The Grand Illusion
Well… it’s now “bonus season,” I understand, for high-level executives among the banks, investment banks, brokerage houses, and the like. At a time when even supposedly well-off working professionals aren’t doing all that well, early reports are that the financial institutions are set to pay near-record bonuses once again. Why?
Oh, I know the official reason. Profits are up, and therefore these executives are to be compensated for playing a part in obtaining those profits. But then again, the entire country played a part, last year and the year before, in rescuing the financial community from the results of its excessively reckless pursuit of profit at any cost.
At the same time, unemployment is hovering close to ten percent nationally, and it’s likely in excess of fifteen percent if you count in the people who aren’t included because they’ve been out of work so long they’ve given up looking. Those figures don’t really include people who are working part-time because they can’t get full-time jobs, and the unemployment rate for minorities is close to twice the overall rate. Even once-secure high-paying professions are feeling the pinch. Law firms are booting out partners and aren’t hiring. Thousands upon thousands of law school graduates have no jobs and student loans that can amount to $100,000 and more. The fees paid to primary care doctors – you know, the ones who actually see you – are essentially frozen, while insurance and other costs continue to rise. And unlike specialists, primary care physicians don’t rake in the big bucks. Middle management jobs are continuing to shrink, as are positions for teachers all across the country. And, as for us authors, paperback book sales are down, and ebook sales haven’t yet, if they ever do, made up the difference in royalties.
And the finance community is going to pay record bonuses?
For what? Are banking services improving? Not when banks are automating everything and trying to use as few real bodies as possible. Not when they’ve grown ever more adept at finding fees for everything and reducing the billing cycle. And now, my wife has discovered yet another indication of just how little the banks care about you and me.
The other day, she was trying to balance her account – and it wouldn’t balance. The reason it wouldn’t balance was because the bank deducted $253 from her account for a check she wrote for $153. Even the bank’s photocopied records showed that the check was for $153 – but they still deducted $253. When she finally got a real person on the line, after a ten minute hold because “we are experiencing unusually high call volume,” and explained the situation, it took five minutes more to verify that the bank had goofed, and then the customer service [this is service?] representative explained that it would take 3-5 business days to rectify the error in my wife’s account. Three to five days in this era of instant electronic banking? When they made the error in the first place? Oh… and when this isn’t your local bank but a large regional bank?
Would they have rescinded all the fees they would have collected if their error had caused her to overdraw her account? I have my doubts.
So… tell me again how all those finance types deserve record bonuses? They’re either totally out of touch with the rest of the United States… or they’re so contemptuous that they don’t care. Either way, they don’t deserve those bonuses.
We all know that what the bankers are earning in the market is not what they actually deserve. There are two possible and obvious solutions: direct intervention that sets limits to compensation and/or increases taxes on top earners, or (better) more fundamental regulation that limits the basic powers of financial institutions.
Neither of these is going to happen because voters are asleep at the wheel. Media consolidation is moving the US toward Italian style ‘democracy,’ while the Chinese are putting smart and pragmatic economists in charge.
It’s hard to watch this happen, but America has brought the trouble on itself through some fundamental cultural flaws combined with an outdated constitution that has no checks against the new forms of corruption that appear in an advanced, high tech economy.
Some regulation is necessary. But _more_ regulation is rarely the answer, because it simply makes the relationship between the regulators and the regulated closer and more corrupt. Less (if often refocused) regulation could be enforced more consistently.
The constitution isn’t outdated against new forms of corruption. Some of the laws _under_ the constitution are, but in general there aren’t many new forms of corruption. Theft, fraud, perjury, breaking and entering, and vandalism are crimes whether or not someone used computers or the Internet to commit them.
Take as an example the recent appointment of the CEO of GE to a panel of financial advisors. As CEO, he’s been advocating big-government politics. Why? Because it’s usually the biggest corporations that are the most in bed with the government as not only regulator but customer and now the guarantee that they’ll be bailed out because they’re “too big to fail”, letting them put the sometimes unwise risks they take on all of us. Meanwhile, it’s small businesses that are responsible for far more jobs and innovation than the mega-corps. I’m not saying any laws were broken leading up to GE’s CEO receiving this appointment. I am saying that it’s the sort of relationship that smells like rotten garbage and leads to big business and big government treating the rest of us not as customers but as raw materials, to be used up whenever they want more money and power.
Or take the portion of the debt crisis other than just the federal government and a few states spending massively more than they take in (and more than the economy can efficiently support, such that higher taxes wouldn’t necessarily produce more revenue). Namely, the housing bubble. How’d that happen? Big government pushed the notion that most cases where people were “traditionally” denied home loans were due to racism or similar prejudice. Freddy and Fanny made loans to people that weren’t qualified to repay them except under the sort of rosy conditions that couldn’t be expected to last. All the rest of the banks were encouraged to buy those loans, and investment houses not so much under-regulated as poorly regulated were encouraged to invest in those banks. Then a few things start going downhill, defaults start happening, people stop spending (which is keeping much of a consumption-based economy going), and the whole house of cards collapses.
It’s fine to say that race can’t be the the reason to deny someone a loan. But saying that should never cause someone to be given a loan that’s not a good risk even in changing times.
A too-close relationship between business and government contributed to the cause, and yet failed to prevent the result, of that collapse.
One of the few sorts of regulation I like, provided it’s got well-defined limits, is anti-trust regulation. Financial businesses, media, ISPs, and critical industries should have limits on how much they consolidate, and limits on how much their boards are interlocked or they are in other sorts of relationships that put them (and more important, _us_) all at risk when any of them do something massively stupid. More diversity not just of ethnicity but in terms of competition, and more domestic production of critical goods where possible (keeping in mind that too much protectionism would also end up hurting us) would keep us much stronger. The economy is indeed worldwide, and we shouldn’t try to prevent that. But that all the more means there need to be breaks, like firebreaks in a forest, to keep problems from spreading; and those need to exist domestically as well internationally.
(One other thing: not so much for banks, but for some investment houses, bonuses are really part of their “normal” compensation. Changing the rules on those in that situation in mid-stride is dubious. But I wouldn’t have a problem with saying that only companies that meet certain measures of soundness and integrity (both in terms of not collapsing or needing bailouts, and of treating their customers honestly) should be able to offer unregulated bonuses to people who went to work for them after the rule went into effect. That way, it wouldn’t be changing the competitive relationship between the companies, nor existing relationships between employers and employees.)
……….Executives at Goldman Sachs were told last week that they could expect to receive their highest ever bonuses this year according to an article published Sunday in Londons Observer newspaper. The first half of this year has seen a spectacular rebound for Goldman and the companys London staff were told they would receive corresponding end-of-year bonuses if as expected the bank sets a new profit record..These bonuses will be paid for by the American people.
Gee, and to think that I assumed that the bonus structure was set down in employment contracts and that trying to negate those would prove overwhelmingly costly to those companies. I know I would sue, if my contract stated that I got a bonus at a certain productivity level, and it was suddenly negated by popular opinion, regardless of the outside environment.
I hear a lot of talk about denying this or that bonus to auto manufacturing company or bank execs, but do people REALLY want the government dictating business practices at that level? Isn’t that something the labor unions would rail against, were the big hand of government to reach in and take away one or more of their contractually guaranteed perks or bonuses?
My point wasn’t that government should mandate changes, but that the finance types don’t even see where they’ve gone wrong. Let’s see… the company sets up a bonus structure that rewards borderline and rapacious behavior and then says that it will go bankrupt over the lawsuits if it changes the structure. What about saying to these employees… we have to change. You can change or depart… and if firing them creates legal hassles… well, they were stupid enough to enter into employment contracts obligating them to pay hundreds of millions in bonuses. Exactly why should anyone want to bail them out a second time?
When I said that the constitution was becoming outdated I wasn’t referring to the internet per se. The separation of corporate power, the media, and political power ought to be enshrined in the constitution alongside the separation of church and state; the Citizens United ruling should never have been allowed to happen. Further, some very basic regulations regarding media ownership and consolidation are so important to the proper functioning of democracy that they too ought to be enshrined in the constitution; the media deregulation of the 90’s should never have been allowed to happen. Gerrymandering should also be prohibited in the constitution, because even if the newly formed districts do represent the population, they also banish opposition candidates and therefore increase voter apathy.
Where regulation is concerned, less is not always more.
I wouldn’t mind big bonuses for the corporate fat cats if these corporations actually PRODUCED something. What does Goldman Sachs produce? So far as I can tell Goldman Sachs produces diddly-squat. It’s a literal money changer. It moves money around from here to there, there to here, and takes a cut each time it moves the money. Thus Goldman Sachs is engaged in collecting larger and larger profits for essentially producing nothing of tangible value. At least the auto manufacturers make cars. Investment firms and mega-banks make nothing. Are they a necessary evil in our electronized transaction society? Probably. But my goodness, in a time like this, NOBODY at the head of any bank or investment cartel deserves millions in bonuses. No way in heck. Just as the Senate and Congress deserves no raises. Yet all three keep giving themselves money for doing a rotten job. Wow, I wish I could award myself huge bonuses and big raises for doing a rotten job.
Move your money to a local bank. Agitate for the laws to change so we can withdraw our 401Ks (or equivalent). I find it bitterly ironic that people are fired to increase shareholder value, when the shares are often those people’s own 401Ks.
I remember the day when, over the matter of the $700 billion bailout, all of America was on one side, and the bankers on the other. Congress was the referee. So who won? The bankers did. There is no legal way to stop the bankers, since the bankers have hijacked the law and the means of making laws. If they are to be stopped at all, then they will be stopped illegally, probably by some technically criminal use of force.
Just to get eveybody on the same page about this, the suggested (and unsurprising) bailout of Portugal has nothing to do with bailing out the Portugese people, it’s about bailing out the foreign banks that are owed money by Portugal. This is a bailout organised by the bank-owned politicians for the benefit of those same banks, let’s keep that in mind while we are deluged with cries of “Austerity!”
The Vickers Banking Commission has released an early version of its report and what a whitewash, what a travesty, what an exercise in pointlessness it is from the public viewpoint. Why bother strictly telling the banks they have to create a ringfence between customer deposit money and investment money – so what happens when they turn round and admit to having failed in this and that they’ve lost all our money again? We’ll have to bail them out again, is what, making the whole exercise futile. This virtually guarantees the next economic breakdown – who could be surprised if, at the same time, what we call society breaks down too?
Again – it’s once more with the bank bailouts! Now Greece is talking about negotiating better terms and so Ireland wants to get in on the act too. This is all about the wellbeing of the banks – when does anyone do anything on favourable terms for we the people?