Archive for the ‘Wall Street’ Category
When the economy tanked we all remember how Wall Street continued to give excessive bonuses to its executives in the face of huge losses in their divisions and accounts.
If there is any question that Mitt Romney is a creature of the same out of touch Wall Street culture, here is some further evidence.
The collective wisdom is that the Republican convention didn’t do much for Romney and friends, and it will most likely be remembered as the convention of the empty chair. The campaign as a whole has not been well run. But this didn’t stop old Mitt from handing out a slew of bonuses right after his nomination at the convention, when there was no evidence that his “executives” had been successful.
Another set of expenditures is likely to draw grumbles from Mr. Romney’s allies given his campaign’s current struggles: The day after accepting the Republican nomination, Mr. Romney gave what appeared to be $192,440 in bonuses to senior campaign staff members. At least nine aides received payments on Aug. 31 well in excess of their typical biweekly salaries, including $25,000 each for Matthew Rhoades, the campaign manager; Lanhee Chen, a policy adviser; and Katie Biber, the general counsel. Rich Beeson, the political director, received $37,500. (“Low on Cash, Romney Tries to Rally Donors for Final Phase,” New York Times, September 20, 2012.)
Mitt (Leopard) Romney won’t be changing his spots anytime soon. You can take that to the bank.
We have all heard how furious the Wall Street big wigs are supposed to be at Obama. He is going to regulate us to death, kill the Market, etc. But it’s a good bet when dealing with Wall Street to avoid the rhetoric and follow the money. Forget Wall Streeters’ personal feelings about Obama and the Democrats. It’s clear that they don’t think that the world will end with an Obama reelection. Not only is the Market doing very well right now with Obama leading in the polls, it appears that traders are already betting with their electronic greenbacks on the reelection of the president.
Jeffrey Kleintop, chief market strategist at LPL Financial, has developed an index that tracks how well industries are doing that would benefit from either a Republican or Democratic win in November. The index is clearly showing a move toward the Democrats. You can find the latest report at http://lplgraphics.com/~rss/LPL_RSS_Feeds_Publications/WSEP/Election_Polls_09132012.pdf
An article by Mark Gongloff, “Wall Street May Hate Obama, But It’s Betting On His Victory,” summarizes what Klientop has been up to.
Nostradamus meets the Grim Reaper
This is an actual headline from an article posted on Bloomberg (News) at 7:21 this evening, September 1st, 2010: Economy Avoids Recession Relapse as Data Can’t Get Much Worse
The first lines of the article explain:
The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good. The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.
This is not from a skit on Stewart of Colbert. This is from a leading publication on business on a day that the Stock Market rallied. (I wonder what they will be writing when it retreats, again.) So, let’s get this straight. We are not going to have another recession, the dreaded double-dip, because things are already too bad to have one. How then do we characterize our current economy? Oh, I could think of a few words, but so can you, dear reader.
Things can get worse. Here’s the ticket: The Republicans win the House this fall and things completely stall out as the GOP offers (once again) the panacea of tax breaks for the wealthy as the cure for our economic ills.
(Btw, the name of the person featured on this $10,000 bill is Salmon P. Chase. If you don’t believe me, click here. He was a Secretary of the Treasury and a Chief Justice of the Supreme Court. Coincidence. I think not.)
In the New York Times on Sunday, January 24, 2010, Thomas Friedman writes in his piece, “More (Steve) Jobs, Jobs, Jobs, Jobs,” about programs that can be helpful in getting the economy moving. For example,
Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge. The best way to counter the Tea Party movement, which is all about stopping things, is with an Innovation Movement, which is all about starting things.
Fine. Let’s support programs that can provide education and opportunity. But Friedman also gives the president some advice.
Well, here’s my free advice to Obama, post-Massachusetts. If you think that the right response is to unleash a populist backlash against bankers, you’re wrong. Please, please re-regulate the banks in a smart way. But remember: in the long run, Americans don’t rally to angry politicians. They do not bring out the best in us. We rally to inspirational, hopeful ones. They bring out the best in us. And right now we need to be at our best.
This is a bad piece of political advice. It pretends that one can decontextualize a politician’s responses and hides behind the phrase “in the long run” in order to do so. President Franklin Roosevelt sounded pretty angry when he spoke to the nation about the Japanese attack on Pearl Harbor—you remember, “a date which will live in infamy.” And then there was his cousin, Theodore. He got pretty angry at those old monopolies in order to help pass some progressive anti-trust laws. In general, can you imagine how the American people would react if an American president did not get angry at a perceived threat, domestic or foreign, to the well-being of the nation?
To say that Americans don’t rally in the long run to angry politicians is one of those innocuous truisms that mean little in the real political world, for everything depends on what one means by “the long run.” (As Keynes said, “in the long run we’ll all be dead.”) In the short run, and medium runs, the American people surely do rally to an angry president, as long as they can connect with the anger. They also rally to presidents who know when to get angry and when to be inspirational. (Presumably this would mean getting angry on and off, so it would sort of be in the long run.) Oh, yes, and then there are those presidential moments that combine anger and inspiration.
Since the statement about anger is so obviously off the mark and hackneyed, one might be inclined to look for some other motivation for Friedman tossing it out. Here’s my guess. Friedman is scared that if Obama goes too far in attacking the bankers a rift may develop between his administration and the wonderful world of capital. And then America may find itself falling behind foreign nations in the new flat world of economic competition that we face. According to Friedman, entrepreneurs, who at some point will require capital, are the movers and shakers in this world, and it will be a pretty scary place for those places and persons who aren’t on board in terms of the new world order.
But back home, in the meantime, Obama only gets to use the bully pulpit with one hand tied behind his back while he is trying to back Wall Street down. (Note Machiavelli here: it is better that the prince be loved and feared.) Friedman wants Obama to re-regulate the banks. In the real world of American politics just how is he supposed to accomplish this without some heavy duty support in Congress? And given the special interests standing in the way of reforms, you can kiss them good-bye if the American people don’t get sufficiently excited about the issue to get their representatives worried about reelection.
I have a piece of advice for Mr. Friedman and I hope that he won’t mind. It is in the spirit of his advice to the president: Don’t worry! Obama won’t forget about being loved over the long run.
UPDATE, January 27, 2010
For readers who may have felt that I was being a bit unfair to Friedman by claiming that he may have been motivated by fear, I suggest that you check out his column today, “Adult’s Only, Please.” Here is an excerpt. Catch the last line. (He does acknowledge that Obama might be justified in being a bit peeved by the way some on Wall Street have behaved, but hey, just let’s not make them too angry. And if you do, well, you are not being an adult, which of course Friedman is.)
Lately, we’ve seen an explosion of situational thinking. I support the broad proposals President Obama put forth last week to prevent banks from becoming too big to fail and to protect taxpayers from banks that get in trouble by speculating and then expect us to bail them out. But the way the president unveiled his proposals — “if those folks want a fight, it’s a fight I’m ready to have” — left me feeling as though he was looking for a way to bash the banks right after the Democrats’ loss in Massachusetts, in order to score a few cheap political points more than to initiate a serious national discussion about an incredibly complex issue.
President Obama is so much better when he takes a heated, knotty issue, like civil rights or banking reform, and talks to the country like adults. He is so much better at making us smarter than angrier. Going to war with the banks for a quick political sugar high after an electoral loss will just work against him and us. It will spook the banks into lending even less and slow the recovery even more.
I am a professor by trade. I like the idea of making people smarter (or perhaps I should say, better educated), especially over the long run. But I think we all know the danger of coming off like a professor discussing fire codes while the house is burning down.
Here you have Professor Irving Fisher after the 1929 Market Crash explaining that stocks were not actually too high; it was just that people were going into debt in order to invest. Right and wrong. Stocks were too high and there was too much investment that involved debt.
And here we are eighty years later and we all know who took on too much debt in order to make bundles of money. How come you didn’t you listen to Professor Fisher, financial wizards of Wall Street? Perhaps because you were able to take the money and run? (Or not even run. Just wait for another bonus as the smoke cleared.)
(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.)
We have all wondered how the financial wizards down on Wall Street managed to help tank the economy. No doubt creative accounting played a substantial role. This clip will explain to you, in a straightforward and easily accessible fashion, just how simple creative accounting can be.
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
RockefellerJ.P. Morgan in action
Obama’s budget is smart and far-sighted. I wish I could say the same about the bank bailout. We are certainly not out of the woods on this one.
On April 1st, the New York Times ran an Op-Ed piece by the noble winning economist, Joseph Stiglitz. (There is an excerpt and link below.) It’s about as clear a presentation of the issues involved as I have seen (in a short piece). And it lays out why we should be concerned about the plan, which is no doubt the work of Geithner and Summers. I worry, as many do, that the red-herring rhetoric of “nationalizing” the banks will prevent us from properly addressing the situation. I worry that Geithner and co., for all of their good intentions, are too close to Wall Street not to be sucked into the myth that “nationalizing” must mean socialism or the appearance of socialism. (The irony here is that this is precisely the rhetoric that the right has used so successfully in the past to prevent such needed programs as universal medical insurance.) I worry that this plan is viewed as a shrewd move to get the Wall Street/banking crowd on board by Geithner and co., but will end up providing the banks only a temporary boost in liquidity, yielding “profits” that will once again allow them to laugh all the way to their own banks.
J.P Morgan headquarters
My hope is that if the plan doesn’t work, the Administration will quickly turn around and say, we tried, and move on to a solution more appropriate to the problem. I am confident that Obama the pragmatist would make such a move. The question at hand: how hard will his own soft ideologues fight to avoid the appearance of “nationalizing” the banks?
Obama’s Ersatz Capitalism (excerpt)
by JOSEPH E. STIGLITZ
THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.
Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency. . . .
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.
AIG, Bernie, foreclosures, housing bubble, -401K, recession, depression, global financial meltdown, Eric Cantor, Mad Money, etc.
It’s time for a break, if only a short one.
Let’s return for a moment to how our grandparents (or perhaps our great-grandparents) kept their spirits up in the Great Depression. From “Follow the Fleet” (1936):