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Analysis/Comment Last Updated: Sep 12, 2010 - 10:28:00 AM

Wall Street's Accountability Deficit: "Money is like sea water. The more you drink, the thirstier you become"
By Michael Hennigan, Founder and Editor of Finfacts
Jan 10, 2010 - 7:52:58 AM

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Wall Street's Accountability Deficit: Last Friday, veteran American journalist, Bill Moyers, who served as press secretary to President Johnson, began his weekly program on the PBS network, with a proverb from the ancient Romans: "Money is like sea water. The more you drink, the thirstier you become." He said that adage finds particular meaning today on Wall Street, which began this New Year riding a tidal wave of bonuses in a surging ocean of greed.

Also in recent days, Christopher Dodd of Connecticut, the last influential Irish-American senator on Capitol Hill, announced that he will not stand for reelection in the November mid-term elections. Dodd was linked with favourable treatment from Countrywide, a onetime leading home loans lender, and questions about a property transaction in Galway, Ireland. Tim Johnson of South Dakota, the only US Senate Democrat to oppose legislation Congress enacted to curb credit-card abuses, is in line to succeed Dodd as the Banking Committee chairman next year. South Dakota is the location of a number of credit card processing companies.

The healthcare reform process has shown the influence of money on the political process and a so-called "centrist" such as Senator Ben Nelson of Nebraska, owed some favours to health insurance companies from his time as insurance commissioner of that state. Bill Gross, the founder of the multi-billion bond fund manager, PIMCO, wrote in his monthly investment outlook this month, that politicians sell themselves cheap while in the past year, we at Finfacts said that America may be the most corrupt developed country, where we noted that the financial industry had spent $5 billion in lobbying and political contributions over the previous decade.

America has taken the lead overseas in trying to stamp out bribery of foreign officials while at home, bribery has been effectively legalised.

Finfacts article, Oct 2009: Wall Street firms set to break new records in 2009 with pay rising to $140bn; Bailed-out insurance giant AIG paid “retention bonuses” to kitchen staff

Golman Sachs CEO had told the London Sunday Times, late last year, that his bank was doing God's work. He later said the comment was meant as a joke and apologised for taking part in the cheap credit boom that had fuelled the pre-crisis bubble. “We participated in things that were clearly wrong and have reason to regret,” Blankfein said. “We apologise.”

However, as in Ireland, where the victims of misgovernance live in a shadowland of unemployment, it is easy to be contrite at a distance, without having to eyeball the victims, or incurring sacrifiice yourself. In 2007, Blankfein earned $71 million.

Bill Moyers said on the Bill Moyers Journal on Friday: "Ah, yes — Goldman Sachs, that paragon of profit and probity — which bet big on the housing bubble and when it popped — presto! — converted itself from an investment firm into a bank so it could get your bailout money. Now consider this: in 2008, Goldman Sachs paid an effective tax rate of just one percent. I'm not making that up — one percent! — while their CEO Lloyd Blankfein pulled down over $40 million. That's God's work, if you can get it. And, believe me, Wall Street bankers know how to get it."

Video and program transcript 

The latest issue of Mother Jones magazine examines the "accountability deficit." The magazine commissioned a series of articles investigating why no one has been brought to account for crashing the economy.

Two contributors to the issue, David Corn and Kevin Drum, joined Bill Moyers on the Journal to explain how the banking lobby continues to hold so much power in the nation's capital.

PBS said while the great wealth of Wall Street allows it to lavish campaign contributions on Congress, it is not money alone that gives the financial industry so much power. The influence of Wall Street has managed to change the national conversation. Mother Jones political blogger Kevin Drum explained the phenomenon using a term used by MIT professor and former IMF chief economist Simon Johnson:

It goes beyond regulatory capture, where, say the banks control the S.E.C. That's one thing. "Intellectual capture" means that essentially the financial industry has convinced us — you know, in the '50s what was good for General Motors was good for America — now it's what's good for Wall Street is good for America. And they've somehow convinced us that we shouldn't ask about what's right or what works or what's good for America. We should ask what's productive, what's efficient, what helps grow the economy.

It is this "intellectual capture" that prevents a reform movement from taking hold. David Corn, Washington bureau chief for Mother Jones, explains:

While [people are] angry at Wall Street, particularly on the corporate compensation front — which is very easy to get angry about — they also are fearful of taking Wall Street on, because they've been taught that if the Dow falls, if you take on the big banks, it's going to be bad for all of us. So, it really is this "Stockholm Syndrome," where we're forced to identify with people who are holding us hostage without our interest in mind.

The money, though, plays an important role. Corn notes that the fundraising system itself is a barrier to reform, "I mean, our whole system where the guys in charge of regulating or writing the laws would take cash from the people who want favors, you know, it's kind of, you know, bizarre to begin with."

And though members of Congress deny their donors don't influence their decisions, Drum is doubtful. Citing Senator Chuck Schumer's fundraising, Drum argues, "[Senator Schumer] raised a couple hundred million dollars, a lot of it from the financial industry. And that went to all Democrats. Not just Schumer. It went to all Democrats who were running for the Senate. Well, there's no way you can take that money and not at least be leaning in their direction, one way or another."

Excerpt Washington's "revolving door":

DAVID CORN: *** You know that there are scores if not hundreds of lobbyists. And where do they come from? They come from the committees that they're lobbying. People used to work on the committee, whether they were members, Congressmen or Senators, or staffers. And they spent a lot of time — because, ultimately, Bill, this is about knowledge. This is about information. This stuff is really complicated and convoluted. And, you know, you try reading any of one of these bills and figuring out what's actually being said. It's mystifying. And so, these guys who know the rules, they know the language, and they have the access, and they're giving contributions to the people writing the rules, have all the advantages.

Another excerpt:

BILL MOYERS: What does it say when 'Mother Jones" and the 'Wall Street Journal' reach the same conclusion? That our government cannot stand up to the lobby even on an issue like derivatives, which were at the root of much of our problem over the last few years?


DAVID CORN: Wall Street has become a place -- and the banking industry, where you don't lend money to improve local businesses and industry. You basically, you know, create new -- they call them instruments, devices -- to make money yourself. It's really turned into nothing except a casino, in which they lend money and then they make bets and side bets and bets on the side bets about what's going to go up and down. So, a lot of the action is really, at the end of the day, not about providing credit and keeping capital flowing. It's about what -- how they think they can make more money through more trades.

BILL MOYERS: Yeah, I was struck by the — by that paragraph in your story, where it said the financial industry has persuaded us, convinced us over the last 30 years that the purpose of the financial industry is not to serve companies needing capital or consumers needing credit, but to make money for themselves. And you go on to say that in a very fundamental way, this financial lobby has changed America. ***

KEVIN DRUM: It's what Simon Johnson the chief- former chief economist for the I.M.F., it's what he calls Intellectual Capture. And- -

BILL MOYERS: Intellectual Capture.

KEVIN DRUM: Right. It goes beyond regulatory capture, where, say the banks control the S.E.C. That's one thing. Intellectual Capture means that essentially the financial industry has convinced us, you know, in the '50s what was good for General Motors was good for America. Now it's what's good for Wall Street is good for America. And they've somehow convinced us that we shouldn't ask about what's right or what works or what's good for America.


DAVID CORN: *** It's about just trying to keep things going as they are. You know, so the airplane, you know, has a few holes in the wings. Let's patch it up and keep flying the same way. And this is where, you know, I think Kevin's right. You need someone to step in whether it's the President or some other voice and say,
"Wait a second. There's something cockamamie about the entire system. There's something rotten at its core. We want to look at it deep down."

I think a lot of people would follow the President if he did this. He made an early decision in his presidency. And it happened even before he was elected. It was, you know, September 2008, when the market tanked that day and John McCain was flailing and not knowing whether he was going to listen to Newt Gingrich or somebody else. And Obama came out with press conferences, surrounded by Robert Rubin, Larry Summers, and all the guys who had a hand in what went wrong. And saying, hey, I'm with the adults. What he was saying, really, was, I'm with the conventional thinkers.


BILL MOYERS: Look at this. This is a list of all the contributions over the last 20 years to Members of finance-related Congressional Committees. Let's just take the first eight. Out of the first eight, six of them are Democrats. And those six Democrats have received from the financial industry some $68 million.


BILL MOYERS: I mean, in Washington, if you are a critic, if you're a journalist in Washington, who reports the kind of -- on Washington the way you do, you get marginalized right?

KEVIN DRUM: Yes. Yes. I think you do. You're not part of Wall Street. You don't really understand what's going on. That's how they feel about it. I think that the Obama Administration — all the people in there — I think they have become convinced, like a lot of people, that if they don't do what Wall Street says, terrible things are going to happen. I mean, if they try to reign in Wall Street, all of our financial business will move to the Bahamas. And we'll lose trillions of dollars. And they believe that. And that's what the banks are--

BILL MOYERS: But as you say so astutely in this article, that happened for 20 years. Washington-- 30 years. Washington did what Wall Street wanted. And we had a debacle anyway.


BILL MOYERS: Have we learned nothing?

KEVIN DRUM: The Stockholm Syndrome, as David puts it, is so strong that they still believe it. And, you know, one of the things that happened here is that the bailout last year succeeded in a way, too well. I mean, it worked. TARP worked. All the actions that Ben Bernanke--

BILL MOYERS: Kept us from going over.

KEVIN DRUM: Took us-- yeah, kept us from getting into a second Great Depression. And so, now, what we've got is to a lot of people, just a big recession. There's a lot of unemployment. But it seems familiar. It's a recession. The crisis is over. And now we can go back to business as usual. Because maybe it wasn't as bad as we thought. Memories, memories fade. But, you know, the same thing is going to happen again if we don't reign in the banks.


KEVIN DRUM: People are more afraid of big government than they are of big banks, despite what happened over the last couple of years. And they shouldn't be. They should be-- what they should be is demanding a better government. A government that regulates without being captured by all the special interests. A government that puts in place regulations that are simple and clear. So, David, what you're saying. The vanilla products option, for example, in the CFPA was a nice-- the reason the banks hated it was because it was so simple.

A nice simple regulation. There's no way to get around it. If the rule says you have to offer as an option, this is not the only thing. You have to offer if you're going to do a home loan one option has to be a standard, 30-year, fixed rate mortgage. And you can have all your other options, but you've got to at least tell people they can have that. That's a very simple regulation. There's no way to get around it. And that's why banks hate it.


DAVID CORN: *** Think about what's happened to our economy. For the aughts, the last decade, there was no net job growth, at all, from 2000 to 2009. For every other decade prior to that, whether it was Republican or Democratic President in charge, the growth was between 20 percent and 38 percent in jobs. So, we've gone from-- that's pretty healthy. Even though at times there have been recessions and wages may not have gone up as much as the number of jobs created. But in the aughts, nothing. This represents, I think, a fundamental turning point for our economy. And that has people--

BILL MOYERS: For our country.

DAVID CORN: Our country. Wigged out. They don't know the future. They don't know who to turn to. They saw what happened with the economic collapse last year. And, you know, it's hard to know, you know, if you can be angry, who to march on. Or whether you're going to hunker down, and try to just get by on your own. They look at rising powers, economic powers overseas. And how we're going to compete with them. It may be a form of abuse, but they certainly look to the Washington system. And this gets to the point that, you know, that Kevin raised. You know, in poll after poll for decades now, if you asked people who are you more scared of in terms of America's future, is it big government or big corporations? Big government always wins by a landslide.

KEVIN DRUM: And remember one thing is that over the last 20-30 years, people have been told over and over and over again that the economy is doing well. The economy's doing great. The Dow is up. And yet, they themselves, most of them, aren't actually making more money. Median wages have hardly gone up at all in the last 30 years. So, you've got all these people who aren't really making any more money. They're treading water. And yet, everywhere they turn, they're being told the economy's doing well. And they start, I think, a lot of people start to blame themselves. They wonder, "If the economy's doing so well, how come I'm not doing better? It must be me." And what they don't see is, no, it's not them. It's the way the system works.


DAVID CORN: *** Mark Patterson. He's the chief of staff for Timothy Geithner, the Treasury Department Secretary. He was a lobbyist for Goldman Sachs. What did he do as a lobbyist for Goldman Sachs? He lobbied against a bill in the Senate to restrain it was a very modest bill, to restrain CEO compensation.

Basically, gave shareholders the right to say, "We think you're paying them too much." It wasn't even mandatory. It wouldn't even cut back pay. He you know, Goldman Sachs would have none of that. He lobbied against that bill. Who authored that bill? Barack Obama, when he was a Senator. So, the guy who fought Barack Obama on CEO pay, an issue that Barack Obama says he cares about. And I believe he does. Is now running the Treasury Department for Tim Geithner. I mean, this really doesn't make a lot of sense to me.


BILL MOYERS: No one can read your piece in "Mother Jones" without thinking, "So, these guys must be laughing all the way to the bank." I mean, the same people who, bought the government off, brought the economy down, caused suffering to millions of people from Orange County to Portland, Maine, are winning all over again, you say. Because, you say, in the same issue, no one's fighting back.

DAVID CORN: My guess is that they feel they dodged the biggest bullet of their lives. I mean who would have thought a year ago that we'd be back we'd be at this point? I mean, I think they probably, you know, worried that, you know that that there'd be communist laws passed. You know, that people would be so angry.


KEVIN DRUM: People need to have someone to rally around. If they're going to make this happen. And I think that needs to be Barack Obama. He needs to be willing to really take on the bankers. You know, Franklin Roosevelt in his first term. I remember he has a famous quote where he talked about there are you know, there are people out there who hate me. I have earned their hate. And I embrace their hate. And I think Barack Obama needs to be willing to earn the hate of some bankers.


'Cause I think there is a lot of anger toward Wall Street. It's latent, but it's there. Among liberals, among conservatives, among libertarians, among independents. I think if there's any one issue where a real show of emotion on his part and a real show that he was going to take these guys on, could bring the country together. It very well might be taking on Wall Street.

BILL MOYERS: So, how you know, how long do we wait for Godot?

KEVIN DRUM: Well, that's up to Godot. That's up to Obama. Nobody knows.

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