Ten years ago, after making piles
of money gambling with other people’s money, Wall Street nearly imploded, and
the outgoing George W. Bush and incoming Obama administrations bailed out the
bankers.
America should have learned three
big lessons from the crisis. We didn’t, to our continuing peril.
First unlearned lesson: Banking is a risky
business with huge upsides for the few who gamble in it, but bigger
downsides for the public when those bets go bad.
Which means that safeguards are
necessary. The safeguards created after Wall Street’s 1929 crash worked for
over four decades. They made banking boring.
But starting in the 1980s, they
were watered down or repealed because of Wall Street’s increasing thirst for
profits and its growing political clout. As politicians from both parties grew
dependent on the Street for campaign funding, the rush to deregulate turned
into a stampede.
It began in 1982 when Congress and the Reagan administration deregulated
savings and loan banks – allowing them to engage in risky commercial lending,
while continuing to guarantee them against major losses.
Not surprisingly, the banks got
into big trouble, necessitating a taxpayer-funded bailout.
The next milestone came in 1999,
when Congress and the Clinton Administration, under then Treasury Secretary
Robert Rubin, repealed the Glass-Steagall Act – a 1930s safeguard that had
prohibited banks from gambling with commercial deposits. (For the record, I was
no longer in the Cabinet.)
Then in 2000, Congress and Clinton
barred the Commodity Futures Trading Commission from regulating most
over-the-counter derivative contracts, including credit default swaps.
The coup de grace came in 2004,
when George W. Bush’s Securities and Exchange Commission allowed investment
banks to hold less capital in reserve.
All of this ushered in the 2008 near meltdown – which was followed by another attempt to impose safeguards, the
Dodd-Frank Act of 2010.
And now? The Street’s political
clout is as great as ever, which explains why the Dodd-Frank safeguards are now
being watered down – clearing the way for another crisis.
The second lesson we should have
learned but didn’t is how widening inequality makes our economy susceptible to financial disaster.
In the decades leading up to 2008,
stagnant wages caused many Americans to go deep into debt – using the rising
values of their homes as collateral. Much the same thing had happened in the
years leading up to 1929.
Wall Street banks were delighted to
accommodate – lending willy-nilly and often in predatory ways – until the
housing and debt bubbles burst.
And now? The underlying problem of
stagnant wages, with most economic gains going to the top, is still with us.
Once again, consumers are deep in debt – inviting another crisis.
The third big lesson we didn’t
learn concerned the rigging of American politics. After the crisis, many
Americans realized that Wall Street, big corporations, and the wealthy had
essentially bought up our democracy.
Americans saw the Street get
bailed out while homeowners, suddenly owing more on their homes than the homes
were worth, got little or nothing.
Millions lost their jobs, savings,
pensions, and homes, but the bankers and big investors came out richer than
before.
Bankers who committed serious fraud
escaped accountability. No executive went to jail. Big banks like Wells Fargo
continued to break laws with impunity.
Many officials involved in deregulating
the Street became top executives in the Wall Street banks that benefited from
deregulation. Some involved in writing the Dodd-Frank Act are now employed by
the same financial institutions that are watering it down.
Meanwhile, big corporations and
wealthy individuals continue to flood Washington with money, making it
the capital of “crony capitalism.”
Widespread outrage at all this
fueled the Tea Party on the Right and the brief “Occupy” movement on the Left.
Both eventually morphed into the two anti-establishment candidacies of 2016 –
authoritarian populist Donald Trump and democratic populist Bernie Sanders.
And now? Anti-establishment fury
remains the strongest force in American politics.
Trump has been using it to conjure
up racist and xenophobic conspiracies and to create the most authoritarian
regime in modern American history. He promised to “drain the swamp” but has
made it bigger and filthier.
Democrats don’t know whether to
simply oppose Trump and his authoritarianism, or get behind a reform agenda to
wrest control of politics and the economy from the moneyed interests.
But to do the latter they’d have to
take on those that have funded them for decades. I wish I had more confidence
they will.
Sad to say, ten years after the
near meltdown of Wall Street we seem to have learned very little. Only worse:
We now have Trump.
Republican-controlled congress also rolled back most of the Dodd-Frank Act. Wages remain stagnant as only corporations are benefiting from this “great economy”. No one is putting money into circulation; the poor and cash-strapped can’t, the rich hoard off-shore. This led up to the 2008 crisis seeing banks are letting companies and individuals run up huge debt with the low interest. It’s not a sexy situation like a “tech bubble” but it’s root causes people ignore.
California is now the capital of liberal America. Along with its neighbors Oregon and Washington, it will be a nation within the nation starting in January when the federal government goes dark.
In sharp contrast to much of the rest of the nation, Californians preferred Hillary Clinton over Donald Trump by a 2-to-1 margin. They also voted to extend a state tax surcharge on the wealthy, and adopt local housing and transportation measures along with a slew of local tax increases and bond proposals.
In other words, California is the opposite of Trumpland.
The differences go even deeper. For years, conservatives have been saying that a healthy economy depends on low taxes, few regulations, and low wages.
Are conservatives right? At the one end of the scale are Kansas and Texas, with among the nation’s lowest taxes, least regulations, and lowest wages.
At the other end is California, with among the nation’s highest taxes, especially on the wealthy; toughest regulations, particularly when it comes to the environment; most ambitious healthcare system, that insures more than 12 million poor Californians, in partnership with Medicaid; and high wages.
So according to conservative doctrine, Kansas and Texas ought to be booming, and California ought to be in the pits.
Actually, it’s just the opposite.
For several years, Kansas’s rate of economic growth has been the worst in the nation. Last year its economy actually shrank.
Texas hasn’t been doing all that much better. Its rate of job growth has been below the national average. Retail sales are way down. The value of Texas exports has been dropping.
But what about so-called over-taxed, over-regulated, high-wage California?
California leads the nation in the rate of economic growth — more than twice the national average. If it were a separate nation it would now be the sixth largest economy in the world. Its population has surged to 39 million (up 5 percent since 2010).
California is home to the nation’s fastest-growing and most innovative industries – entertainment and high tech. It incubates more startups than anywhere else in the world.
In other words, conservatives have it exactly backwards.
Why are Kansas and Texas doing so badly, and California so well?
For one thing, taxes enable states to invest their people. The University of California is the best system of public higher education in America. Add in the state’s network of community colleges, state colleges, research institutions, and you have an unparalleled source of research, and powerful engine of upward mobility.
Kansas and Texas haven’t been investing nearly to the same extent.
California also provides services to a diverse population, including a large percentage of immigrants. Donald Trump to the contrary, such diversity is a huge plus. Both Hollywood and Silicon Valley have thrived on the ideas and energies of new immigrants.
Meanwhile, California’s regulations protect the public health and the state’s natural beauty, which also draws people to the state – including talented people who could settle anywhere.
Wages are high in California because the economy is growing so fast employers have to pay more for workers. That’s not a bad thing. After all, the goal isn’t just growth. It’s a high standard of living.
In fairness, Texas’s problems are also linked to the oil bust. But that’s really no excuse because Texas has failed to diversify its economy. Here again, it hasn’t made adequate investments.
California is far from perfect. A housing shortage has driven rents and home prices into the stratosphere. Roads are clogged. Its public schools used to be the best in the nation but are now among the worst – largely because of a proposition approved by voters in 1978 that’s strangled local school financing. Much more needs to be done.
But overall, the contrast is clear. Economic success depends on tax revenues that go into public investments, and regulations that protect the environment and public health. And true economic success results in high wages.
I’m not sure how Trumpland and California will coexist in coming years. I’m already hearing murmurs of secession by Golden Staters, and of federal intrusions by the incipient Trump administration.
But so far, California gives lie to the conservative dictum that low taxes, few regulations, and low wages are the keys economic success. Trumpland should take note.
The wealthiest one out of 1,000 US families – the 0.1 percent – comprise about 115,000 households whose net worth starts at $20M, and goes up and up from there, accounting for at least as much wealth as the poorest 90 percent of US households.
Mere 1 percenters are often people who got lucky doing real work: movie stars, doctors, lawyers, engineers, accountants, etc. They own nice houses and have retirement savings, but they don’t own islands, helicopters, or gilded survival shelters that they plan to hide in while the rest of us eat each other on the blighted, apocalyptic surface-world.
Because they tend to earn their money from work, it is taxed at something like a normal rate; in contrast, the 0.1 percent earn nearly everything from capital gains, which not only enjoy much lower tax rates (because US tax policy rewards owning things ahead of doing things) and is much easier to shift offshore.
The 0.1 percent has a few tech billionaires and a few more finance people (naturally) – but the fastest-growing cohort in that exalted tier is professional descendants, who inherited their wealth from their forebears, with names like “Walton” and “Koch.”
One percenters are more likely to see their natural allies as everyone else, because they live in precarious circumstances (having a lot to lose makes you a fat target from 0.1 percenters who have skimmed all the krill out of the financial seas and want bigger game).
I’m about 90% sure the economy is never gonna “improve”
this is capitalism in it’s final form
this is it honey
except, you know, those companies that do a charitable thing for every thing they sell
that’s kinda new and interesting. benevolent capitalism
lmao
Pay attention, class: This is what it looks like when one is unwilling to consider new information.
It’s not new information, though. It’s misinformation.
First, it’s not that new.
Did you know that there was a time in U.S. history—which is by definition recent history—when a corporation was generally intended to have some sort of public interest that they served? I mean, that’s the whole point of allowing corporations to form. Corporations are recognized by the commonwealth or state, and this recognition is not a right but a privilege, in exchange for which the state (representing the people) is allowed to ask, “So what does this do for everyone else?”
The way the economy is now is a direct result of a shift away from this thinking and to one where a corporation is an entity unto itself whose first, last, and only concern is an ever-increasing stream of profits. What you’re calling “benevolent capitalism” isn’t benevolent at all. It’s a pure profit/loss calculation designed to distract from—not even paper over or stick a band-aid on—the problems capitalism creates. And the fact that you’re here championing it as “benevolent capitalism” is a sign of how ell it’s working.
Let’s take Toms, as one example. The shoe that’s a cause. Buy a pair of trendy shoes, and a pair of trendy shoes will be given away to someone somewhere in the world who can’t afford them.
That’s not genuine benevolence. That’s selling you, the consumer, on the idea that you can be benevolent by buying shoes, that the act of purchasing these shoes is an act of charity. The reality is that their model is an inefficient means of addressing the problems on the ground that shoelessness represents, and severely disrupts the local economies of the locations selected for benevolence.
(Imagine what it does to the local shoemakers, for instance.)
The supposed act of charity is just a value add to convince you to spend your money on these shoes instead of some other shoes. It’s no different than putting a prize in a box of cereal.
Heck, you want to see how malevolent this is?
Go ask a multinational corporation that makes shoes or other garments to double the wages of their workers. They’ll tell you they can’t afford it, that it’s not possible, that consumers won’t stand for it, that you’ll drive them out of business and then no one will have wages.
But the fact that a company can give away one item for every item sold shows you what a lie this is. A one-for-one giving model represents double the cost of labor and materials for each unit that is sold for revenue. Doubling wages would only double the labor.
So why are companies willing to give their products away (and throw them away, destroy unused industry with bleach and razors to render them unsalvageable, et cetera) but they’re not willing to pay their workers more?
Because capitalism is the opposite of benevolence.
“Charity” is by definition exemplary, above and beyond, extraordinary, extra. “Charity” is not something that people are entitled to. You give people a shirt or shoes or some food and call it charity, and you’re setting up an expectation that you can and will control the stream of largesse in the future, and anything and everything you give should be considered a boon from on high.
On the other hand, once you start paying your workers a higher wage, you’re creating an expectation. You’re admitting that their labor is more valuable to you than you were previously willing to admit, and it’s hard to walk that back.
Plus, when people have enough money for their basic needs, they’re smarter and stronger and warier and more comfortable with pushing back instead of being steamrolled over. They have time and money to pursue education. They can save money up and maybe move away. They can escape from the system that depends on a steady flow of forced or near-forced labor.
So companies will do charitable “buy one, give one” and marketing “buy one, get one” even though these things by definition double the overhead per unit, but they won’t do anything that makes a lasting difference in the standard of living for the people.
Capitalism has redefined the world so that the baseline of ethics is “How much money can we make?” and every little good deed over and above that is saintly.
But there’s nothing benevolent about throwing a scrap of bread to someone who’s starving in a ditch because you ran them out of their home in the first place.
This is one of the best anti-capitalist posts on the entire site.
the funny funny thing about this is that oscar wilde wrote about this problem with capitalism like a century ago.
this isn’t new.
“On the other hand, once you start paying your workers a higher wage, you’re creating an expectation. You’re admitting that their labor is more valuable to you than you were previously willing to admit, and it’s hard to walk that back.”
YOUR generation was the generation where two teachers could afford to buy a 4-bedroom house in San Diego, CA and then afford the mortgage and raise 2 kids in private school (my parents did this).
YOUR generation was the generation where one parent could work in Financial Aid at the local college and the other could raise 2 kids in a 3 bedroom house (my now-retired coworker did this).
YOUR generation was the generation where you could wash dishes to put yourself through college and law school (my uncle did this).
MY generation can’t buy a home when the average cost is $440k and a combined income of two teachers is only $70k, and they have to pay 35% income to rent, let alone trying to afford children.
MY generation has both parents working, one or both working 2 jobs just to buy food, not even able to afford a family vacation every December.
MY generation is in student debt on average $29,400. And we have scholarships but they only cover 40% of the cost and when law school costs $120k for 2 years, you do the math.
So don’t tell me that it’s MY GENERATION that fucking things up. We’re only 25, we didn’t get in to the war in 2001 (we were 11 years old), we didn’t de-fund mental health institutions in 1975, we didn’t decide that grants and scholarships should be funded less and tuition should cost more, we didn’t raise the housing market 7000% (my childhood home was bought for $95k and sold for $750k 20 years later). MY GENERATION didn’t do any of that, YOUR generation did.
So don’t tell me I “just” need to “get a better job” or that I “only” have to send my kids to “a good school.” Because it doesn’t work like that anymore. And don’t blame me.
“We will create a self-sustaining and economically viable human colonies beyond the Earth; an expanding frontier where the power of human imagination can be unleashed, and a future where the human race can tap the unlimited resources and energy of space to create wealth and opportunity for all humankind.”
