Sunday, January 17, 2010


          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 



1 comment:

  1. You know Bernie - I am convinced the federal government no longer represents the American people. It has been taken over by wealth and corporate power.

    The truth is Bernie: votes in America no longer count.

    And the outcome is what we're witnessing now - gross inequity and suffering our nation has not seen since the great depression.

    And there is no end in sight. This latest hooligan of a president - Obama, is continuing the violence in Afghanistan, is supporting a health care bill that does diddly squat, and is out playing golf while Americans continue to lose their homes in record numbers.

    You know what the end game to all this is: more exclusive "gated" neighborhoods, more gangs and bullets on the streets, more bums and homelessness - and the ugly face of poverty spreading like wildfire across the country.

    It was Ghandi who said "Poverty is the worst form of violence."

    We Americans are a lost people with a lost country. We have been betrayed by our leaders in Washington and betrayed by so called American Capitalism that was suppose to make us all rich - but instead has made only a very few rich - 400 Americans who now control 1.27 trillion dollars according to Forbes - 400 who could care less about their fellow Americans living in the same country and laboring to make them rich.

    Heck - you know what's even more scary? All the baby boomers who are graying now and will find their safety net is made of paper that couldn't hold a gnat.

    This next decade is going to be even worst than the one we just had - and that's hard to imagine.

    As for me - I guess I'll just keep whistling all the way down. See you on the other side of the moon.