade, the betting market.
But what do we really want him to do? Is our only wish that Obama be better than whichever right-wing Neanderthal he runs against? Or do we have a compelling vision for America we’d like him to enact? If so, what is it?
To get this debate going, here’s a modest list I believe would have resonance with the vast majority of Americans, assuming the president really gets behind them. (My editor warned me not to go off the deep end, so forgive me for not aiming too high.)
1. Free higher education at all public institutions of higher education.
The airwaves are full of pious bluster about how America needs a more educated workforce in order to compete globally, blah blah blah. Yet we have no compelling public policy to get us there. Instead, students are becoming indentured servants as they struggle to pay back enormous student loans. It’s about time we learned from the GI Bill of Rights, which allowed millions of WWII-era veterans to go to school for free.
Now is the time to do the same for all Americans by waiving tuition at every public college and university in the country (including community colleges and graduate schools). You get in, you go for free. Yes, it’s a costly program, maybe $50 billion or more per year. (We’ll get to revenue questions below.) But the impact on our economy and society would be immensely positive.
First of all, eliminating tuition would send millions back to school. That alone would lower the unemployment rate rapidly. Second, millions of new education-related jobs would be created to meet the increased demand — jobs that could not be outsourced. And most importantly, we’d have a much smarter workforce and a more informed population, which is crucial both for our economy and our democracy.
2. Add a million teachers (and teachers’ aides) to the public school system.
It’s a disgrace that local school districts all over the country are cutting back on teachers due to a financial crash caused by Wall Street’s greed. It’s even a bigger disgrace that the gap in educational outcomes between rich and poor students is widening. One effective antidote is for the federal government to fund local school districts to add a million new teachers over the next year. Not only would such a program help increase the educational outcomes of all children, but also, it would cut deeply and quickly into the unemployment rate. There is no better way to put our people to work.
3. Medicare for all.
It’s time for the president to admit that his hodge-podge healthcare program is deeply flawed. It should be replaced as soon as possible with a single payer/Medicare-for-all system. We need a simple, easy-to-use system that gives everyone access to good healthcare — including preventive care — from cradle to grave. No more employer-provided insurance. No more private insurance companies figuring out how to avoid paying claims. No more wasteful administrative BS. If Canada can do it, so can we…but only if the president fights for it for the next four years.
4. Manhattan Project for renewable energy.
To help win WWII, America created the massive Manhattan Project to build the first atomic weapons. To help win the Cold War, American created NASA and won the race to the moon. To win the battle against climate change, we’ll need a similar effort to create the next generation of renewable energy technologies to replace fossil fuels. Not only would such a project lead to a new, clean energy infrastructure, but the knowledge gained along the way would invigorate nearly every industry in our economy.
5. Financial transaction tax.
How do we pay for free higher education, a million more teachers, universal healthcare and a Manhattan Project for renewable energy? Place a small tax on each and every sale of stocks, bonds, futures and derivatives. That’s the most efficient way to move money away from the wasteful financial casinos and move it to more productive sectors of the economy. At the moment, the vast majority of all stock market trades come from speculators, especially from high-frequency traders. It’s time they made a contribution to the rest of society. A relatively small financial tax could generate $150 billion a year.
6. Break up the big banks.
President Obama and his key financial aides spent most of his first term preserving our banking structure. Yes, there are more rules (which are far too weak), but the too-big-to-fail banks are even bigger now and everyone knows it. Everyone also knows that we’ll bail out the bastards yet again whenever their gambling threatens the system. It’s time to end this sham: No bank or hedge fund shall have more than $10 billion in assets. Instead of a handful of major banks, we’d have hundreds of smaller ones. I know, I know. It’s hard to imagine Obama and Geithner having the nerve to push such a program. But that doesn’t mean we shouldn’t push them to the wall on this issue.
7. Fifty-percent income tax on all income over $5 million a year (with no loopholes).
Under Eisenhower, the top marginal tax rate was 91 percent. Today the effective rate on those making a million bucks or more is 23 percent — and the richest 400 families pay barely 16 percent. For Mitt Romney, it’s only 13.9 percent. Instead of haggling about raising the top rates on those earning $250,000 or more, President Obama should target the big fish – those who have walked off with our nation’s wealth. He should remind the public that the Wall Street scamsters (who milked the housing bubble and then ran for cover) did not have to give back their fictitious gains. He should remind the nation that the bailouts saved these millionaires’ butts. It’s time to pay us back.
8. Get behind a constitutional amendment to end the buying of elections.
Our political financing system is a total, unmitigated disaster, made even worse by the Supreme Court. Every politician is up for sale and Americans are disgusted by it. The only reform that will work is a constitutional amendment that eliminates big money from politics and replaces it with a sane system of public financing. This issue should be a no-brainer for the president to embrace.
9. Legalize pot/empty the prisons.
By any measure, we lead the world in people who are in prison, on parole and on probation. More than half of the “criminals” in our federal judicial system are there because of drug-related crimes. Since the war on drugs took off 25 years ago, our penal population has risen from 300,000 to more than two million, making the prison system the biggest growth industry in the country. And urban minorities are disproportionally represented. Prohibition didn’t work on booze and it doesn’t work on drugs either. It’s certain the president understands this issue. But does he have the courage to speak out?
A New Agenda
Dream on, you say? Won’t the Republican House (should there still be one) kill all these ideas? Or if the Republicans don’t, won’t the Democrats cave in?
Well, you’re absolutely right. But that’s not the point. We can’t get from here to there unless we articulate a new agenda that would really make a difference in our everyday lives. I don’t care if the president loses each and every battle for this kind of agenda, as long as he really makes the case for a new direction and shifts the terms of debate. We don’t need Obama to start every battle by accepting the right’s framework (as in he did in the debt reduction debate). We don’t need Obama to come up with flaccid compromises that walk us backward (as he did in the healthcare debacle). We need a president who really leads — and not just when he’s running for office.
But the problem is not just Obama’s. It really starts with the rest of us who fear we will hurt the Democrats if we push too hard for major reforms. We want President Obama to be the next FDR, but we don’t know how to build the kind of mass movement that made FDR possible. One of these days we’ll realize that profound change will come only if we build an independent 99 Percent movement based on bold ideas. And yes, that will take years to build. In the meantime, we need to keep alive the vision of a more just, equitable and sustainable society by asking for what we really want.
That’s my list. What’s yours?
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and 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, 2009).
© 2012, agentleman.
Why Right-Wingers (and Media Hacks) Are Totally Wrong About What Americans Believe — We’re Becoming Less, Not More, Conservative
Americans’ views on the most pressing issues of the day are actually solidly progressive, so why do the media keep getting the story wrong?
Despite some misguided triumphalism on the Right, America is not getting more conservative. In fact, if you look at lots of public opinion polls, you’ll find that just the opposite is true—Americans’ views on the most pressing issues of the day are actually solidly progressive, with strong support for the social safety net and growing support for once-controversial social issues like marriage equality.
Nevertheless right-wing and center-contrarian media outlets love to jump on polls that identify Americans as conservative, without ever asking what the difference is between what your average Ohioan means by that word and what Marco Rubio means when he announces at CPAC that “the majority of Americans are conservatives.”
(Rubio’s inaccurate comments sparked a controversy and prompted a vehement reaction from Rachel Maddow this week, as Politifact debunked his statement—but then rated it “mostly true” anyway, proving the pervasiveness of the myth of conservative America.)
An article by the Atlantic’s Richard Florida titled, “Why America Keeps Getting More Conservative,” is an excellent example of the problem of relying on nebulously defined, self-identified “conservatism” as a measure of ideology. Florida cites new Gallup poll numbers (the same ones Rubio and Politifact cited) that the polling outlet itself said provided little evidence that America is “track[ing] right.” Gallup offered the far more innocuous headline, “Mississippi Most Conservative State, D.C. Most Liberal,” with the subhead: “State patterns in ideology largely stable compared with previous years.”
But “nothing has changed” doesn’t make a good headline, and so Florida hooked an entire story on a false premise that belies the conclusions drawn by the pollsters he cites. Gallup goes on to point out, “Unlike political party identification, which has shifted significantly over the last four years, the state-by-state patterns in ideology have remained remarkably stable this year compared with previous years.”
And Ed Kilgore at the Washington Monthly noted:
If you look at the Gallup data on which Florida’s entire “analysis” (mainly just a charting of ideological self-identification by state) rests, it certainly doesn’t show any dramatic recent rightward trend. The percentage of Americans self-identifying as “conservative” since 1992 has varied from a low of 36% to a high of 40% (a high it reached in 2004, before dropping to 37% in 2008). As it happens, the percentage of Americans (again, according to Gallup) self-identifying as “liberal” has also gone up 4% since 1992 (from 17% to 21%). The percentage self-identifying as “moderates” has, accordingly, drifted down from 43% in 1992 to 35% in 2011, though the number was only two points higher in 2007 and 2008.
So this is a non-story given a clickworthy headline. Yet the willingness of writers and editors to greenlight stories on the myth of “conservative” or “center-right” America – and the willingness of supposed fact-checkers to support the idea – shows that this is a myth with incredible staying power in the American imagination. Why is that?
What Is a “Conservative,” Anyway?
When politicians speak to the Conservative Political Action Conference, as AlterNet’s Adele Stan reported this week, they consider “conservatism” to be rigid opposition to abortion (and this year we’re throwing birth control into that category as well), a deep aversion to taxes (for the rich, anyway) and a hatred of immigrants. Some years conservatism also includes a willingness to bomb whichever majority-Muslim country looked at us funny. If Rick Santorum is right, conservatives think the more energy they waste, the better they are, and if Newt Gingrich is to be believed, there’s nothing they hate more than unemployment insurance.
But when Americans tell a pollster how they identify, most of them show their true colors, and it’s not a deep red. As Paul Waldman of Media Matters for America noted back in 2008, “People who know a lot about politics — like journalists — assume that ordinary people have the same interpretation of those terms as political junkies have. But the truth, as nearly a half-century of political science research has made clear, is that a significant portion of the public has little or no idea of what these terms mean in the political world. A third of the public can’t even tell you which of the two major parties is the ‘conservative’ one.”
And Ezra Klein pointed out in 2010, even noted right-leaning pollsters have found for decades that more Americans self-identify with the Democratic party. So clearly, there’s some space between what the GOP thinks “conservative” means and what the general public does.
The fact is that most Americans don’t identify their political positions on a left-to-right spectrum the way journalists and political scientists do. As veteran organizers know, people vote with their guts, and their reaction to issues is both visceral and complicated. Thomas Ferguson, professor of political science at the University of Massachusetts at Boston and senior fellow at the Roosevelt Institute, told AlterNet, “On specific concrete issues the population often likes a lot policies that are belied even by the labels they sometimes choose.”
Choosing three words like “conservative,” “moderate” and “liberal” as the only options to describe one’s politics is, as Kilgore noted, a flawed methodology that tells us literally nothing about what those people actually support.
Polls are not always a reliable way to judge public opinion in the first place, Ferguson, who previously worked with the New York Times‘ pollster, pointed out. “If you do really careful samples and ask really careful questions you can usually learn a lot about true opinion. But that’s difficult and expensive and most polls don’t do this.”
Florida’s story, for instance, doesn’t describe the questions actually asked of responders. Ferguson explained that when it comes to issues on which people have conflicted opinions—like abortion—the way in which the question is asked or even the order in which questions are asked can change the response significantly. This phenomenon is called “priming” and happens subconsciously, but can still complicate or invalidate results.
A 2009 study from the Center for American Progress tried a more specific calculation of Americans’ views, based not on which words they chose but their actual political positions:
Based on an innovative categorization of ideology, calculated from Americans’ responses to 40 statements about government and society split evenly between progressive and conservative beliefs, the American electorate as a whole records a mean ideological score of 209.5 in the Progressive Studies Program measure of composite ideology—solidly progressive in orientation. This figure is based on a composite scale of “0” to “400” with “0” being the most conservative position on the continuum and “400” being the most progressive. Americans are most progressive about the role of government and least progressive on cultural and social values. Ideas about economics and international affairs fall in-between.
And a new paper presented last month at the annual meeting of the Society for Personality and Social Psychology found that political polarization in the U.S. has hardly changed at all in the last 40 years—but that Americans vastly overestimate how polarized we are. In a separate study presented at the same conference, another psychology professor looked at the reasons behind that perceived polarization, examining why people who are extremely partisan assume that others are as well, and found that projection, unsurprisingly, plays a role—those with strong views project their strong views onto others.
Which may explain part of the problem when it comes to the media and politicians. Marco Rubio, a right-wing Republican, obviously believes that when people identify as conservatives, they’re just like him. And PolitiFact’s team and Richard Florida, as well as other reporters, are steeped in a culture of conventional wisdom and stock narratives into which they fit information they receive. The problem, though, is that those narratives and conventional wisdom are often based on little in the way of hard evidence—and are often counter to reality.
Where Are We Really?
If most Americans don’t really identify themselves on a left-right scale, and often hold complex and conflicted opinions on subjects that don’t line up politically with the labels they choose, how do we figure out what people really think?
In a 2011 paper (PDF) on the polarization of Congress, Ferguson pointed out that it may well be a mistake to assume that people vote based on “hot-button” issues like abortion or gay rights. “Huge numbers of people holding hot-button attitudes continue to affiliate with the ‘wrong’ political party,” he noted. (This played out in California, when the referendum banning same-sex marriage passed at the same time Obama swept the state’s presidential vote.)
In the same paper, Ferguson also noted, “To the extent any ideological change at all shows, it is as often as not slightly leftward. On some issues, such as same sex marriage, public opinion has moved sharply in that direction.”
But while we caution anyone not to read too much into polls, there are several issues on which the American public has been fairly well surveyed, and those polls show that the progressive position is not just popular, but extremely popular. People’s view of Social Security, for instance, remains overwhelmingly positive—79 percent think it is “good for the country”–despite repeated right-wing attempts to cut benefits and convince Americans that private accounts are the solution. Eighty-eight percent of Americans like Medicare, the single-payer health insurance program for those over the age of 65, and 77 percent of them are fans of Medicaid, the healthcare program for the poor.
In September, Americans favored taxing the rich and eliminating tax deductions for corporations, according to another Gallup poll—and by big margins, too, with 70 percent in favor of tossing the loopholes and 66 percent in favor of taxing those who make over $200,000 more ($250,000 for families). And a poll last April found that even 54 percent of Republicans favored higher taxes on the wealthy.
(One piece of Florida’s report that was interesting was that so-called conservative political affiliation strongly correlated with a large percentage of blue-collar workers in a state, but those self-identified conservatives “appear to be split along class and income lines when it comes to the issue of whether government should provide help for the poor.” He cited a survey by the Pew Research Center, which found that 57 percent of Republicans with family incomes of less than $30,000 said that government does not do enough for the poor. Unsurprisingly, the rich Republicans think the government is giving too much of their money away. Of course, Florida doesn’t bother extrapolating this information to the idea that maybe conservatism as defined by Republican politicians simply isn’t as popular as its reputation, but that would be complicated.)
The Republicans, at the moment realizing that they won’t beat Obama on the economy with a plan that includes cutting taxes on the rich, seem to have pivoted to the classic “culture war” issues, presuming that they can win there. But they might want to take note of some polling data taking stock of the latest ridiculous right-wing non-controversy—Americans seem to like their birth control (99 percent of women who have had sex have used some form of it) and at least 56 percent of them think that health insurance should cover it. (And just for the sake of argument—Catholics haven’t abandoned Obama en masse over birth control, either, with 46 percent of them approving of the president during the week in which we saw a very public temper tantrum from the Catholic bishops over contraception coverage in health insurance, down only three points from the week before. And churchgoing and nonchurchgoing Catholics feel about the same about the president.)
Gay marriage, as Ferguson pointed out above, is an issue on which the public has largely swung more progressive—for the first time, in 2011, a majority of 51 percent favor same-sex couples being allowed marriage rights (from an average of four polls conducted by different organizations). And what polls even better than marriage equality? Protection from workplace discrimination on the basis of sexual orientation or gender identity. Indeed, this is so popular that nearly three-fourths of Americans believe it should be a law, and 9 out of 10 of them think it already is.
In his Atlantic story, Florida provides graphs mapping demographic characteristics that correlate with the more self-identified “conservative” parts of the country. While many of his points seem pretty obvious (more diverse areas of the country are less conservative! College graduates are more liberal!) they also, if he chose to dig any deeper, would spell disaster for his conservative-creep theory.
As Ruy Teixeira pointed out in a Center for American Progress report in 2009, the demographics aren’t on the conservatives’ side. Younger voters are trending progressive, and voters of color will be a greater and greater percentage of the population as time passes. “By the election of 2016, it is likely that the United States will no longer be a majority white Christian nation,” Teixeira wrote.
And perhaps reflecting that shift in demographics, a recent Pew Research Center poll found that most Americans consider the conflict between the rich and the poor to be the greatest source of tension in American society—two-thirds of us, up about 50 percent from a 2009 survey. Richard Morin, a senior editor at Pew, credited Occupy Wall Street, among other things, for pushing the shift in national opinion. “The story for me was the consistency of the change,” he told the New York Times. “Everyone sees more conflict.” (In 2009, by contrast, immigration was seen as the largest source of conflict.)
Media outlets report on these polls individually all the time, but rarely bother to refer back to earlier studies when new ones come out—particularly one, like the Gallup poll, which seems to offer a sweeping conclusion easily demagogued by politicians like Marco Rubio. Politics these days is all about the campaign, and the media is all about the sound bite. Calculating where the American public actually stands on an issue, rather than sweeping them into a category called “conservative” or “liberal” is a complex affair, and reporters and pundits prefer simple answers.
The fact is, though, as Rachel Maddow pointed out, the simple answer in this case is very simply wrong. Americans aren’t getting more conservative, a majority of the country is not Republican or Republican-leaning, and if anything, we’re swinging the other way—which should make all of us who don’t subscribe to Rubio and Newt Gingrich’s version of America sleep better at night.
© 2012, agentleman.
Everybody on Wall Street is talking about the new piece by New York magazine’s Gabriel Sherman, entitled “The End of Wall Street as They Knew It.”
The article argues that Barack Obama killed everything that was joyful about the banking industry through his suffocating Dodd-Frank reform bill, which forced banks to strip themselves of “the pistons that powered their profits: leverage and proprietary trading.”
Having to say goodbye to excess borrowing and casino gambling, the argument goes, has cut into banking profits, leading to lower bonuses and more extreme decisions like Morgan Stanley’s recent dictum capping cash bonuses at $125,000. In response to that, Sherman quotes an unnamed banker:
“After tax, that’s like, what, $75,000?” an investment banker at a rival firm said as he contemplated Morgan Stanley’s decision. He ran the numbers, modeling the implications. “I’m not married and I take the subway and I watch what I spend very carefully. But my girlfriend likes to eat good food. It all adds up really quick. A taxi here, another taxi there. I just bought an apartment, so now I have a big old mortgage bill.”
Quelle horreur! And who’s to blame? According to Sherman’s interview subjects, it has nothing to do with the economy having been blown up several times over by these very bonus-deprived bankers, or with the fact that all conceivable public bailout money has essentially already been sucked up and converted into bonuses by that same crowd.
No, it instead apparently has everything to do with the Dodd-Frank bill, and specifically the Volcker rule banning proprietary trading, which incidentally hasn’t gone into effect yet.
He quotes Dick Bove, the noted analyst who last year downgraded Goldman Sachs. Bove’s quote on the bonus sadness:
“The government has strangled the financial system,” banking analyst Dick Bove told me recently. “We’ve basically castrated these companies. They can’t borrow as much as they used to borrow.”
When I read things like this I’m simultaneously amazed by two things. The first is the unbelievable tone-deafness of people who would complain out loud, during a time when millions of people around the country are literally losing their homes, that their bonuses – not their total compensation, mind you, but just their cash bonuses, paid in addition to their salaries and their stock packages – are barely enough to cover the mortgage payments for their new condos, the taxis they take when walking is too burdensome, and their girlfriends with expensive tastes.
The second thing that amazes me is that Sherman is buying all this. I don’t know this reporter at all, and I’m happy to concede that he probably hangs out with more Wall Street people than I do. But I’m still in touch with plenty of people in the business, and I have yet to have any investment bankers crying on my shoulder about how the Dodd-Frank bill is forcing them into generic breakfast cereals.
Now, I’m sure if you put it to them the right way – “Hey, Mr. Habitually Overpaid Banker, do you think Barack Obama and the Dodd-Frank bill are ruining your bonus season?” – you’ll get a good percentage of people who’ll take that cheese and cough out the desired quote.
But in reality? Please. Wall Street people complain a lot, but in the last six months, the grave impact of Dodd-Frank on bonuses hasn’t even been within ten miles of the things these people are really panicked about. The comments I’ve heard have been more like, “My asshole has been puckered completely shut for four months in a row over this Europe business,” or, “If the ECB doesn’t come up with a Greek bailout package, I’m going to have to sell my children for dog food.”
Bonuses are indeed down this year, especially when compared with the bonuses of recent years, but let’s be clear about why. It has nothing to do with Dodd-Frank. We can posit three other factors:
1. Banks have unfortunately had to give up the practice of simply printing trillions of dollars out of thin air by selling off worthless mortgages for huge profits and/or making millions of synthetic copies of those same worthless mortgage assets;
2. After twice being saved from the execution chamber by Ben Bernanke’s Quantitative Easing programs, which printed trillions of new dollars and injected them straight into Wall Street’s arm, Wall Street was rocked this summer when Helicopter Ben decided to temporarily forestall QE3;
3. Europe, a slightly more than minor factor in the global financial picture, is imploding, causing mass hoarding of assets all over the world, severely impacting the business of investment banks everywhere.
Now, Gabe Sherman barely even mentions Europe in his article, which is interesting, because the banks on whose behalf he wails so loudly in this piece have mostly all pointed to Europe as more or less the sole reason for their reduced revenues of late.
Take for instance Lloyd Blankfein and Goldman, Sachs. Lloyd has the most famous reduced bonus on Wall Street – he’s making $7 million this year (it was $12.6 million last year) as his bank, Goldman, had a disastrous fourth quarter. Goldman’s $6.1 billion in revenues was down 30% off last year’s fourth quarter. To what does the big Lloyd attribute this sad development?
“This past year was dominated by global macro-economic concerns which significantly affected our clients’ risk tolerance and willingness to transact,” Blankfein said, “While our results declined as a consequence, I am pleased that the firm retained its industry-leading positions across our global client franchise while prudently managing risk, capital and expenses. As economies and markets improve – and we see encouraging signs of this – Goldman Sachs is very well positioned to perform for our clients and our shareholders.”
Translation: Europe is such a mess right now that all our biggest clients are sitting on their money instead of letting us steal it from them. However, once Europe rebounds, as we expect it to, we will be well positioned to start stealing from them again.
Goldman’s numbers offer a hilarious counterpoint to Sherman’s piece. The bank’s earnings in total for last year were $4.4 billion, down some 65% off of last year’s numbers. Its revenues for the year were down 26%. Despite these bummerific numbers, Goldman reduced bonuses and compensation by only 21%, down to (a mere) $12.2 billion. If the era of outsized bonuses is over, how come the biggest banks aren’t even cutting them to match revenues, much less profits? One could even interpret Goldman’s numbers as a major increase in the size of the bonus pool, relative to earnings.
But what about other banks? Well, Citigroup also saw a drop in revenues for the year (although its net income actually went up, from $10.6 billion to $11.3 billion). But what was most concerning was the bank’s crappy fourth quarter, when it suffered an 11% drop in earnings.
So where did CEO Vikram Pandit lay the blame for the lost revenue? Dodd-Frank? Reduced leverage? Uh, no. He blamed Europe, too:
“Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment,” Pandit said.
How about JP Morgan Chase? The bank’s CEO, Jamie Dimon, was breathlessly quoted in the Sherman piece, and in fact had this to say to Sherman about the culture change:
“Certain products are gone forever,” Dimon tells Sherman. “Fancy derivatives are mostly gone. Prop trading is gone. There’s less leverage everywhere.”
So it’s prop trading and derivatives that’s the problem? That’s not what Wall Street analysts said, when Chase posted a 23% drop in earnings in the fourth quarter. While Dimon in a Q&A last month did go off on the potential problems the Volcker rule might inspire in the future, he was careful to note that those problems are still very much future problems (“I’m going to put Volcker aside, okay, because that really hasn’t been written yet”).
But virtually every headline about Chase’s fourth-quarter earnings drop pegged Euro troubles.
“JPMorgan Chase (JPM) ended a long run of profit gains when it logged a steep drop in fourth-quarter earnings Friday, as weakness in Europe contributed to a decline in investment banking revenue,” wrote Investor’s Business Daily.
The Telegraph commented thusly: “JPMorgan Chase chief executive Jamie Dimon struck a positive note on the outlook for the US economy even as Europe’s debt crisis dragged down the bank’s quarterly profits.”
And Dimon himself seemed to go along with his counterparts at Goldman and Citi in blaming macro troubles for the recent drop, talking about issues with the “current environment”:
The bank’s third-quarter profit fell 4% as its businesses were hit hard by Europe’s financial woes and the fragile recovery in the United States. JP Morgan’s investment banking division would have reported a loss without a $1.9bn accounting adjustment …
“All things considered, we believe the firm’s returns were reasonable given the current environment,” said Jamie Dimon, JP Morgan’s chairman and chief executive.
When I look at the revenue and bonus numbers on Wall Street this year, I see a number of companies that, despite being functionally insolvent in reality and dependent upon a combination of corrupt accounting and cheap cash from the Fed to survive, are still paying out enormous amounts of money in compensation.
In fact, when one considers the lost billions and trillions from the end of the mortgage bubble scam and the expiration of the quantitative easing program, it’s pretty incredible (one might even call it an inspirational testament to the industry’s dedication to the cause of high compensation) that bonuses are even in the same ballpark as they used to be.
And all of this is just looking at things from a bottom-line, Wall-Street-centric point of view. Looking at the question from the point of view of an ordinary human being, however, Sherman’s thesis is even more nuts. He’s written a sort of investment-banking version of Jimmy Carter’s “malaise” speech, complaining about a lost era of easy money, when in fact there are two damning realities he’s ignored:
1. He’s wrong. See the above argument about Europe, QE, etc.
2. Even if he wasn’t wrong, which he is, his reaction to the “news” that Wall Street’s outsized bonuses are dropping is all wrong. If it were true, it would be good news, not bad news.
Since 2008, the rest of America has suffered a severe economic correction. Ordinary people everywhere long ago had to learn to cope with the equivalent of a lower bonus season. When the crash hit, regular people could not make up the difference through bailouts or zero-interest loans from the Fed or leveraged-up synthetic derivative schemes. They just had to deal with the fact that the economy sucked – and they adjusted.
This ought to have been true also on Wall Street, but in a curious development that is somehow not addressed in Sherman’s piece, the denizens of the financial services industry managed to maintain their extravagant lifestyle standards in the middle of a historic global economic crash that, incidentally, they themselves caused.
After suffering one truly bad year – 2008, in which the securities industry collectively lost over $42 billion – Wall Street immediately rebounded to post record revenues in 2009, despite the fact that the economy at large did nothing of the sort. The numbers were so huge on Wall Street compared to the rest of the world that Goldman slashed its 4th-quarter bonuses, just so that the final bonus/comp number ($16.2 billion, down from what would have been $21 billion) didn’t look so garish to the rest of broke America.
What Sherman now argues is that Dodd-Frank has so completely hindered Wall Street’s ability to magically invent profits through borrowing and gambling that, unlike those wonderful days in 2009, its fortunes are now reduced to rising and falling – heaven forbid – along with the rest of the economy. Things are so bad, his interview subjects argue, that one is now more likely to make big money going into an actual business that makes an actual product:
“If you’re a smart Ph.D. from MIT, you’d never go to Wall Street now,” says a hedge-fund executive. “You’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg.”
Once upon a time, Sherman argues, banking was boring. “In the quaint old days, Wall Street tended to earn its profits rather boringly by loaning money, advising mergers, and supervising bond issues and IPOs,” he writes. But then, in the eighties, the business became “turbocharged” when new ways to create leverage were introduced. A sudden surge in credit turned this staid business into the realm of super-compensated superheroes:
Credit was the engine that powered the explosion in bank profits. From junk bonds in the eighties to the emerging-markets crisis in the nineties to the subprime mania of the aughts, Wall Street developed new ways to produce, package, and sell debt to willing investors. The alphabet soup of complex vehicles that defined the 2008 crash – CLO, CDO, CDS – had all been developed to sell more credit.
But all of this leverage led to problems, Sherman grudgingly concedes, and those problems led to reforms, and now Wall Street is being threatened with a return to those “quaint” days of loaning money and supervising bond issues and such.
Such a return is being demanded by the 99-percenters, much-loathed by Sherman’s interview subjects and portrayed as a bunch of ignoramuses who don’t understand where their bread is buttered. In New York especially, it’s the regular people, he argues, who benefitted from all that crazy leverage. Why, without ginormous leverage-generated bonuses, New York would be …Philadelphia!
Consciously or not, as a city, New York made a bargain: It would tolerate the one percent’s excessive pay as long as the rising tax base funded the schools, subways, and parks for the 99 percent. “Without Wall Street, New York becomes Philadelphia” is how a friend of mine in finance explains it.
Sherman then goes further:
In this view, deleveraging Wall Street means killing the goose.
Look, the financial services industry should be boring. It should be quaint. Let’s take the municipal debt business. For ages, it was a simple, dull, low-margin sort of industry, in which banks arranged municipal bond issues and made small but dependable profits as cities and towns financed improvements and construction projects.
That system worked seamlessly for decades, until people like Sherman’s interview subjects suddenly decided to make the business exciting. You know what happens when you make municipal debt exciting? Jefferson County, Alabama happens. Or, on a macro level, Greece happens.
When making a few points on mere bond issues stops being enough, and you have to cook up crazy swap schemes and indices to bet against those schemes, ingenious scams allowing politicians to borrow billions of dollars that they will never in a million years be able to pay back, you might end up getting a few parks, schools, and subways in New York.
But what you get everywhere else is a giant clusterfuck that costs the rest of us years and even more billions of tax dollars to remedy.
This is what the protests are all about – it’s anger that Wall Street has been profiting from an imaginary economy that leaves bankers overpaid, but creates damage everywhere else. Sherman doesn’t get this. He seems to subscribe to the well-worn straw-man position that protesters are simply upset that bankers and financiers make a lot of money. Take for example his view on John Paulson, the hedge fund titan who was involved in Goldman’s infamous Abacus deal:
In October, a thousand protesters stood outside John Paulson’s Upper East Side townhouse and offered the hedge-fund billionaire a mock $5 billion check, the amount he earned from his 2010 investments. Later that day, Paulson released a statement attacking the protesters and their movement …. The truth was, Paulson was furious that the protesters had singled him out. Last year, he lost billions of dollars on bad bets on gold and the banking sector. One of his funds posted a 52 percent loss. “The ironic thing is John lost a lot of money this year,” a person close to Paulson told me. “The fact that John got roped into this debate highlights their misunderstanding.”
Hey, asshole: nobody misunderstands anything about John Paulson. They’re not mad that he made billions the year before, and they’re not happy that he lost money this year. They’re mad that the way he made his money in previous years – which involved putting together a born-to-lose portfolio of toxic mortgage bonds and then using Goldman Sachs to dump them on a pair of European banks, who in turn had no idea that Paulson was betting against them.
At least part of this transaction was illegal (so ruled the SEC, anyway), and all of it looks pretty damned underhanded. And if the benefit to society from this sort of work is the tax money New York City received from the proceeds of this fleecing, well, we’re willing to go without those taxes, thank you very much.
Listening to Wall Street whine about how it is misunderstood is nothing new. It’s been going on for years (often in that same mag). But if Sherman’s piece heralds a new era of Wall Street complaining about how it is not only misunderstood but undercompensated, you’ll have to excuse me while I spend the next month or so vomiting into my shoes.
The financial services industry went from having a 19 percent share of America’s corporate profits decades ago to having a 41 percent share in recent years. That doesn’t mean bankers ever represented anywhere near 41 percent of America’s labor value. It just means they’ve managed to make themselves horrifically overpaid relative to their counterparts in the rest of the economy.
A banker’s job is to be a prudent and dependable steward of other peoples’ money – being worthy of our trust in that area is the entire justification for their traditionally high compensation.
Yet these people have failed so spectacularly at that job in the last fifteen years that they’re lucky that God himself didn’t come down to earth at bonus time this year, angrily boot their asses out of those new condos, and command those Zagat-reading girlfriends of theirs to start getting acquainted with the McDonalds value meal lineup. They should be glad they’re still getting anything at all, not whining to New York magazine.
© 2012, agentleman.