The Fraud of Bushenomics: They’re Looting the Country

[Einhander Sn0m4n]

http://www.alternet.org/workplace/74262/

The Fraud of Bushenomics: They’re Looting the Country
By Larry Beinhart, AlterNet
Posted on January 19, 2008, Printed on January 20, 2008
http://www.alternet.org/story/74262/

The New York Times made it official. The Economy is a problem!

So, now, at last we can discuss it.

Not just discuss it, in rapid order "recession" became the word of the day, from White House, Congress, the Fed and the media.

It's blamed, mostly, on the subprime crisis.

But that's not the problem. It's a symptom. It is the logical, and probably one of the necessary results, of Bushenomics.

Along with low, or no, job growth. Little or no business growth. Depressed wages. And the crashing dollar. (The president has a different vision of the economy. In his vision it's booming! And the number of jobs is growing! Though there is this little blip.)

The idea under which Bushenomics was sold is this:

* The rich are the investor class.
* If the rich have more money, they will invest more.
* Their investments will create more business.
* Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.

Whether or not the people who say such things truly believe them, I cannot say. But that's their pitch, and the media certainly seems to buy it, as do most of the establishment economists.

A more realistic -- and less idealistic -- view of Bushenomics is that the Bush administration and its cronies came at the economy with the attitude of oilmen.

* They inherited a vastly wealth country.
* They looked at it like the oil under the Alaskan wilderness. They craved to pump it out, turn it into cash and grab as much of that cash as possible.

Wherever possible, they literally sold off the assets. This was called privatization. Our biggest asset -- in terms of size -- is, of course, our defense establishment. With privatization, one dollar out of every three for direct military operations in Iraq and Afghanistan goes to private contractors like Halliburton and Blackwater. So when someone says, "Support the troops!" with budget appropriations, they should really yell, "Two-thirds support to the troops! One third support to Halliburton, et al.!"

This is just an estimate. The degree of privatization is unknown. Presumably, that's deliberate. Nor does it count the amount of money the military spends with private purveyors to supply the troops and their operations. It is only the amount that goes directly to private contractors.

But for the most part, the assets of the United States, our collective wealth, could not be sold off in such a direct manner.

In order to turn them into cash, what the administration did was borrow against them.

That is, they cut taxes while continuing to spend lavishly, creating debt.

The debt is owed by all of us, the collective people of the United States.

The tax cuts hugely favored rich people. They also favored unearned income (dividends, capital gains, inherited money) as opposed to the kind of money people have to work for. The very richest got richer.

The spending was -- to the degree possible -- directed to themselves, their friends and their supporters: Big Pharma, the medical industry, insurance, banking and financial, among others. And, of course, Big Oil, from whom they have spent close to a trillion dollars of our money to conquer a big oil field for private exploitation.

Now let's take a look at some numbers.

The numbers will tell us if their idealistic tale about unleashing the capitalists to create a better world for us all is correct. Or if it's a fairy story that masks uncaring greed.

The big number is that the economy has grown.

As measured by the GDP it has. From 2001 to 2007 it went by 35 percent.

GDP stands for Gross Domestic Product. It could more accurately be called Gross Domestic Transactions, because it is the sum of all the financial transactions in the country.

Now let us look at job creation.

In the first six years of the Clinton administration, 13.7 million jobs were created. In the same period, under Bush, only 3.7 million jobs were created. Barely keeping up with population growth, if that. (Source: Fox News)

Now let us look at median income. That's as opposed to average income (If Bill Gates walks into a bar with 10 people, the average income of everyone in the room goes up by $17,5000,000. But the median income just moves up half a notch, from between the fifth and sixth person, to the sixth person's income). From 2001 to 2005, median income, for people under 65, went down $2,000.

That's worth restating. From 2001 to 2005, the income of the average working person declined by $2,000.

Now, let's look at the value of America's businesses.

A good rough measure of the market value of America's best businesses is the stock market. Under Clinton, the Dow Jones went up 324 percent. Wall-to-wall, after the dot.com bubble burst, it more than tripled in value.

Bush arrived in 2001. Since then the Dow Jones is up just 10 percent. Adjusted for inflation, that's absolutely flat. (It was briefly up 23 percent. It is now below the 10 percent mark, and tumbling down as this is written). Just pain, no gain.

If jobs have not increased, salaries have gone down, and the value of business has not risen, where is that 35 percent growth in the economy?

There is a number called the M3 money supply.

The M1 is basically cash, plus checking and "current" accounts. The M2 adds savings accounts, money market accounts and CDs up to $100,000. The M3 adds in the big CDs, Eurodollar accounts and other large exotics.

Already rising very fast, the M3 took off like a rocket after 2001. The Fed stopped publishing the M3 in 2006 (conspiracy theorists, please note.) But a quick look at the chart of its growth, and assuming its trajectory continued, clearly shows that the M3 grew by something in the range of 35 percent.

The entire growth of the economy under Bushenomics is accounted for by growth in the money supply.

The administration did not directly inflate the economy by 35 percent.

They pumped it by the size of the deficit. The rest happened this way.

When a government is "printing money" (running big deficits), the big fear is inflation.

Particularly in the financial community. Bankers make their money on interest, and inflation eats their profits, point for point.

The administration, very proudly, grew the economy (or at least the amount of money in circulation), without inflation. Which actually is a pretty good trick.

In part, they were able to do so precisely because the policy was a failure.

If it had created business growth -- actual business, not just financial business -- that would have created jobs. Then there would have been inflationary pressure. Especially if they were good, high paying jobs. If salaries for ordinary people go up, even a little, the total is a big sum because there are so many of us.

But due to free trade, outsourcing, bad economic policy, policies aimed at keeping wages down, and relentless union busting, good jobs were lost, to be replaced with low-wage jobs, when they were replaced at all. The proof is in that median income figure (down $2,000 per worker).

Due to free trade and outsourcing, consumer goods mostly went down too. The exception being in favored industries like pharmaceuticals, insurance and oil.

Finally, and this the key to the next step in the process, the Fed kept interest rates down.

Low interest rates mean that it's cheap to borrow.

The administration largely believes in supply-side economics (otherwise known as "trickle down," or "piss on the people."); if you increase the supply of something, consumers will appear to buy it.

The actual results are a perverse triumph of the idea.

The supply of money was increased. The price of money was kept artificially low.

Think of borrowing as buying money. It is.

People (and businesses and corporations) did rush forward to buy it. Once they had it, what was there to do with it? There was no new trend, no dot.coms, no high techs, no bio techs, no nothing.

So they went out and sold money. That is, they made loans.

There are two big retail loan areas, credit cards and housing loans. Both were pushed very aggressively. With cheap, cheap money available to finance home buying, that market heated up. At the same time, commercial interests started aggressively buying up loans, packaging them together, and reselling them as financial instruments. That created more desire to make more loans (sell money). Financial institutions bought more money (borrowed), in order to sell it at a profit (make loans). Since the loans were quickly resold -- and profit taken off the top -- the quality of the loans didn't matter to the people who made them. The housing market -- or rather the loans that fueled it -- grew into a bubble.

The subprime crisis, the housing bubble, whatever you want to call it, is not the problem.

It's a symptom of pumping in money with no place to go.

Other symptoms are no job growth, no business growth, no stock market growth, falling median incomes, disappearing pensions and health plans, and the fall of the dollar.

When Bush came into office, a Euro cost 95 cents. Now it costs a $1.50. The Canadian dollar (the Loony) was 70 cents. Now it costs a dollar. Most mainstream economists and pundits will opine that a low dollar is good for American industry, because it will help us sell our goods. That's only true if we're producing things that no one else is -- or producing them better or cheaper -- and we're not.

Also, many foreign exchange rates are being kept artificially low against the dollar. Some, like many of the oil countries, are pegged to the dollar. They're making up for it by raising the price of oil (currently traded in dollars). Others, like the Asian manufacturing countries, are keeping their currency down to retain their edge in selling here, thereby canceling whatever advantage we're supposed to get from declining currency.

One way to think of what the administration has done, is as a leveraged buyout. That's when someone buys a company, using the company itself as the collateral for the loan used to purchase it, usually at very high interest, then pays off the interest by cutting the work force and salaries, selling outsets and even breaking up the company.

It's good for the guy who makes the deal, skims the cream off the top and gets rich. (The company that Mitt Romney got rich working for specialized in doing that.) It's good for the lenders, who get a good return (if the buyer is able to squeeze enough money out of his purchase), but it's bad for the work force, bad for the company, and, if no one comes along to replace it, bad for the business as a whole.

We've experienced a leveraged buyout of the national economy.

Our politicians, the media and economists are just now waking up to the fact that the economy is in trouble.

The current numbers make it clear that we are probably in, or probably headed for, a recession.

Also, the polls show that people are concerned about the economy, and it's an election year. The people are out ahead of our governing and media and professional economic classes on this, because they live in the real economy, the one that's been leveraged, and the professionals are either in, or work for, the investor class that has been doing well.

So there is, at last, talk about doing something about the economy.

The Feds will cut interest rates!

George Bush wants a stimulus package. Tax cuts, tax cuts and make my tax cuts permanent! After all, that policy has worked so well. He said the cuts must be at least 1 percent of the GDP. That will be $145 billion.

Harry Reid and Nancy Policy (the King and Queen of Effective Politics) will offer a competing one (tax cuts, tax cuts!). Although they promised pay-as-you-go economic policies from a Democratic legislature.

Pundits in the media talk about a crisis in consumer confidence. And how the fix is to restore it. So we will go out and buy. Presumably on credit.

How about consumers think there's a problem because there is one. Not because they're weird emotionally. They reasonably see themselves so overextended, with so little hope of being better earners, that they won't be able to pay things off. Not even with a one-time government check of somewhere between $300 and $1,200.

In short, most of those solutions will go to making things worse.

The real solutions are pretty obvious and pretty simple.

First, we have to make a choice: Do we want a sound economy for all of us and a strong America? Or do we want to have a few people of unlimited wealth who use that wealth, among other things, to control the government so that it helps them milk more money from the rest of us?

By the way, this is not a call for socialism! Or other ism! Except a call for sensible and effective capitalism. Based on what we've seen work and seen fail.

In the real world, there are no such things as free markets.

In the real world, business people manipulate and conspire to control markets, and governments both control and collude with business, while tax policies and government spending have a major affect on the economy.

Let us accept that, and then the argument is only over how best to do it.

Simply giving money to rich people doesn't work.

Bob Novak, the conservative commentator who calls the investor class "the most creative class," is flat out wrong. As we've seen, outside of their ability to buy influence in politics, the media and the law, the rich are like the rest of us, relatively passive and unimaginative, prone to putting their money in the easiest place that promises a return, in whatever bubble is in fashion at the moment and wherever some salesman who gets their attention tells them.

Money has no mind of its own. It has to be directed toward areas that will generate and support business and good jobs at good wages. As it happens, our economic goals are on the same road as the social good.

The No. 1 target has to be alternative energy.

Energy that can be produced here, in the United States, renewable, nonpolluting, and not, like corn-based ethanol, requiring as much petroleum to produce it as it replaces. One-third of our balance of trade deficit is oil, year in and year out. If the United States can become the world leader in alternative energy and conservation technology, we will, at last, have something to export.

The No. 2 target is infrastructure.

By it's nature, infrastructure has to be largely produced here with local labor and it stays here.

Hard infrastructure, like roads and bridges, cleaning up New Orleans and the Gulf Coast, protecting our coasts from future storms, internet and phone service as good as Europe's, Japan's and Singapore's.

Soft infrastructure, like education, youth services, parks and recreation programs, public safety, and a saner criminal justice system. The United States has 5 percent of the world's population and 25 percent of the incarcerated population. That's expensive. And wasteful. Unsafe streets and high crime are expensive and wasteful.

Infrastructure makes doing business easier, quicker and cheaper. It becomes an invisible subsidy for all businesses. Try to imagine, for example, Fed Ex, that entrepreneurial triumph, without a national web of airports, flight controllers and roads.

The No. 3 target is health care.

Health care in the United States costs at least 50 percent more than the next-highest spending country and double what it does in most other modernized countries. All of them have better health than we do. They live longer and in better condition.

The difference is that they have national health plans. Mostly single-payer, usually tax-supported. Our plans are based on a hodge-podge of a thousand private insurers.

A single-payer national health plan should cut the costs of our health care by at least 25 percent, possibly 50 percent. That's an astonishing number. That money could go to more productive things. Or to even more health care.

American businesses who supply health care to their employees claim they are noncompetitive with companies from countries that have national health. This will make them more competitive. This will make American labor more competitive.

The No. 4 four target is a balanced budget.

There are, in fact, times for deficit spending. Just as there are times in our personal lives to borrow and times for business to borrow.

This is probably not one of them.

There is an ocean of money sloshing all around the world, looking for a home. If there are real business opportunities in America (like taking the lead in alternative energy, bio tech, and whatever is next around the corner), it will come.

Especially if there is a sound business environment and dollar investments return to being the most reliable in the world. That means paying down our debt.

How can all this be done?

Raising taxes.

On the wealthy. And on corporations. That's not class warfare. That's simple practicality.

After your first $20,000, how much of the next 20 do you need, to live, thrive and survive? Damn near all of it. After your first 20 million, now much of the next 20 million do you need? Not a nickel.

The rich will whine, writhe and scream that they won't do business, they'll be driven out of business, that business will collapse. Bullshit. If they dislike keeping 20 or 30 or 40 cents of each dollar of profit so much that they won't take the dollar, someone will come along who gladly will. That's how markets work.

All of this is pretty straightforward and common sense.

The illogic of Bushenomics is obvious. The results were foreseeable. After all, similar effects took place under Reagan and Bush the Elder, until they reversed courses.

The alternatives are equally obvious. The facts bear out the theory. Go back to Hoover and Roosevelt, then look at the down, up, down, of Bush the Elder, Bill Clinton, and Bush the Lesser. (We do note that there are minor industries dedicated to proving that Franklin Roosevelt was, in the words of CNN's Glenn Beck, "an evil son of a bitch," that the New Deal really, really, really didn't work, and that Bush the Elder was really, really, really responsible for the boom of the Clinton years and that Clinton was responsible for the first recession during the reign of Bush the Lesser. But they are like people who see the image of the Virgin Mary in bread sticks and crullers.)

None of our politicians, pundits or economists are addressing the fundamentals.

The last time we switched from the nonsense of worshiping unmitigated greed, disguised as free marketeering, it took a market crash and the Great Depression to move us out of our public relations-manufactured delusions and make us understand that when we all do well the rich get richer too, so let's start with the common good.

Based on the dialogue as it stands now, we will go with tinkering and twaddle, doing more of what doesn't work. And only if the whole things collapses will we address the real problems.

Larry Beinhart is the author of "Wag the Dog," "The Librarian," and "Fog Facts: Searching for Truth in the Land of Spin." All available at nationbooks.org.
© 2008 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/74262/

Hey Talen, didn't we discuss a paper you're writing about this in the past few months?

[Illuminatus Primus]

I really don't think alteranet suffices as a substantive media source.

[Zablorg]

Well, at least the country isn't in denial any more. But it's a shame to see that no-one appears to be adressing the problem.

[Adrian Laguna]

The idea under which Bushenomics was sold is this:

* The rich are the investor class.
* If the rich have more money, they will invest more.
* Their investments will create more business.
* Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.

This was actually kind of true once upon a time. The 19th Century saw the United States turn into an industrial giant thanks, in large part, to the investor class. When rich people got more money, they used to buy, build, and expand infrastructure. Note they also bought gigantic mansions covered in gold and threw huge parties where all the guests compared the size of the rocks on their fingers and brooches. On the overall, however, getting rich, and staying rich, involved doing things which created jobs and wealth for the lower classes. Nowadays, thanks to the rise of financial markets, it's possible to become and stay rich without benefiting anybody. On top of that, there are far more frivolous expenses for the rich to indulge in that there used to be before.

A good rough measure of the market value of America's best businesses is the stock market. Under Clinton, the Dow Jones went up 324 percent. Wall-to-wall, after the dot.com bubble burst, it more than tripled in value.

Minor mistake here, a 300% increase means it quadrupled.

[Civil War Man]

All the article says is "Bush runs the country like he runs a business"

The hilarious thing was something I saw on CNN in the Atlanta airport earlier today (yeah, I was travelling again). Giuliani was talking about his plans if he were to become president. Specifically, he believes there was a major flaw in Bush's plan. That flaw being apparently there weren't enough tax cuts to the rich. Giuliani was very candid about his hypothetical tax cuts targetting Corporate America and not the citizenry.

[Adrian Laguna]

Giuliani was very candid about his hypothetical tax cuts targetting Corporate America and not the citizenry.

That's one of the reasons I said that between him and four more years of Bush, I'd rather keep the shrub. Same applies to Huckabee for entirely different reasons.

[Patrick Degan]

One could see this coming ten miles away back in 2000 and I'd put a neat label on the Bush economic policy years ago: kleptonomics.

[Einhander Sn0m4n]

One could see this coming ten miles away back in 2000 and I'd put a neat label on the Bush economic policy years ago: kleptonomics.

I call it the Gilded Age Mk. 2.

I really don't think alternet suffices as a substantive media source.

Okay, substantiate that claim.

[Stuart Mackey]

I really don't think alteranet suffices as a substantive media source.

Especially when they equate Free Trade with "Pissing on the People"

[Sriad]

I really don't think alteranet suffices as a substantive media source.

Especially when they equate Free Trade with "Pissing on the People"

Misattributed: supply side economics is equated as "piss on the people"; "Free" trade is suggested not to exist for a variety of reasons.

[SirNitram]

10 Print "Give Tax Cuts To The Rich"
20 Print "Reduce Interest Rate"
30 GOTO 10

There. I just reduced the GOP's economists into a three line BASIC. If I throw in a randomizer to say 'Increase the money supply' and 'Loot Social Security', it should be ready for talk shows.

[Psychic_Sandwich]

The idea under which Bushenomics was sold is this:

* The rich are the investor class.
* If the rich have more money, they will invest more.
* Their investments will create more business.
* Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.

Wait, they tried to sell this and people actually bought it?

How can anybody seriously consider an economic policy that reads like a strategy guide for Victoria, a fucking computer game?

[The Spartan]

Wait, they tried to sell this and people actually bought it?

How can anybody seriously consider an economic policy that reads like a strategy guide for Victoria, a fucking computer game?

It's trickle down economics. People have been buying it for the better part of 30 years, because all they hear is tax cuts, but don't pick up on the tacit, "for people who are richer than you."

[Darth Wong]

Wait, they tried to sell this and people actually bought it?

Yes, because they point to the economic growth indicators and say pithy little lines like "a rising tide lifts all boats". People accept it without bothering to check if this little saying is actually true in this case.

Remember the golden rule of politics: if you can express your ideas in a really catchy way, everyone will blindly accept that they are true.

[Arthur_Tuxedo]

A good rough measure of the market value of America's best businesses is the stock market. Under Clinton, the Dow Jones went up 324 percent. Wall-to-wall, after the dot.com bubble burst, it more than tripled in value.

Minor mistake here, a 300% increase means it quadrupled.

He said it more than tripled. Quadruple is more than triple.

[Setesh]

The idea under which Bushenomics was sold is this:

* The rich are the investor class.
* If the rich have more money, they will invest more.
* Their investments will create more business.
* Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.

This was the strategy when the great depression hit. It works in theory if the rich invest 40% of their wealth and reinvest 30-50% of their profit. It failed in the Depression because the rich hoarded their wealth. This is not terribly surprising, as they saw it there was no point in creating new industries as no one not in their class had the money to buy anything.

[Einhander Sn0m4n]

The idea under which Bushenomics was sold is this:

* The rich are the investor class.
* If the rich have more money, they will invest more.
* Their investments will create more business.
* Those businesses will create more wealth, thus improving everyone's lives and making the nation stronger. They will also create new and better jobs.

This was the strategy when the great depression hit. It works in theory if the rich invest 40% of their wealth and reinvest 30-50% of their profit. It failed in the Depression because the rich hoarded their wealth. This is not terribly surprising, as they saw it there was no point in creating new industries as no one not in their class had the money to buy anything.

And it's happening again.

Amid record losses, Wall Street awarded itself $39 billion
By Andre Damon
21 January 2008

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The five largest Wall Street banks doled out a record $39 billion in bonuses last year, according to data collected by the Bloomberg news service. After driving hundreds of thousands of families into foreclosure, causing a financial crisis affecting hundreds of millions, and pushing the US and world economies closer to recession, it appears Wall Street is rewarding itself for a job well done.

The banks announced record losses in the fourth quarter, wrapping up the financial industry’s worst year since 2002. All in all, Wall Street wrote off more than $90 billion in bad debt for the year, and the five largest banks saw their profits drop more than 60 percent. Three of the five firms posted losses in the fourth quarter.

For all that, the bankers made out like bandits. Despite the firms’ abysmal performance, Wall Street buffered its traders from any shocks to their incomes by increasing the ratio of compensation relative to revenues. Typically, banks try to keep compensation below 50 percent of revenues; in 2006, when the five firms paid out some $36 billion in year-end bonuses, the figure was approximately 45 percent. In 2007, it jumped to more than 60 percent, according to figures released by the New York State Comptroller’s office.

While the $39 billion was divided among 186,000 workers at the five firms—averaging $211,849—the lion’s share was reserved for a few thousand high-level managers, traders, and senior executives, who took in multimillion-dollar bonuses in addition to their salaries. Rank-and-file clerical workers took home a few hundred dollars. Bonuses for traders in subprime-related securities are reported to be about 30 percent lower this year in comparison to other sectors.

Morgan Stanley wrote down some $10.3 billion in bad debt in 2007, but increased its bonus pool by 18 percent all the same. Its CEO, John Mack, declined his bonus last year after collecting a $40 million bonus in 2006.

E. Stanley O’Neal, the former chief executive of Merrill Lynch, collected a severance package worth some $161 million, or 3,500 times the yearly income of a typical US household, after losing his job in October. Merrill Lynch wrote down some $20 billion in subprime debt during the fourth quarter of 2007, and saw its value reduced by some 43 percent.

Charles O. Prince II, the former CEO of Citigroup, which announced similar losses, will walk away with some $68 million. Lloyd C. Blankfein, the Goldman Sachs CEO, set a new record with his bonus of $60.7 million. The firm put its chips on different numbers than the other banks and had a good year overall. The firm’s two co-presidents, Gary Cohn and Jon Winkelried, each collected a stock bonus of about $40 million, in addition to as-yet undisclosed amounts of cash.

Ike Suri, the managing director of a Finance Executive recruitment firm, told the Los Angeles Times that “compensation in the brokerage industry is increasingly tied to volatility—so the more volatility in the markets, the more investors are trading and the more they make.” He continued, “The marked increase in volatility in the markets in 2007 really benefited the brokers.” Volatility, we might add, which bankers created themselves by gambling—and losing—on risky securities.

The absurdity of this standard is self-evident. But, for all that, no major public figures have called for the leaders of these banks to be held liable for the destruction they caused, much less even called for hearings into their massive pay. Executive compensation, we are told, is a private affair between shareholders and executives, whatever its effect may be on the rest of the population.

Outside the mass media, however, these issues are being hotly debated. In a widely discussed Financial Times column dealing with the issue of banker pay, former IMF chief economist Raghuram Rajan writes that executive compensation practices among Wall Street firms “probably contributed to the ongoing crisis” in the financial sector. Rajan goes on to explain the means by which bank managers systematically underpriced and hid risk with the intent of inflating their personal compensation.

Securities trading, according to Rajan, rests on the ability of funds managers to generate returns over and above market expectations, while minimizing overall risk. Rajan notes that differences between a security’s real yield and its evaluated growth potential “are quite hard to generate since most ways of doing so depend on the investment manager possessing unique abilities—to pick stocks, identify weaknesses in management and remedy them, or undertake financial innovation. Such abilities are rare. How then can untalented investment managers justify their pay? Unfortunately, all too often it is by creating fake alpha—appearing to create excess returns but in fact taking on hidden tail risks, which produce a steady positive return most of the time as compensation for a rare, very negative, return.”

The boom of Collateralized Debt Obligations and other risky mortgage-based securities was probably exacerbated by bankers’ attempts to, in Rajan’s words, “create fake alpha,” that is, to buy securities whose risk was nominally underrated and therefore paid disproportionately high returns. The foreseeable prospect of the real estate market cooling down, resulting in the writing off of billions of dollars of bad debt, massive losses for shareholders, and turmoil in the wider economy, paled alongside the bankers’ own grasping for massive amounts of compensation.

For the bank managers themselves, it made perfect sense. Once the racket that they had been running came to light and the securities they bought rendered worthless, the managers would simply lose their jobs, collect millions in compensation, and move on to some other firm. This is exactly what happened at Bear Stearns, Merrill Lynch, Citigroup, and others.

The more farsighted representatives of the establishment recognize—at least in part—the dangers posed by unmitigated greed to the long-term stability of the capitalist system. Martin Wolf, the associate editor of economics at the Financial Times, recently wrote in response to Rajan’s article: “I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important—the political legitimacy of the market economy itself—across the globe.”

Wolf proposes that the US government step in to regulate banker pay so as to prevent such discrediting spectacles as those seen on Wall Street in 2007. But such action would require an unimaginable sea change in the policies of the US ruling elite, which has sought for the past three decades to break any restrictions on its own blind pillaging of society.

As the Wall Street speculators raked in their bonuses, recent government statistics demonstrate that, for average working people in the US, 2007 spelled a further decline in living standards as consumer prices driven by fuel and food rose sharply and the paltry growth in wages recorded the previous year stalled. Average weekly wages last year fell approximately 1 percent.

The combination of record bonuses for Wall Street’s wealthiest and a drop in real wages for hundreds of millions recorded in 2007 is only the latest episode in the protracted process of transferring wealth from masses of working people to a tiny financial elite. The outcome is a level of inequality that is politically and socially unsustainable and which makes open class struggle inevitable. This is what is meant by the destruction of “the political legitimacy of the market economy itself.”

[Elaro]

I'm glad I don't live in the US.

[Zablorg]

As am I. I read in a magazine that while America's economy is going down, Australia's is still going up, although I'm not sure how true that is.