The nation's big bankers are entering bonus season, and are about to receive bonuses
in the eight figure territory ($10,000,000+). President Obama's economics advisor, Christine
Romer, says she's offended. Media commentators of all stripes and many economically savvy
Americans understand what is going on. They understand the bailout money provided to the
nation's big bankers by the taxpayers had few strings attached and didn't prohibit bonuses. In
addition to the billions in bailout money that made headlines across the nation, how about the
additional trillions (yes, trillions) the Federal Reserve pumped into the system off radar, so to
speak. These banks were allowed to borrow money from the Fed at ridiculously low rates and
then allowed to lend or make trades at higher rates of return, resulting in billions in profits
for which these bankers are once again rewarded. The commentators know, Christine Romer
knows, and the bankers themselves know that these are flush times if you are a big banker.
Does anyone seriously think the bankers don't know what's going on? That somehow they
don't understand and are innocent? That they don't get it?
The New York Times revealed recently that Goldman-Sachs sold packages of sub-prime
mortgage securities and then bet these same packaged securities would fail. They made
billions in profits. They knew what they were selling their clients was shaky at best and a
disaster at worst; and then they bet against those same clients who paid them for advice.
The strategy was golden, literally. Oh yes, they get it. They will pay extraordinary amounts
to individuals as bonuses, knowing they are operating within the law. Business will continue
and the bonuses will continue. They get it and they also got it.
These bankers made a conscious decision to use TARP money and the easy Fed money
to engage in the very same trading activity that led to the problem which almost brought down
our economy; but this time instead of getting the prison sentences they deserve, they're
rewarding themselves with huge bonuses.
I'm offended by the actions of these bankers. It's not like when a sports coach uses a
little known rule to give his club an advantage over their opponent. He didn't write the rules;
he just took advantage of the rules as written. In sports, it's the job of the coach to "work"
the referees during a game. They talk, yell, and beg constantly trying to get the officials to see
the game their way. They may lose individual battles, but they don't care because their goal
is to win the game by getting a key call to go their way at a crucial moment. In 1999, bankers
had finally "worked" the officials (Congress) long enough to get the Glass-Steagall Act repealed
enabling investment banks to be considered full service banks insured by the FDIC and backed
by the taxpayers. At that point, they became too big to fail. The difference in this case is that
these bankers are the guys that wrote the banking rules, and there's the rub.
It's an understatement to say the Bush administration was "friendly" to Wall Street.
As if on cue, the financial "bubble" started to inflate. The Security and Exchange Commission,
the FDIC, the Federal Reserve, the Commodities Commission, the Treasury Department, and
Congress were perfectly aware of the dangers and spoke of it often as the "bubble" grew; but
showed no interest in reining in the risk these banks were taking. The banks took more and
more risk, confident that the government would step in if it looked like they might go under.
They were too big to fail. They took advantage of everyone who gets a simple paycheck and
somehow manages to live within their means. Did I say I was offended? Let's check that, I'm
mad as hell! I want something done to keep this from ever happening again.
Congress has yelled and screamed and stomped their feet even threatening to hold their
collective breath until they turn blue if Wall Street isn't brought to task. They've held hearings
and appeared on TV and written op-ed pieces about how profligate Wall Street has been and
how they won't put up with it anymore. They created a "pay czar" to control the salaries of
some corporate executives and threatened to tax big bonuses. They produced lots of smoke,
but little of substance has been done. How could this be?
At the same time our country is in the death grip of an ongoing financial crisis, Wall
Street is pouring money into lobbying Congress to prevent any significant reform from passing.
The bills being considered in the House and Senate do nothing to rein in the extremely risky
business of trading in derivatives and other exotic schemes. Wall Street wins, we lose; as they
have managed to stop every significant change in the banking rules from passing. Unbelievable!
How much worse can it get? How about having their banking buddies in top positions within
the Obama administration. Obama's people come from Goldman-Sachs and other major Wall
Street firms. Obviously, no one in Washington is interested in changing anything. Members of
Congress know that playing along with Wall Street garners millions in political contributions.
They really do get it.
One of the biggest disappointments in this circus of greed and power has to be Democratic
Congressman Barney Frank of Massachusetts. He looks great in front of a camera and he is
always good for a quick jab at the rich and powerful. He's also chairman of the Financial
Services Committee in the House and the bill he supports is weak, watered down, and will do
little to prevent the economic risk-taking which continues to devastate our economy. Another
gross disappointment is Senator Chris Dodd (D, Connecticut), author of a provision allowing
AIG executives to get their eight figure bonuses. As Chair of the Banking Committee, he too
hasn't pushed for any real changes; which means you can be sure any bill he vets will be
toothless. Members of Congress may succeed in increasing oversight of the Federal Reserve,
but they have failed miserably at any serious re-regulation; and that translates as good news
for Wall Street.
You couldn't get a clearer example of how far Congress has moved from the people than
the weak nature of these bills. The public is "mad as hell" and wants the end of "too big to
fail". Main Street is offended by the bailout of Wall Street. Taxpayers are apoplectic over how
easily Congress spent trillions of their dollars to shore up the financial system, and yet argue
endlessly about simply providing more aid to create jobs and continue unemployment
compensation for Americans who have already lost their jobs. If you ever needed proof that
money trumps public opinion, this is it.
Former Fed Chairman Paul Volker has an answer. Pass a new version of the Glass-
Steagall Act. Once again, separate the investment banks responsible for taking ridiculous risks
from the local and community banks responsible for local lending and the health of local
economies. Simply put things back the way they were. If the investment banks like Goldman-
Sachs want to take risks, let them; but the taxpayers should never have been on the hook to
bail them out. If a local or community bank fails, it is in our interest to bail out depositors
to keep confidence in the system. The good news is that local banks historically take fewer
risks. Putting things back the way they were would virtually eliminate the concept of "too
big to fail".
Congress has to regulate derivatives. There have to be laws to make the practice more
transparent and risk visible to all investors. Investment banks have to be prohibited from
selling a product and benefiting if the product fails. All conflicts of interest should be
addressed and eliminated.
As problematic as big bonuses are, the big banks hope the public will focus on the
superficial while their lobbyists go about watering down and weakening any attempt at real
banking reform. Don't fall for it. Let them have their bonuses if need be, but hit them where
it really hurts by making them assume the risks they take. This in itself will take care of the
bonus problem. Right about now you might be expecting me to plead with you to call your
Congressman and demand some REAL reform, but it goes deeper than that. Our national
economy links all of us together. We're all both innocent and guilty. The bankers are guilty
because they've pushed their deals a little too far and got stuck with some overvalued paper.
The homeowner acquired more house than he could afford. The investor and the broker both
want sure bets and the politician simply wants to make everybody happy. The fact is that
nobody is happy when a deal's gone south and we taxpayers are beat. We aren't strong enough
to clean up any more "spilt milk"; plus our savings are gone. The time for our politicians to
make the hard decisions we trusted them to make is past due. My question to YOU is: Are
you going to spend your evenings in front of the TV or are you going to educate yourself and
get involved? The answer you arrive at has everything to do with our nation's future. We all
get it, and get it right, or we all lose it together. What do you think? I welcome your
comments and rebuttals. Please send them to email@example.com