Class Warfare Blog

July 9, 2016

Why Are Bankers Rich?

The title should probably be “why do we expect banker’s to be rich?” but brevity is something I am working on.

When I was a youngin’ my communities bankers were, well, prominent people. Financially, they were well-to-do, we would say. Were they rich? No, nobody thought that. You see, community bankers are technicians: they work the levers of systems designed by other people. They were paid well, because they had the opportunity to steal a great deal of money, so getting a really well paying job was a disincentive to robbing the bank through embezzlement. Then the banks figured out how to include computerized checks and barriers to prevent such things, they ceased to have marble edifices and brass accoutrements and older people in charge (I do not recall seeing a young banker as a youth, they were all old men, conveying a sense of stability and gravitas.) and then banks and savings and loan institutions all of a sudden had much younger people in charge, of course on much smaller salaries. But then we got our “banks” putting up Halloween decorations and the like, much more festive.

So, today community bankers aren’t expected to be rich … they are just technicians.

But investment bankers, now they were expected to be rich. When I was young, an investment banker invested funds from a pool they collected and to make sure they didn’t embezzle money, they had to make a sizeable contribution to the investment pool. They were gambling their own money as well as their partners and interested investors. This was a rich person’s game. And if an investment banker wasn’t rich or getting rich they were a walking billboard screaming “Failure!” because the lucrative investments they were supposed to be making were not all that good, apparently.

There were just a few investment bankers, ever since the great Depression made sure that the funds in community banks were not to be mingled with the funds in investment banks (hint: the Glass-Steagall Act of 1933). Well, a gift from Bill Clinton and the other neoconservatives in the Democratic Party (we starting to agree with the arch conservatives who call the party the Democrat Party, because it doesn’t seem very democratic) was the repeal of Glass-Steagall because, well, according to the then economic geniuses, we were all grown up and didn’t need the training wheels anymore. (Why is it that economists have a track record that makes weathermen look as accurate as sharpshooters and we pay any attention to them at all?)

Just about a decade after the repeal of Glass-Steagall, we got the Great Recession, courtesy of that repeal. And the perpetrators of the Two Trillion Dollar Debacle got away scot free (shush, politically correct people, the term has nothing to do with Scots or Scotland; look it up)! Not a one went to jail. In the savings and loan crisis in the 1980s, 3,000+ bankers were prosecuted and 10% went to jail. This time, not a one because, you see, bankers are supposed to be rich.

Rich bankers make political contributions and we can’t afford to offend them, because, well, they are rich.

Like the Black man in Dallas who decided it was time to even the score with the police (deplorable, yet understandable), I wonder when it is that people are going to decide there are too many rich bankers and it is time to cull the herd.

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February 8, 2016

Drowning in Economic Bullstuff

I got out and they sucked me right back in.”
SPR

In an editorial in the NY Times (Don’t Break Up the Banks. They’re Not the Problem.) Steve Eisman, one of the real folks portrayed in the movie “The Big Short,” argues that we should not want to break up the big banks, because well, it is messy, and it would hurt economic growth, and well, just because.

“If we want a stronger economy, improving the distribution and growth of personal income should be our focus. Breaking up the big banks will not help, and might even hurt.”

These people are incredible.

The whole point in making the banks as big as the are, including the repeal of the Glass-Steagall act, was to continue the shift of the stock and other markets away from their original intent and toward speculative investments, none of which benefits the country or ordinary citizens. The stock market has become the tool of speculators and little else.

When you were in school, I am sure, you were taught the party line about the stock market, that a company, could sell itself by issuing stock certificates to a large number of people (thereafter the company is “owned” by whoever owns 51% of the stock). The money generated by this sale of stock allows the company to invest in its own growth as a “public corporation.” The company then paid “interest” to those who bought the stock (dividends) and maybe, down the road, the stock could be sold for a profit. It is a nice fairy tale and it is true as far as it goes. But all you need do is examine the most recent “star” initial public offerings (IPOs) to see something strange. Take Facebook’s IPO, for example. Facebook doesn’t make anything and I doubt anybody in your circle of acquaintances could explain how it makes money, but its stock price soared like an eagle then went down and back up. People were literally panting to buy stock in this company, a tech company that probably will not be around in 10 years , certainly not in 20 years. The example we were given in school was local widget factories, factories that employed our parents.

As far as breaking up the big banks “hurting the economy” because it would “disrupt all of the loans they were making,” consider the bank bailouts of 2008 and 2009. The federal government made the mistake of not tying the bailouts to the “loans” they could be making, so what did the banks do? They looked around and said, “there is no growth” so there is no reason to loan and they bought stocks and bonds with the money. Figure it out! If someone lends you money at 0% interest and you can invest it in the stock market at 5-6% or even higher. Talk about free money. All of that investment in the stock market made stock prices soar (the “markets” recovered from the Great Depression first, remember?) which made those banks investments even more valuable, made them even more money … that they still did not make loans with. The whole idea of them making loans with “free money” was to stimulate the economy by companies taking a chance to expand while it was cheap. People would be hired, goods bought, by these expanding companies and soon the recovery would be well under way. “Oh, wait, look! A shiny new stock certificate, I think I’ll buy that instead of making a loan with the money,” was the bank’s response.

The reason to break up the banks is because they are scum-sucking pigs, that when given the opportunity to make loans for free to help the economy recover from the largest economic depression in almost a century, they decided to profit from our loss. Then they spent hundreds of millions of dollars lobbying against any change in the rules that allowed them to speculate unhindered by effective regulation/regulators which created the GD in the first place.

Gee, it is complicated! Gosh, oh, what can we do? All we need do for now is separate federally insured bank accounts from speculative ones and let them figure it out. They are, after all, the “new” smartest guys in the room.

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