UP@NIGHT

One doesn’t need a Ph.D. in economics to know certain facts about the current state of America’s economy:

1) Unemployment continues to be a serious problem not only for the unemployed but for the economy as a whole.

2) Consumers are skittish about spending money, so they can’t help drive an economic recovery.

3) In response to fears about unemployment and the economy, consumers are paying off debt.

4) Reducing debt may be a a good thing for individuals and for the economy in the long-term, but when too many people do it all at once it leads to less goods and services being bought, which reinforces and helps sustain a recession or a weak recovery.

5) Many of the largest corporations in America are sitting on huge sums of cash.  Among the reasons for not investing it and hiring new employees:  aversion to risk, preoccupation with the current bottom line, and hefty profits through making current employees more productive, that is, making them work longer and harder.

Enter the Bank of America.  You know, the corporation that American taxpayers shelled out 45 billion dollars to rescue.  Its past and current behavior exemplifies the failings of many giant corporations to do the right thing in national crises.   Make no mistake about it, the way that the Bank of America mistreats its customers is bound to reinforce exactly the types of behavior that will maintain the economy in its present anemic state.

Let’s take the story back a few years.  It seems that for several years the Bank of America has been arbitrarily raising interest rates on its credit card customers.  Here is an excerpt from an article on MSN from BusinessWeek, February 2008.

Credit card issuers have drawn fire for jacking up interest rates on cardholders who aren’t behind on payments but whose credit scores have fallen for other reasons. Now, some consumers complain, Bank of America is increasing rates based on no apparent deterioration in their credit scores at all. The major credit card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving explanations for the increases, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter — headed “Important Amendment to Your Credit Card Agreement” –- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. “No one could give me an explanation,” says Eric Fresch, a Huron, Ohio, engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit….But Bank of America appears to be taking an even more aggressive stance because, beyond credit scores, it is using internal criteria that aren’t available to consumers. That makes the reasons for the rate increases even more opaque….Analysts also say they are surprised by the magnitude of the rate increases Bank of America is imposing on affected cardholders.

You can find stories all over the web about Bank of America’s bad behavior regarding its credit card customers.  Recently it appears that BofA has accelerated the use of one of its strategies: arbitrarily reducing the credit limit of customers who have very good credit histories, pay on time, and pay more than the minimum.   The deal goes like this:  You borrow an amount from BofA at a good interest rate.  After a few months you get a call.  You are told that your credit limit is being reduced to almost exactly what you owe.  When you ask for an explanation, you are given transparently bogus reasons.   And there is no appealing the reduction.  This action is unfair to credit card customers because it can adversely affect credit scores.  Consumers now appear to be maxed out on their cards when 24 hours earlier they had a nice cushion.   A lawyer in California became so incensed about this practice and arbitrary increases in interest rates that he threatened to sue the BofA.  The story can be found in the Huffington Post, January 2010.   An excerpt:

“Banks have done really well figuring out ways to screw people without making themselves legally liable,” said Ira Rheingold, director of the National Association of Consumer Advocates. “I think [the limit reduction] is another example of Bank of America’s venality. Whether or not it’s a successful lawsuit, I don’t know. Whether I think it ought to be challenged — absolutely.”

But maybe Bank of America is just trying to do what is best for its shareholders.  That’s often what you hear when companies are challenged about their executives’ pay or other practices.  Yet BofA doesn’t seem too keen on giving its shareholders a say in the pay of its executives.  For example, a Los Angeles Times headline on February 23, 2010 announced:

Bank of America resisting shareholders on executive pay. . . The bank is working to keep investor proposals on executive compensation off the ballot.

The machinations of BofA are sad stuff.  The resulting likely behavior from customers with reduced credit lines: pay off debt more quickly and spend less money in the marketplace.  Of course this will only help to extend the anemic recovery.   The fact is that the actions of leading banks and corporations have often not been good for the economy.  They rant and rave about taxes and the federal government, but it’s a shell game.   (Banks and their supporters will tell you that the reason they are not loaning is because of federal regulations.  BofA is currently sitting on 172 billion in cash.)  The intense preoccupation of corporations with the bottom line (and the well-being of their executives) has left millions of Americans un- or underemployed.   The way that credit has been handled, for example, has increased the fear that we will never come out of this downturn, which will only help to prolong it.

Socialism is no threat.   Corporations only looking to the bottom line, which in times such as these is downright unpatriotic, are a threat.  It’s time for companies that have done so well in America to stand up and sacrifice for America.  We are not asking you to become charities, although you were willing to take our charity when you needed it.  We are asking you to spend some money, damn it, and put people back to work, even if it’s not the absolutely best thing for your corporation’s current bottom line….and stop harassing responsible citizens while you do it.

Oh, and just in case you might be worried about the well-being of the former Chairman of BofAm, Ken Lewis, here is what ABC news reported regarding his retirement pay in 2009.

Outgoing Bank of America CEO Ken Lewis’ nearly $64 million retirement pay puts him ahead of most, though not all, fellow major bank CEOs who have left their institutions during the financial tumult of the last two years.

So, you think of yourself as an honest soul.  You understand that stealing property or money is wrong.  You wouldn’t do it.  You wouldn’t want your kids or friends to do it.  It’s unthinkable.   But I have a proposition for you.

Here is a button.   All you have to do is press it and $100,000 will be transferred from Goldman Sachs, BP–or any other giant corporation whose resources are larger than most countries–into your bank account.   Nobody will ever know.  It’s a magic button.  Well, not really magic.  Some geek has wired it in a fashion so that money can be transferred to your account without anyone being able to trace it–in the tradition of how derivatives were traded.

Just think of how much money Goldman Sachs and its executives made in the last few years as the Market tanked, while you probably lost money in your hard-earned retirement account.   Not only did you recently lose money, but if you had invested $1,000 dollars eleven years ago in the Dow, that’s just about what it would be worth today, $1,000 (less if inflation is factored in).  But you know, and I know, how much money these guys have made trading your money and my money.  But that’s capitalism, you say.  It’s the way the game is played.

But would you push the button?  Would you be tempted to do it?  Or perhaps a better question: how many of your fellow Americans do you think would be tempted?  A lot, right?  (Or an even better question, how many more would push it today than ten or twenty years ago?)

The recent Melt Down on Wall Street, and the ensuing profits made by big trading firms and banks, have been corrosive in ways that we may not fully understand for years.   You’ve got Tea Baggers screaming about Washington, but the revelations about how Wall Street operates have buried themselves deep in our collective subconscious.  Real damage has been done.  Yes, we knew that there was big money out there and that big money corrupts.  (Before the present Melt Down, there was Enron and assorted other travesties.)   Yet “knowing” is one thing.  Seeing it in front of your eyes day after day, year after year, undermines confidence that the system is anything close to fair.  Yes, Obama has attempted to tame Wall Street with new regulations.  They will do some good.  Yet as long as we continue to see different rules of the game for a small strata of society, which is indeed what we have seen, our belief in the benefits of capitalism will be undermined by a gnawing sense that it is corrupting us, our children, our society.  From a sanctified economic system, it will become what we have to put up with, sort of like the Roman emperors in Imperial Rome.  It won’t go away anytime soon but we aren’t going to feel good about it.

There was a time in American business when many people believed that a handshake was as good as a contract, or so I am told.  People kept their word.  It now seems that handshakes still function in this manner for a small elite segment of corporate America that makes deals for unimaginable sums.  The rest of us can’t depend on them when we deal with companies.  (How about a handshake between you and your medical insurance company to guarantee your coverage?  Any takers?)   The middle class will need more and more contracts and lawyers to protect them in an economy in which money has gone wild.  And they will have relatively less money to hire these lawyers.

No doubt there are problems with the way government functions.  But anyone who thinks that this is the major source of the declining confidence in how our society works really needs to look at Wall Street with suitable eyewear.   The business of America is no longer doing business but being given the business.

(Print, Southern Labor Archives.  Caption:  History Repeats Itself–The Robber Barons of the Middle Ages, And The Robber Barons of To-Day)

….

Guess what?  The fat cats on Wall Street not only think that they will be doing as well or better this year than last, they think that any attempt to limit their outrageous salaries and bonuses will stifle innovation.   The following is from a Bloomberg.com story, “Bankers Expect Rising Bonus Pay to Break Records in Global Poll,” (Oct. 30, 2009).

Having shaken off the biggest economic decline since the 1930s, almost three in five traders, analysts and fund managers believe their 2009 bonuses will either increase or won’t change, according to a quarterly poll of Bloomberg customers. Only one in four see a decline. Asians are the most optimistic about pay and Americans and Europeans somewhat less so.

“The large banks are knocking the cover off the ball,” said Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC. The industry is “making money, though with government help.”

Worldwide, a majority of market professionals in the survey also turn thumbs down on government attempts to limit compensation, with 51 percent saying restrictions will stifle useful innovation. Only about 38 percent think pay limits will control excessive risk-taking.

In the U.S., where President Barack Obama has chided Wall Street for being “motivated only by the appetite for quick kills and bloated bonuses,” 65 percent say the restrictions will damp innovation.

So, we are supposed to believe that if “market professionals” lose some of their bonuses, it will decrease their capacity and motivation to think about new ways to make money.  This claim is as lame as it is self-serving.  You would think that some loss would only drive them to new heights of creativity, given their alleged professionalism.  Yet they keep managing to get away with offering ever weaker rationalizations for why they need ever increasing salaries and bonuses.  Laughing all the way to the bank(s).  It seems that we have our own version of the Robber Barons.  They may oppose tariffs, but they have the equivalent of monopolies in many areas.  They work for institutions that are, after all, too big to fail.   Yet these “professionals” should remember that Americans have a limited tolerance for aristocrats, and they are beginning to skate on the thin ice of class: they are becoming an entrenched moneyed aristocracy.

If you question my assumption about Americans’ limited tolerance for self-inflated moneyed folks, I ask you to take the Gilligan’s Island test.  Which character or characters on Gilligan’s Island do you least trust: Gilligan, the skipper, the millionaire and his wife, the movie star, the professor or Mary Ann?   (Hint: notice that there is only one character not looking at you.)

AP/photo Boston.com

In thinking about the financial crisis—Wall Street, brokers and bankers, and their supporters in Congress, those who have promised us so much in return for so little these past few decades—I remembered hearing the words, “We ask only that you trust us.”

But I was not trusting.  I was suspicious.  I was ill at ease.  Yet, who was I to question the wonders that they produced, the capital that they created, the products they financed, the fortunes they made.

But now I recall.  We had been warned.  They would come bearing gifts.  And then….  Here is that warning (in abridged form), drifting over the air waves for almost fifty years.

It begins with an introduction by Rod Serling, “Respectfully submitted for your perusal: a Kanamit. Height: a little over nine feet. Weight: in the neighborhood of three hundred and fifty pounds. Origin: unknown. Motives? Therein hangs the tale, for in just a moment we’re going to ask you to shake hands, figuratively, with a Christopher Columbus from another galaxy and another time. This is the Twilight Zone.”

Consider as you watch that “a Kanamit” may have been a clever way to say  “a Capitalist” back in Serling’s day.  For as Wikipedia tells us, “Throughout the 1950s, Rod Serling had established himself as one of the hottest names in television, equally famous for his success in writing televised drama as he was for criticizing the medium’s limitations. His most vocal complaints concerned the censorship frequently practiced by sponsors and networks. ‘I was not permitted to have my Senators discuss any current or pressing problem,’ he said of his 1957 production The Arena, intended to be an involving look into contemporary politics. ‘To talk of tariff was to align oneself with the Republicans; to talk of labor was to suggest control by the Democrats. To say a single thing germane to the current political scene was absolutely prohibited.’   Twilight Zone’s writers frequently used science fiction as a vehicle for social comment; networks and sponsors who had infamously censored all potentially ‘inflammatory’ material from the then predominant live dramas were ignorant of the methods developed by writers such as Ray Bradbury for dealing with important issues through seemingly innocuous fantasy.”  The Twilight Zone

1934  movie poster, United Artists

For reasons that you might easily be able to infer from our present collective financial woes, I recently had an urge to read (and listen to) a book that I have never read, The Count of Monte Cristo.   My more philosophical side says, avoid revenge.  No good will come of it.  My gut says, go, go, go.

Here is a short passage you might enjoy.   The Count is speaking to the banker Danglars, one of the guys who “done him wrong,” but is unaware of the Count’s actual identity.

“But what is the matter with you?  You look careworn; really, you alarm me; for a capitalist to be sad, like the appearance of a comet, presages some misfortune to the world.”  The Count of Monte Cristo, Modern Library Edition, 2002, p. 887.

Bernie M