The Oligarchy's Bailout Ball
Editor’s Note: Congressional Democrats pushed through the $787 billion stimulus plan by finally securing a 60-vote super-majority in the Senate when Sherrod Brown rushed back from his mother’s wake in Ohio because Ted Kennedy was too ill from brain cancer to travel again to Capitol Hill. But resistance to the bitter medicine needed to address the financial crisis remains strong.
As writer Michael Winship notes in this guest essay, the greatest resistance may lie in the unwillingness of Wall Street bankers and other oligarchs to sacrifice their pampered lifestyles:
You know what they say -- half a million dollars just doesn't go as far as it used to.
News from the White House that $500,000 was the cap the government wants to put on executive salaries at the banks receiving bailout cash had some on Wall Street and along the plush corridors of Manhattan's swank Upper East Side hollering "Unfair!" (But without those unsightly street demonstrations and picket lines, of course.)
"You Try to Live on 500K in This Town" was the tongue-in-cheek headline in last Sunday's New York Times.
Just add up private school tuition, mortgage payments, maintenance fees and wages for the nanny and you're already up to more than $250,000 a year - and that's pre-taxes, assuming you're paying any. Then tote up payments and upkeep on vacation and weekend homes, charity balls, car and driver - pretty soon you're maxing out your American Express Black Card.
But they work hard for their multi-million dollar salaries and bonuses, perks and solid gold benefits, complained some of the financiers. Besides, executive headhunters say, the money giants just can't get good help for anything less.
Good help? Spare us the kind of moguls who helped us straight into the current deep, dirty hole we're trying to climb out of.
"Like spoiled, petulant children," is how Washington Post columnist Steven Pearlstein described them. "These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders."
Pearlstein was reacting after the five percent dive that stock prices took following freshly minted Treasury Secretary Timothy Geithner's announcement of the Obama Administration's Financial Stability Plan. It's the latest iteration of the bank bailout plan intended to go hand-in-hand with the economic stimulus package. Combined, as much as $3 trillion may be at stake.
The plan immediately was attacked by many as too vague and ineffective. Part of the trouble, critics say, is that Geithner isn't part of the solution, he's part of the problem -- former head of the Federal Reserve in New York and a protégé of Clinton Treasury Secretary Robert Rubin, who last month retired as senior counselor at Citigroup.
That's the bank the government agreed to insure against projected losses of $306 billion, on top of bailouts totaling $45 billion. In other words, Geithner's a player.
The New York Times reported that in preparing the Financial Stability Plan, Geithner opposed tougher conditions on investment firms sought by others in the White House.
Geithner, the Times wrote, "successfully fought against more severe limits on executive pay for companies receiving government aid... resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives..."
This week, on The Baseline Scenario, a blog he co-founded, MIT professor of global economics and management and former International Monetary Fund chief economist Simon Johnson wrote, "There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that -- they say -- will deliver you back to growth.
“The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?"
That question caught the attention of my colleague Bill Moyers, who interviewed Johnson on the current edition of Bill Moyers Journal on public television.
The problem, Johnson told him, is that via millions spent for political contributions and lobbying efforts, the revolving door that sees elites shuttle between jobs in government and business, and by creating a situation in which technical knowledge is limited to a privileged few, the banking and financial services industry has become a kind of ruling oligarchy that stifles attempts to shake up the status quo and make the real change necessary to get us out of the current crisis.
"Either you break the power," Johnson said, "or we're stuck for a long time with this arrangement...
"The policy that we seem to be pursuing, of being nice to the banks, is a mistake. Both from a technical/economic point of view, and from a deeper political point of view... [The banks] think that we're going to pay out 10 or 20 percent of GDP to basically make them whole. It's astonishing."
Johnson has written on The Baseline Scenario blog what he thinks needs to be done: "Reboot the financial system. Find out immediately which banks are insolvent using market prices. Allow private owners to fully recapitalize, if they can. Have the FDIC, the Federal Deposit Insurance Corporation, take over all banks that cannot raise enough private capital, and try to re-privatize those banks quickly, while making sure the taxpayer has strong participation in the upside."
Unfortunately, Johnson fears the oligarchy will prevail.
"My intuition is that this is going to get a lot worse," he told Moyers. "It's going to cost us a lot more money. And we are going down a long, dark, blind alley...
"Eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money and they will cash out.... We and our children will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics."
Johnson doubts the political will exists to do what needs to be done.
According to Tuesday's Boston Herald, last August, another former Treasury Secretary and Rubin pal, Lawrence Summers, now chairman of the of the National Economic Council, hitched a ride back from the Democratic National Convention on board a Citigroup corporate jet -- "the same type that... Citigroup infamously wanted to replace last month with a new $50 million French jet."
Summers didn't pay for the trip, but Citi said it has paid the appropriate taxes. The Herald reported that the plane "was the same one former Citi chief executive Sandy Will took on vacation to Mexico last month, it reportedly includes a full bar, crystal stemware and 'pillows made from Hermès scarves.'"
When you've got it, flaunt it, Larry. Why go to hell in a handbasket when you can fly there executive class, leaning back on a French silk pillow? It's good to be part of an oligarchy.
Michael Winship is senior writer of the weekly public affairs program “Bill Moyers Journal,” which airs Friday night on PBS. Check local airtimes or comment at The Moyers Blog at www.pbs.org/moyers.
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