Attacking the rich, maligning the poor, driving a wedge into the widening gap between the top and the bottom of the workforce, these are the topics of concern in The Trillion Dollar Meltdown’s penultimate chapter.
Chapter Seven: Winners and Losers
It is perhaps apt that this next to last chapter has this title since we have become a nation that lives and dies with the sports metaphor. But just as the sports’ news has been dominated by spectacular betrayals of trust and honor so to has the world of finance. Superstars, yes. Superheroes, no. What has become clear to the outside observer is that the last forty years have led us to a point where the idolization of the rich, and unfortunately their methods, is the major characteristic of our psychology. Winning at any cost, walking away with it all, that is what we idolize. We are number one in our admiration and acceptance of the rich and their apparent right to have it all.
So what if Blackstone guts Travelport of $4 billion while laying off 841workers. We cheer as,
The private equity kings insist that they are management wizards, not financial engineers. But, at least in its most recent phase, the numbers show that the private equity game, like subprime CDOs, is just another arbitrage on cheap money and rising asset markets.
Billion dollar dividends to opportunistic takeover artists are just one wavelet in a long-term, and for many, increasingly dusturbing, tidal shift in American society – a widening disparity of wealth and income not seen since the Gilded Age.
Consider these wins:
- “the top 1percent, or the top centile, who doubled their share of national cash income from 9 percent to 19 percent.
- “the top one-hundreth of 1 percent, of fewer that 15,000 taxpayers, quadrupled their share to 3.6 percent of all taxable income.
- “the average tax return, of those 15,000, reported $26 million of income in 2005, while the take for the entire group was $384 billion.
Seems fair to most conservatives apparently because they still claim that the poor through the government’s entitlement programs, and the middle class through tax-deferred savings, and the elderly’s social security and other retirement plans got more. Only here are the facts of the matter according to Morris:
According to a 1999 Treasury study, 43 percent of the tax benefits from retirement savings programs went to the top tenth of households. 66 percent to the top fifth. and only 12 percent to the lower three-fifths.
Whiners and winners, that’s the net analysis. Didn’t finish school, did your job get automated? Well, that’s your lower class for you. Didn’t understand that subprime mortgage contract, well that’s too bad, isn’t it?
There is no conspiracy against the poor and the middle class. It’s more the inevitable outcome of our current money-driven political system combined with “the disposition to admire, and almost worship, the rich and the powerful,” which Adam Smith fingered as :”the great and most universal cause of corruption of our moral sentiments.”
Meanwhile, consider the drive to privatize. Sallie Mae is an example. Designed to be a government program to assist students in furthering their education has instead become a private company that “was fully privatized in 2004, a year in which it made an astonishing 37 percent after-tax profit.” See, say the free marketeers, that’s what business is all about. When the government ran it, it just helped thousands of student learn their way to success. But when it became a private company, and still retained the aspects of governmental protection from state usury laws, it made money. As a matter of fact, it even spun off a separate SLM business line that racked up $800 million in debt management fees in 2005. Imagine that. The rich, CEO Albert Lord’s compensation package in 2003 was 12.7 million with options by 2005 up to 189 million, get richer. While the poor (students) and the middle class (their parents) incomes stay flat.
We are apparently developing three kinds of services in this country. The service industries that provide jobs for the lower class, the government and industry service which provides jobs for the middle class, and the financial services which provides wealth and leisure and privilege for the upper class. Need proof, just look at Countrywide or Bear Stearns or Cit group or the K Street Project. When they make money they are private and successful models for how to work the free market. When they fail, the government, through the Fed or through pressure of other lenders/banks, bails them out. Socialized capitalism is what we have.
The great consolidations of banking and investment banking into financial mega-players has proliferated armies of mega-income executives Besides driving cash income shares toward the top of the payroll pyramid, it has greatly enhanced the political clout of Wall Street – as evidenced by steady cuts in taxes on capital gains and dividends and the persisitence of absurd tax advantages for private equity funds.
It takes a certain kind of confidence, some would say faith, to believe that we can come out of this cycle with our overall system still intact. Reading about the power of these forces and having watched what has happened even though the Democrats have assumed the political power for now, does not argue for success. Those armies of execs, those walls of money strategies, those free market confidence games are not just going to go away. America, you and I on the bottom may just have to do something about the top.
Next up: Chapter Eight: Recovering the Balance