Monday, February 9, 2009

Wall Street Pirates v. Somali Pirates

"...talking about the benefits of free markets [is] like...promoting the benefits of rape." — Icelandic writer Haukar Mar Helgason

Quick question: Why are more than a dozen of the world's navies converging on Somalia to battle pirates there instead of sailing into New York to capture the Wall Street pirates? After all, CEOs captured over $20 billion in taxpayer money using tax loopholes, according to an Institute for Policy Studies (IPS) study. Surely the global economy would be made more secure by forcing former Merrill Lynch CEO John Thain, who doled out $4 billion in executive bonuses even as his company was collapsing, to walk the gangplank than by cracking down on the bands of privateers in the Horn of Africa. Read more here...

Executive Excess. The U.S. tax code is riddled with loopholes that allow top corporate and financial leaders to avoid paying their fair share of taxes. Ordinary taxpayers wind up picking up the bill – to the tune of more than $20 billion per year. All five executive-friendly tax loopholes highlighted in the report are the targets of Congressional reforms. However, these efforts have stalled in the face of fierce opposition from corporate lobby groups. The report also finds that S&P 500 CEOs averaged $10.5 million in pay in 2007, 344 times the pay of typical American workers. Compensation levels for private investment fund managers soared even further. The top 50 hedge and private equity fund managers averaged $588 million each, more than 19,000 times as much as typical U.S. workers earned. Download the report here...

Stealing the Wealth of A Nation: When Adam Smith published his first edition of the Wealth of Nations, he could not envision people making money by just investing the capital of others as Wall Street pirates do today. He writes:
A capital may be employed in four different ways: either, first, in procuring the rude produce annually required for the use and consumption of the society; or, secondly, in manufacturing and preparing that rude produce for immediate use and consumption; or, thirdly, in transporting either the rude or manufactured produce from the places where they abound to those where they are wanted; or, lastly, in dividing particular portions of either into such small parcels as suit the occasional demands of those who want them. In the first way are employed the capitals of all those who undertake the improvement or cultivation of lands, mines, or fisheries; in the second, those of all master manufacturers; in the third, those of all wholesale merchants; and in the fourth, those of all retailers. It is difficult to conceive that a capital should be employed in any way which may not be classed under some one or other of those four. (Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations. Edwin Cannan, ed. 1904. Book II, Chapter V — "Of the Different Employment of Capitals Library of Economics and Liberty.")
In fact, it's possible that Somali pirates would find some empathy from Smith. In Wealth of Nations, he defends smuggling as a legitimate activity in the face of "unnatural" legislation. Where he is unlikely to show empathy, however, is with the type of unethical piracy shown by CEO's of Wall Street financial institutions that appeared arrogantly before Congress yesterday. News reports have it that four of these CEO's received bonuses in excess of $120 million dollars. Where did this money come from? Was it really "created" by their labor? The answer to the second is absolutely not; it was stolen from the public trust.

Which is to say, the money came from institutional investors, organizations that pool large sums of money and invest those sums in companies. They include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds. "Their role in the economy is to act as highly specialized investors on behalf of others. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management." (Wikipedia).

In brief, then, prior to the implosion of the US economy, income on Wall Street came from investment profits rather than the creation of new wealth. And the income that Wall Street was amassing was overwhelmingly in the form of paper profits that have now vanished as quickly as they appeared.

In other words, once the implosion began, those recent gross bonuses that Wall Street executives gave themselves came directly from the pension funds of working and retired Americans. These executives and the whole of Wall Street have had their own private run on the banks while the American people have been kept in the dark. It's one big ponzi scheme that the entire US Congress is an accomplice. In terms of guilt, the US Congress under Republican stewardship is no different from Bernie Madoff.

The only question remaining at this point is how much money remains in these pension funds. My guess is not much, which is why the public is not being told what has happened to their savings. Paulson and the Fed knew and the TARP funding has been used to hide the bad news. Now you see why the US government and the new administration is asking the Federal Reserve, the bank that is not a bank to print money. Can you say "revolt"? I hope so. Americans need to do what the Icelanders and Argentinians have done—drive these neoliberals to the prison cells they have earned. "All of them must go!"

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