The Angry Future Expat

Happy Bastille Day! liberté, égalité, fraternité

Posted in Assholes, banksters, debt, Deflation, Financial "Reform", Lost Decades, Walk Away by angryfutureexpat on July 14, 2010

Jamie Dimon, Stephen Schwarzman, Richard Fairbank, Lloyd Blankfein, and Pete Peterson, Step Right Up!

Martin Wolf has a piece in the Financial Times noting the shocking statistic that 58% of all income gains in the United States in the three decades between 1976 and 2007 went to the top 1% of the income distribution (h/t Naked Capitalism).  Standing alone, that fact is pretty damning, but the reason it’s really bad, lies in the supposed “solution” to the problem:

In the US, soaring inequality and stagnant real incomes have long threatened this deal. Thus, Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”. This is surely stunning.

“The political response to rising inequality … was to expand lending to households, especially low-income ones.” This led to the financial breakdown. As Prof Rajan notes: “[the financial sector’s] failings in the recent crisis include distorted incentives, hubris, envy, misplaced faith and herd behaviour. But the government helped make those risks look more attractive than they should have been and kept the market from exercising discipline.”

In other words, the “solution” to wage stagnation among the lower and middle classes was to encourage lifestyle leverage, or borrowing so you could continue to acquire the accoutrements of a middle-class life, whether houses, cars, consumer items, or higher education.  Talk about a cure that’s even worse than the disease!  So it’s no surprise that starting around 1980, levels of household debt in the economy really started to take off, growing to more than 120% by 2007.

Now, I don’t mind inequality per se. Individuals that come up with great ideas, particularly those who follow-up their ideas with great execution deserve big rewards.  Bill Gates, Sergey Brin, Larry Page, and Steve Jobs, for example.  These guys actually create[d] useful products that enhance productivity and make us all better off.  They deserve their money!  But over the past three decades more and more of the profits of the economy have been funneled from  real product entrepreneurs to the paper “entrepreneurs,” especially in the finance sector.

As Robert Reich noted back in April, “The Paper Entrepreneurs Are Winning Over the Product Entrepreneurs (A Thirty Year Retrospective):”

The paper entrepreneurs are winning out over the product entrepreneurs.

Paper entrepreneurs — trained in law, finance, accountancy — manipulate complex systems of rules and numbers. They innovate by using the systems in novel ways: establishing joint ventures, consortiums, holding companies, mutual funds; finding companies to acquire, “white knights” to be acquired by, commodity futures to invest in, tax shelters to hide in; engaging in proxy fights, tender offers, antitrust suits, stock splits, spinoffs, divestitures; buying and selling notes, bonds, convertible debentures, sinking-fund debentures; obtaining government subsidies, loan guarantees, tax breaks, contracts, licenses, quottas, price supports, bailouts; going private, going public, going bankrupt.

Product entrepreneurs — engineers, inventors, production managers, marketers, owners of small businesses — produce goods and services people want. They innovate by creating better products at less cost.

****

Yet paper entrepreneurialism is on the rise. It dominates the leadership of our largest corporations. It guides government departments, legislatures, agencies, public utilities. It stimulates platoons of lawyers and financiers.

It preoccupies some of our best minds, attracts some of our most talented graduates, embodies some of our most creative and original thinking, spurs some of our most energetic wheeling and dealing. Paper entrepreneurialism also promises the best financial rewards, the highest social status.

The ratio of paper entrepreneurialism to product entrepreneurialism in our economy — measured by total earnings flowing to each, or by the amoung of news in business journals and newspapers typically devoted to each — is about 2 to 1.

That’s not how it should be.  Finance has a place in the economy, but that place should be nothing more or less, than facilitating movement of capital from savers to product entrepreneurs.  Once finance became the primary means for formerly middle class people to continue living like they were middle class by taking on ever escalating amounts of leverage, aka debt, finance became predatory, extractive, and destructive to the economy.  And, once that happened, the returns to finance dwarfed returns to the real economy. Take a look at when financial sector profits began to diverge from profits in the real economy – just about the time the economy recovered from the 1982 recession.

Our current “Great Recession” was our best chance to rein these fuckers in.  Perhaps through nationalizing the banks, or simply letting them fail en masse and taking a true shared depression.  But that didn’t happen.  Again, back to Reich:

Americans are keeping their jobs or finding new ones only by accepting lower wages.

Meanwhile, a much smaller group of Americans’ earnings are back in the stratosphere: Wall Street traders and executives, hedge-fund and private-equity fund managers, and top corporate executives. As hiring has picked up on the Street, fat salaries are reappearing. Richard Stein, president of Global Sage, an executive search firm, tells the New York Times corporate clients have offered compensation packages of more than $1 million annually to a dozen candidates in just the last few weeks.

We’re back to the same ominous trend as before the Great Recession: a larger and larger share of total income going to the very top while the vast middle class continues to lose ground.

It’s not inequality.  It’s that the financiers are creaming off too much…from everyone.  They have households over a barrel with debt, and they’re destroying the “product entrepreneurs.”  As Michael Hudson puts it, “From the financial sector’s vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy.”  They’re winning, perhaps they’ve already won.

Unless you want to head out and start pushing a guillotine down Wall Street (not a bad idea, BTW), the best tool you have at your disposal is to simply not play their game. They levered you up, and levered themselves on the assumption that you would make every effort to pay back those jackals.

To paraphrase William F. Buckley, the time has come to stand athwart the bankster takeover of the economy and yell “Stop!

12 Responses

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  1. MariannaBLS said, on July 14, 2010 at 10:36 am

    Joan King says, “Let them eat cake!”

  2. dupednontraditional said, on July 14, 2010 at 10:36 am

    I went from “product” to “paper”. Now I’m part of the problem. :’(

    The results were not what I intended so many years ago…but at least I have a clear conscience about it. The banksters and their attorney lackeys, on the other hand, knew full damn well what they were doing, regardless of the future carnage…

    Where is Robspierre when you need him? He may have been a little nutty, but at least he cleaned house.

    • angryfutureexpat said, on July 15, 2010 at 8:28 am

      It’s a pretty specific type of paper entrepreneur that’s the problem. As Dylan Ratigan asks in this video clip, “How can you invest and create jobs when one group of people is stealing all the money?” More importantly, if the returns to the product entrepreneurs were what they should be, fewer people would move from product to paper.

  3. JD Underdog said, on July 14, 2010 at 10:53 am

    I was hoping someone would make a Bastille Day post! Kudos!

  4. Sovereign Defaulting on Debt said, on July 14, 2010 at 4:43 pm

    Some woman from Citibank (who holds my private student loans) just began arguing that I “took advantage” of the full year of lender-option forbearance that they don’t even offer anymore. Apparently, they’re now offering only 6 months because, you know, the prospect of getting a job is so much better now than it was a year ago, especially for young people. What a lovely, helpful thing to say in response to my problem: the minimum payment on my loan is higher than the balance in my bank account. Meet me. A rock. Now with a bad credit score.

    She followed that up by telling me that they actually lose some money (before the guarantor steps in) when someone defaults, and so, they don’t want their borrowers to default or anything.

    Then she complained, “We’re Citibank. We’re in the business of making money.” That gave me any idea. How about this: How about they give me a whole whack of government money at 0%, and I’ll lend it back to the government at something above 0%, and then we can all be in the very, very complicated business of making money. You sure are a true professional, love.

    • angryfutureexpat said, on July 14, 2010 at 5:11 pm

      Scum is generous description of those jackals. I was also hoping to get a cut of the Fed’s free money, but they never got back to me:

      http://angryfutureexpat.wordpress.com/2010/02/25/asshat-corzine-says-i-envy-goldman-sachs-fucking-a-right-i-do-can-i-borrow-100000000-at-0-from-the-fed-for-a-year-or-two/

      • Sovereign Defaulting on Debt said, on July 14, 2010 at 6:12 pm

        Well, I would say, “I don’t get it”, except that I do. What I should say is I can’t believe it. How much fucking money did we, the taxpayers, give them to keep them afloat over the past several years? This is the bank whose assets went from something like $2.4 billion or trillion to $1.4 in about a 8 month span. And, what do then do? They turn around and CUT 6 months off their own lender option forbearance “program”. I do understand that they basically want to cut their losses and get to the guarantor’s money, but, really, in the circumstances of the hundreds of billions of taxpayer dollars that got pipelined directly into their coffers, I have a hard time regarding these “people” as human beings.

  5. fatcity said, on July 14, 2010 at 11:01 pm

    Viva La Revolución! No need for violence, $lollerdollars$ are the ticket. JUST STOP PAYING THE BASTERDS. (and taxes, too).

    • fatcity said, on July 14, 2010 at 11:18 pm

      Also of note, on this day the Sedition Act was passed.

    • angryfutureexpat said, on July 15, 2010 at 8:31 am

      If you don’t pay taxes, the government will lock you up, so I certainly don’t encourage that choice. But on withholding your money from the banks, I certainly agree.

  6. reddleman said, on July 15, 2010 at 4:26 am

    no one “deserves” to be a multi-billionaire, i dont care how great there are.

    • angryfutureexpat said, on July 15, 2010 at 8:33 am

      Not suggesting they shouldn’t pay taxes on that money (even at a pretty high rate!), but the ones listed in the post are a hell of a lot more deserving of billions than Pete Peterson and Steve Schwarzman (Blackrock) or John Paulson.


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