Wall Street: Land of the Million Dollar Babies
Wall Street is know around the world as the land of the million dollar babies since is chock full of people who have gotten incredibly rich as a result of handouts from the government. These handouts come in all forms, but most in the size extra large. The basic story is always the same; the banks and financial firms take gambles that provide big payoffs for their shareholders and "top performers" and pass along big risks to the taxpayers.
The TARP and the associated bailouts through the Fed were the most obvious example. The industry and their paid hacks are telling us that we shouldn't be upset about these deals because we got repaid most of our money. The reality was that we gave the banks the money they needed to survive in the midst of a financial panic. They used this money - and the backing of the federal government - to restore themselves to health.
While we may have gotten most of our money back, the loans we gave them were way more valuable at the time they were given. This is like giving someone water in the middle of the desert.
When we get back to the lush lakeside in the middle of a rainstorm, they generously offer to repay us. Of course, a big part of the story is that the banks relent the money to other people who were dying of thirst and kept the profit. Yes, we should be happy - tell that to the 15 million unemployed and the millions who are losing their homes.
We had some hopes of reining in the million dollar babies with the financial reform package, but those hopes appear to be dimming. The effort to downsize the "too big to fail" banks got trounced in the senate last week, garnering just 33 votes. Apparently, the prospect of having to head out into the markets unprotected by the implicit guarantee of government bailouts was too frightening for JP Morgan, Goldman Sachs and the other big banks. Their lobbyists twisted the arms and got the overwhelming majority of the senate to continue the big bank subsidy of free government insurance indefinitely.
There is still another good opportunity to rein in the banks ability to gamble with our money. Senators Merkley and Levin have proposed an amendment that would prohibit commercial banks from trading on their own behalf. The point is that commercial banks are backed up by the Federal Deposit Insurance Cooperation and the Federal Reserve Board. If they get into trouble, it is taxpayers' dollars at risk.
Until the repeal of Glass-Steagall in 1999, commercial banks were sharply restricted in what they could do, precisely in order to prevent them from taking advantage of this guarantee. If you wanted to engage in highly speculative activity you could set up a hedge fund or an investment bank, but Glass-Steagall prevented banks from gambling with government insured deposits. But this separation was obliterated by the repeal and now we have investment banks like Goldman Sachs and Morgan Stanley that are openly speculating with taxpayer insured money.
The Merkley-Levin amendment seeks to restore this separation. It really should be in the category of no-brainer: why should schoolteachers and firefighters be subsidizing the high-powered traders at Goldman Sachs?
But, as Senator Richard Durbin said last spring when the Senate voted down a bill that would have helped homeowners keep their homes: "the banks own the place." We'll see what happens.
You can influence matters by talking to a senator near you.
So... where's the President?
May 11, 2010 9:59 AM | Reply | Permalink
If you were a banker you could call him to find out.
May 11, 2010 10:55 AM | Reply | Permalink
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March 22, 2011 2:03 PM | Reply | Permalink
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January 25, 2011 1:29 AM | Reply | Permalink
Why is it Wall Street's fault that millions of people are losing their homes?
May 11, 2010 11:18 AM | Reply | Permalink
At this point, if you have to ask, you'll probably never know.
If you are under the age of 15, or have recently arrived from an extended trip to some other galaxy, I respectfully withdraw the above comment.
May 11, 2010 11:28 AM | Reply | Permalink
really, lol at his comment.
May 11, 2010 12:06 PM | Reply | Permalink
OK, let's pretend that I'm under 15. Why is it Wall Street's fault that millions of people are losing their homes?
May 11, 2010 11:38 AM | Reply | Permalink
They took mortgages of all kinds, from the lowest risks to the highest risks, chopped them up into little pieces, threw them in a machine that mixed these little pieces up, pasted these pieces into pieces of paper so that nobody could sort them out, and touted these pieces of paper as great investments to people and institutions all around the world. And then they wanted to make more so they begged crooked mortgage shops to push mortgages to any barely breathing body they could find. They were selling stuff feeding a boom that they knew was fishy but they didn't care. The ratings agencies that are supposed to tell people what is in an investment are equally to blame, they knew something was wrong but they didn't care either.
I don't know about you, but that sounds like snake oil salesmen to me. Now you might be the type of 15 year old that is libertarian, who likes the "buyer beware" thing in all cases, no matter what the consequences, i.e., let the guy sell his arsenic potions, it's the buyer's responsibility to test what's in a bottle before using, and it's the buyer's fault if he drinks it. If that's the case, then I hope you enjoy your regular global depressions. But even in that case, it's still crazy to claim it's not mainly the fault of the people pushing the bad stuff that it happened.
May 11, 2010 12:31 PM | Reply | Permalink
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May 11, 2010 4:07 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
Obama has sucked up to the Big Banks even worse.
The Keynesian deficit spending that should have been followed in 2008, or 2009, or now, is simple: tax holidays (or tax loans) until the unemployment comes down.
A holiday is a grant.
A tax loan would be the IRS giving a loan, at current Fed interest (about 1% now?), in the amount of the tax due, to all tax payers. To be repaid over the next 5 years (or some time). Then, when the economy gets better, the rate increases, and those with tax loans pay more back (business cycle revenue neutral, but counter cyclical) -- reducing the deficit (and growth), as is needed when the economy is healthier.
May 11, 2010 12:14 PM | Reply | Permalink
Everyone seems to be forgetting the $2 Trillion that the FED pumped into the big banks at about 1% interest to help them remain solvent.
Considering that the Federal deficit is over $12 Trillion and the overall interest rate the Federal Government is paying is around 6% ($800 Billion per year), the FED loaning this money to the banks so they could loan it to the Federal Government is one of the biggest ripoffs in memory. The 5% difference in rates for $2 Trillion is $100 Billion per year.
It is no wonder that bank executives are getting bonuses in the millions of dollars.
The question which should be being asked is:
"Why doesn't the FED loan money directly to the Federal Government at its 1% interest rate instead of having the Federal Government pay the banks an extra $100 Billion a year to serve as a middleman?"
.
May 11, 2010 8:12 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
Obama has sucked up to the Big Banks even worse.
The Keynesian deficit spending that should have been followed in 2008, or 2009, or now, is simple: tax holidays (or tax loans) until the unemployment comes down.
A holiday is a grant.
A tax loan would be the IRS giving a loan, at current Fed interest (about 1% now?), in the amount of the tax due, to all tax payers. To be repaid over the next 5 years (or some time). Then, when the economy gets better, the rate increases, and those with tax loans pay more back (business cycle revenue neutral, but counter cyclical) -- reducing the deficit (and growth), as is needed when the economy is healthier.
May 11, 2010 12:14 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
Obama has sucked up to the Big Banks even worse.
The Keynesian deficit spending that should have been followed in 2008, or 2009, or now, is simple: tax holidays (or tax loans) until the unemployment comes down.
A holiday is a grant.
A tax loan would be the IRS giving a loan, at current Fed interest (about 1% now?), in the amount of the tax due, to all tax payers. To be repaid over the next 5 years (or some time). Then, when the economy gets better, the rate increases, and those with tax loans pay more back (business cycle revenue neutral, but counter cyclical) -- reducing the deficit (and growth), as is needed when the economy is healthier.
May 11, 2010 12:18 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
Obama has sucked up to the Big Banks even worse.
May 11, 2010 12:18 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
Obama has been bootlicking the Big Banks even worse.
May 11, 2010 12:19 PM | Reply | Permalink
Bush was terrible for the silly TARP -- the Big Banks should have gone belly up, and the Treasury/ Federal Reserve should have been ready to QUICKLY get the bankrupt Big Banks out of bankruptcy, AFTER bankruptcy and ending of the contracts and bonuses for the dishonest gov't employees. If the gov't owned the big banks, they could then re-privatize them (at a big profit! maybe).
If the gov't pays for their mistakes, they're de facto gov't employees, and none should make more than the US President.
May 11, 2010 12:20 PM | Reply | Permalink
I'm really sorry for above multi-comments: I was always told the comment failed.
May 11, 2010 12:44 PM | Reply | Permalink
One way to avoid duplicate comments is to go back into the comments section and see if your comment actually posted.
I know several times I have posted duplicate posts because it seemed like the comment didn't originally "take".
Sometimes it seems like forever for the comment to actually be posted.
.
May 12, 2010 11:10 PM | Reply | Permalink
One more time.
The Street's bonuses before Reagan weren't large enough to tempt a banker to bet his company. Not because a 60% marginal tax rate caused $10 million to shrink to four-which didn't justify throwing momma off the train. But because Board Compensation Committees wouldn't/couldn't approve a $10 million bonus in the first place . Too much liability to shareholder suits for violating their fiduciary responsibility to safeguard the assets of the corporation.
It was clearly uneconomic to spend $10million when the awardee only enjoyed the motivating effects of four ..
The Reagan tax cuts were the tipping point. The after-tax take home jusified the pretax award for the first time since 1934 Not an accident. The whole point of the supply side mantra Friedman, Gilder,Laffer&co. had been droning on about.And they were right. It worked.
Be careful what you wish for.
Comp committees could finally justify a $10 million bonus. So they did. And bankers could take home $7 million for throwing momma off the train. Seeya.
And no one noticed. Still haven't
May 13, 2010 10:19 PM | Reply | Permalink
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Really sad, but not suprising. "The bank always wins" and/or no "house edge" in sight. Some updates here: http://grafikkarte ratgeber/news/20-01-11/house-crisis.html
March 17, 2011 2:21 PM | Reply | Permalink
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April 22, 2011 2:40 PM | Reply | Permalink
Million dollar babies, catchy title.
The US is one of the leading countries of millionaires, however other countries are gaining ground very quickly.
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April 26, 2011 3:14 PM | Reply | Permalink
The American people were completely swindled. In retrospect, the banks should have been allowed to fail. Time will tell whether or not the economy will ever see any direct improvement as a result of the bailouts.
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May 1, 2011 2:20 AM | Reply | Permalink