Banks Paid Themselves $250 Billion In Bonuses?
By Justin Gardner | Related entries in Economy, History, MoneyHow can we continue to tell folks that this economy works for them when it’s obvious that only folks at the top get the big rewards and none of it ever seems to trickle down?
From Contrarian Profits…
Let us explain how the financial industry worked. A guy borrowed some money from some other guy who borrowed the money from some other guy who borrowed the money from the Fed at a lower rate than the going rate of consumer price inflation. Then, the lender booked a profit on the transaction and paid himself a bonus…while selling the loan on to someone else, whereupon both of them booked a profit and paid more bonuses. Then, the loan was packaged up with similarly infected credits, rated AAA by Moody’s (NYSE:MCO), and then sold on again – and again, everyone involved in the transaction, including the cleaning lady, booked a profit and got a bonus.In the four years leading up to the credit crunch Wall Street’s big banks paid themselves $250 billion in bonuses. It didn’t seem to matter to anyone that the source of the wealth was largely a swindle… that real profits would never be realized. Now, the banks are writing off the bad loans… and turning to the taxpayer for a handout. But no one has offered to return a bonus, as far as we know.
So yes, this was obviously crazy, but it was all perfectly legal. Now, I’d definitely characterize it as legalized theft, but it’s legal nonetheless and getting any money back from them doesn’t seem like it’s going to happen. And this is what lack of good regulation gets us. As we all know, markets are ultimately self-adjusting, but first and foremost they’re amoral and will look to find ways to make a profit above all else.
My question…won’t Americans start getting really, really angry and begin turning against the ideas of the “free” market? And what should the next President do in order to assure them that capitalism is truly benefiting them, when it seems as if the exact opposite is true given 30 years of stagnant wage growth and higher prices for the basics all around?
Free market advocates…the floor is yours…
This entry was posted on Tuesday, July 29th, 2008 and is filed under Economy, History, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
July 29th, 2008 at 10:38 am
Oh, here’s an idle question. If you invested money 30 years ago, did the market benefit you? If you have a 401k, did it benefit you?
For better or worse, the more closely you are involved in the market, the more it benefits you. I am not sure that this ought to be considered a dirty secret. The free market benefits you if you invest in it. Otherwise, unless you have some good or service that is in demand, it doesn’t. Oh, well.
It would be lovely if America could solve the problem of wage stagnation simply by increasing regulation of corrupt bankers and raising tariffs and trade restrictions to protect domestic jobs. I’m too old to think that’ll work.
Market abuses are disgraceful, and ought to bemoaned, obviously. But the reason to run away from the market is not because one perceives that it provides insufficient benefits. One changes course when one has identified a more attractive alternative.
What’s our more attractive alternative?
Also, I am confused as to why you connect corruption to stagnant domestic wages, unless the answer is simply “because I can.” This trend is in large part a function of globalization, which really doesn’t have that much to do with corruption, because, well, everybody cheats. It’s not an American invention and we absolutely have not cornered the market on it.
Here’s the thing. Many high-minded Americans have spent the last half-century or more lecturing us about the disgraceful gap between the standard of living in the industrialized world and elsewhere. Well, the gap is closing. Hooray? Notice that the gap can close because the poor get wealthier or because the wealthy get poorer. It’s a sad fact of economic and mathematical life that if you divide the same pie into more pieces, each person gets less in absolute terms. Only if you can grow the pie itself will each person get a greater share in absolute terms from a smaller fraction of the pie. That happens only if the economy as a whole grows larger. That doesn’t happen when taxes get higher, when tariffs are added, and trade is restricted due to international acrimony. Oh well.
July 29th, 2008 at 11:21 am
Frankly, the 4th Estate needs to turn its spotlight onto corporate giants as much (or more) than political forces. The activist journalist has too long gone after politicians while, in the modern era, giant financial concerns are as much or more the source of corruption as the government. Ironically, once could argue that most journalists are part of these giant financial concerns themselves….
July 30th, 2008 at 6:57 am
This all boils down to the greed of banks and organisations in the US and UK. It’s now the ‘ordinary’ people in the street who are paying through the nose because banks have lent money to people who simply cannot afford to repay it.