| Source: Continuous Improvement Associates http://www.exponentialimprovement.com/cms/jobsjun10.shtml Social Issues Brief Summary Irrational belief in the infallibility of the "free market" and "free trade" has led to devastating offshoring of good-paying manufacturing & IT jobs and resulted in enormous "trade" deficits. This has undermined the US economy and is the root cause of the economic crisis. This page documents the losses & deficits. Of course, there are additional reasons why the U.S. economy is collapsing, but this is the most fundamental and quite sufficient. Also see The 9/22/08 Economic Crisis. Colorado Springs Jobs: As of Jun 2010 Colorado Springs has lost over 54% of its Mfg & IT jobs since Jan01; that's 14,300 Mfg & 7,800 IT jobs lost. Computer & Electronic Products Mfg jobs are down 69% since Apr01. Overall there are 19,500 fewer non-farm jobs than in Nov 07 ... about the same number of jobs as in July 1999. Economic Overview Here's a link to Economic history and bubbles Manufacturing jobs disappear as the U.S. makes less & less because multinational corporations increase corporate profits by offshoring jobs. IT jobs disappear also because much IT has been associated with manufacturing and because those IT jobs follow manufacturing. Many other IT jobs can also be offshored to India. As jobs disappear, there's an even greater excess supply of labor compared to demand depresses wages. I say "even greater" because excess labor supply/demand has been managed at the national level for decades. This serves the offshoring agenda quite nicely as it can be argued consumers need those imported products that cost less than if they were made here. So this benefits the everyday consumer, don't you know? Never mind that wages would also be higher if products were be made here; with higher wages we wouldn't need those cheap imported products. In fact, they would have been 68% higher in 2004 (see the 2nd chart at The Death of the Middle Class). The other argument made by the economic geniuses who promote offshoring is that, with those cheaper prices, the money not spent on them can be invested more productively elsewhere. Yes, but to the extent that's true, that "elsewhere" isn't in the U.S.; it's been in Mexico, China, and other asian countries. As noted below at "Trade Deficit", there's been enormous and increasing trade debt, meaning imports greatly exceed exports. Here's a hint based on the advanced mathematical tool called arithmetic: When more money is going out of an economy than is coming in ... it FAILS. This fundamental truth is explained at Economic Development: What to do locally? This is so obvious that it should not even need to be explained. Economists should really understand that what cannot go on forever will stop. When it does, the U.S. economy is in for a shock of staggering proportions. So why is this insanity (offshoring, deregulation resulting in monopolies, economic bubbles that burst, financial fraud with government bailouts), insane policies inevitably leading to economic collapse, happening? The best overview that I've ever read is What the Tea Party has in common with the rest of us by Nikki Alexander, 7/30/10. Please read the whole thing, but here is an excerpt. The federal government is a financial engine that facilitates the extraction of labor and wealth from the productive economy and exploits the workers and natural resources of foreign countries to enrich unproductive parasites known as Wall Street, or more precisely, organized crime. ... It's the combination, the marriage of both, that Mussolini defined as fascism - which is the political/economic system we have in the US. The revolving door and regulatory capture are phrases that acknowledge this relationship. The federal government is structured to benefit the wealthy with contracts, subsidies, tax breaks, franchises, cartels and monopolies. Damn! For those concerned about U.S. sovereignty, we don't have the U.N. to fear; it's the WTO, GATT and NAFTA, working on behalf of multinational corporations, that have overrun U.S. sovereignty and undermined the Constitution. For example, NAFTA Chapter 11 allows multinational corporations to overturn U.S. laws and jury verdicts using secret arbitration tribunals. When a corporation wins, the taxpayers of the "losing" NAFTA nation must foot the bill. The secret tribunals have powers to award unlimited amounts of taxpayer dollars to corporations whose NAFTA investor privileges and rights they judge to have been impacted. So, as the U.S. is making less & less, the economy has turned to financial, insurance, and real estate (FIRE) activity to make money. Why invest in manufacturing things here when the returns from finance and speculation can be so lucrative? To make this possible individuals and the nation have turned to debt. The dot-com bubble of the 90s was fed somewhat by low interest rates, but mainly by baby-boom demographics putting many in their peak-earning years and wanting maximum return on their money. Internet stocks were hyped as a sure thing -- it's a "new economy", don't you know -- so people speculated. That didn't work out so well as is the case for most people during all speculative bubbles. Following the dot-com bubble, interest rates were lowered again in late 2001. The abnormally-low rates led to the housing bubble with escalating home prices and using home mortgage refinancing for borrowing. This set the stage for the housing price bust as interest rates were raised in late 2004 & 2005 resulting in many mortgages being under water as home prices collapsed. As the economy has collapsed and people have lost their jobs, there have been an increasing number of mortgage defaults. To make up for the undermining of wages causing a collapse of demand, "conservative" economic policies replaced the real economy with an imaginary economy built on speculative bubbles: dot-com, housing, "trade", and deregulation-based financial fraud. As the bubbles have burst, the U.S. economy has collapsed -- as it had to because the arithmetic of "more money going out than coming in" rules. Here's an overview of the data in this article. Colorado Springs Jobs: As of Jun 2010 Colorado Springs has lost over 54% of its Mfg & IT jobs since Jan01; that's 14,300 Mfg & 7,800 IT jobs lost. Computer & Electronic Products Mfg jobs are down 69% since Apr01. Overall there are 19,500 fewer non-farm jobs than in Nov 07 ... about the same number of jobs as in July 1999. Colorado Jobs: CO has lost 155,800 jobs since May08. The number of CO jobs now is less than the number of jobs in May 2000. National Jobs: There are 7.4M fewer jobs than in Nov07. While that's 1.3M better than the Dec09 loss of 8.7M jobs, it's a major problem, especially considering population growth. "Official" (U-3) unemployment was 9.5%, with the more realistic expanded U-6 measure at 16.5%. But 'real' unemployment is now ~24%. Jun10 U-2, job losers, was at a yearly rate of 5.9% of the civilian labor force (1.17M lost their jobs in June), compared to 6.7% in Oct09. Trade Deficit: A major drag on GDP and employment is the continuing offshoring of jobs as evidenced by the again increasing trade deficit. From 2000 through May 2010 the cumulative trade deficit (trade debt) has been $5.8 trillion; that's how much GDP has been reduced by this insane policy. Since 1980 it's $7.7 trillion of debt to other nations. There's no possible amount of stimulus that can make up for this drain on GDP. ATP Trade: The Advanced Technology Products trade deficit is $56.6B/yr projected based on the Jan - May data. In 1991, the U.S. had a $38.4B ATP surplus. The loss of high-tech jobs and intellectual capital has been enormous and continues despite the economic downturn. Unless the U.S. begins to make things again and at least has balanced trade, there will be no economic recovery. Looking at the data & graphs in this article, is there any wonder that the U.S. economy is in shambles thanks to "free trade" offshoring? Examples of what "trade" policy has produced: Go below to find links to sections of the June 09 Jobs & Trade update on Links to sections in this article: Yea! Colorado Springs has now lost ~ 54% of its Mfg & IT jobs!!! It was 50% as of Sep 09. Comparison of Percentage of Manufacturing Jobs Lost
Comparison of Percentage of IT Jobs Lost
Woe is Colorado Springs ... see also the graphs and table below showing job losses.
These "conservative" economic policies replaced the real economy with an imaginary economy built on bubbles: dot-com, housing, "trade", deregulation, financial fraud, and speculation. As the bubbles have burst, the economy has collapsed.
Currently, there were about 7M persons who are Multiple Jobholders, over 5.0% of employment. The number of part-time jobs decreased by about 1 million since its peak. There was relative stability from 1995 through 2000. Since then the numer of part-time jobs has increased by about 4 million.
Population increasing has left a huge jobs gap, now 14.8M jobs even though the number of jobs has increased slightly.
National Manufacturing Job Trend ... yes, there's a slight recovery, but overall, it's a bloodbath.
National IT Job Trend. Bummer, people who lost their manufacturing jobs retrained for these jobs. But somehow the US needs 65,000 H-1B visas to import workers because there's a shortage? Many of those who lost their jobs in manufacturing retrained in IT, but those jobs are going, too. For what jobs will we retrain for now? The truth: get a job at WalMart. Note that Advanced Technology Products jobs are being lost, too? (... see below ...)
Below see two articles related to IT employment Colorado Manufacturing Job Trend ... leveled off now for a few months, but overall going down and worse than Nationally.
Colorado IT Job Trend ... stabilized for a while but declining again ... ~10% greater losses than nationally .
Colorado Non-Farm Jobs Trend. In Jun10, Colorado would need almost another 468,617 jobs to have kept up with population growth. Colorado has lost 155,800 jobs since May08.
Colorado Springs Manufacturing Job Trend ... devastating losses. Down 54%. Holy Cow!
Colorado Springs IT Job Trend. OMG, same for IT.
Think about this: Over ~54% of both Mfg & IT jobs -- that a total of 22,100 of these jobs -- have been lost from Colorado Springs. since Jan01. Will you read about this in the corporate media that promotes "free trade"? NO. While other jobs have come into Colorado Springs, there have not been enough to offset the losses. The chart below shows that as of Oct, Colorado Springs has lost 14,600 jobs since Nov07. Can there be any wonder Colorado Springs is in so much financial trouble? Also responsible for Cos fiscal woes are "conservative" growth policies; see Taxes: 2C or Not 2C?, 10/27/09. For an analysis of what to do about this, see Economic Development: What to do locally?
Jobs in what areas have been gained and lost? You can do your own research on the BLS site. Here are some examples of what's happened. Note this local data is not seasonally adjusted, so some of the sectors show considerable seasonal variation. Below is a bar chart showing the percentage losses Jun10(prelim) - Mar07.
Look at the drastic decline in Computer jobs in Colorado Springs since the Apr 01 peak ... 68.9%! Just Amazing.
Look at the even faster decline of Semiconductor jobs in Colorado Springs ... 72.0% lost!!! Note: "Semiconductor and Other Electronic Component Mfg" is a subcategory of (included in) the category above.
The "trade" deficit trend through 2009 was a classic case of overshoot & collapse as the U.S. economy collapsed thanks to "free trade" undermining wages thereby collapsing consumer demand. Of course, the illogic goes, we have to have even more "free trade", cheap products because wages have been stagnant and people can't afford higher prices. As the economy has recovered somewhat -- even though jobs have only slightly recovered -- the "trade" deficit, based on the first 5 months of 2010, has shot up again. This is very bad for our long-term economic prospects.
The U.S. had a $38.4B surplus in 1991. The ATP "trade" balance in 2008 was -$55.6B, a deficit much larger than the surplus in 1991. Even with our collapsing economy, the 2010 number, based on rate for the first 5 quarters, will be about -$58B. This downward ATP trend continued unabated even as the overall "trade" deficit is halved and increased again. This is the economic "progress" the U.S. has made thanks to the "free traders" that have undermined the U.S. economy? We've been told that the US is going to let others (e.g., China) do the low-tech manufacturing and the US is going to retain high-tech manufacturing. So much for that; it's not true. It should be no surprise that students aren't attracted to high-tech education. It's difficult subject matter ... and high-tech jobs are disappearing as shown (just above) by what's happened to Computer & Electronic Product Manufacturing in Colorado Springs.
Here's the monthly ATP trade balance trend since 2004 with a linear least-square fit showing the overall downward trend. April & May 2010 were very close to the long-term trend line. The link on the chart is no longer current; go here for up-to-date data: Trade in Goods with Advance Technology Products. As of 2015, the ATP trade is -$91.856B.
There's not just an advanced technology problem; it's a green technology problem, too! With a "green" trade balance of -$8.9 billion in 2008, it's "green" technology, too. "Green jobs" won't develop if we continue to offshore the work.
It's really important to read What to do about the 'trade deficit'? Cutting taxes and increasing incentives for companies, as recommended in an article in Business Week, Can the Future Be Built in America? 9/10/08, will not do it. There are just too many issues to take into account. Here's a list taken from How the U.S. Subsidizes Offshoring of Jobs where you'll find more detailed explanations. Companies
Business Week's traditional business thinking is a prescription for failure.
Official unemployment has always been a vast underestimate. In 2003 when U-3 was about 6%, U-6 was over 10%, but that didn't make the news then. But the U-6 number does make the news now. Why is that? It would be a mistake to dismiss my higher estimate as absurd. John Williams (Shadow Government Statistics) has his SGS-Alternate Unemployment Rate for Oct09 at 22.1% ... my estimate isn't all that much different. Here's an excerpt from his 11/6/09 Commentary.
Williams' Employment and Unemployment Reporting primer is educational, as is his 12/02/09 Hyperinflation Special Report 2010. Excerpt:
As I've observed, the problem is not that people are taxed too much, they're paid too little thanks to policies effectively designed to drive the great majority of people into poverty. Related:
Though the rise in unemployment has abated, it's likely unemployment will either remain at an abnormally high level for years or, I believe, begin to rise again. Another report noting the major understatement of unemployment is Not Out of the Woods: A Report on the Jobless Recovery Underway by Niko Karvounis 6/8/09. Excerpt:
I maintain this latter is also an understatement. What I call the "Real Unemployment Rate" is more like 24% and 44M persons. My number includes adding to the government's U-6 statistic those extra in the Orwellian classification, "Not in labor force, but Persons who currently want a job". It also adds those needed to keep up with population growth ... see the gap at the 6th figure from the top ... that's 14.8M persons. For how I arrive at these numbers see Unemployment: Official, Effective, Real. For the real-life impact see There's no 'free market' for Labor. It's no coincidence that the official poverty rate in America "in 2008 was 13.2 percent, up from 12.5 percent in 2007 ... In 2008, 39.8 million people were in poverty, up from 37.3 million in 2007".
Below is the Bureau of Labor Statistics data on Job Losers: U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force (yearly rate). That's 1.17M persons losing their jobs in June. [Note: This is a yearly rate, not a monthly rate as I mistakenly wrote last month.] This measure decreased to 5.9% from 6.9% in Oct09. While this is better, so many people losing jobs at this high rate shows this is a very weak recovery at best.
US Unemployment Level - Official vs. Actual There are now more like 43.9M persons unemployed in compared to the official U-3 number of 14.6M and U-6 number of 25.8M. None of this counts those "Not in labor force, but Persons who currently want a job" or the underemployed. As noted above, in 2008 there were 39.8M people in poverty. No wonder! Why is this? We have a failed economic system thanks to "conservative" economic policies of "free trade", deregulation, financial fraud, and speculation with the systematic undermining of U.S. wages. Tax cuts of recent years, ostensibly to stimulate the economy by increasing investment and supply, don't work when demand is collapsing because lost jobs & stagnant wages.
Concerned yet? Links to sections of the June 09 Jobs & Trade update The links below take you to sections of the June 2009 update that are unchanged and need not be repeated here. Here's a summary of the points made ... more at the links:
On stimulus, "trade" anti-stimulus, and the GDP equation
What to do about the 'trade deficit'?
Manufacturing Jobs & Trade Agreement History
Trade Deficit & Trade Agreement History
Data Sources ... see where I get my data. Bring more high-tech workers in legally? [The first two articles are no longer at the links.]
Seriously now, this would be laughable if it weren't so sick and despicable. Why is it U.S. policy to systematically undermine the educational investment of its citizens by causing them to lose their jobs and depressing the pay of those who still manage to have a job? Answer: to depress wages and increase profits ... to increase return-to-capital and reduce return-to-labor. Despite the mfg & IT job losses, they want even more imported high-tech workers. Incredible!
The Council on Foreign Relations, Republicans, DLC Democrats, the U.S. Chamber of Commerce ... the usual suspects ... supporters of "free trade" and undermining wages. Excellent! Robert Fisk asserts that the dollar will decline as foreign governments abandon the dollar.
Fisk's article had a dramatic effect:
Mike Whitney says it's private industry, not governments, that will lead the way to dollar collapse.
I don't know which will lead the way, but the dollar will fall. On the "banking crisis": Conservative historian and proponent of a McCain presidency, Niall Ferguson, had this view, 4/26/09:
Unfortunately, Obama is not doing this even though he's being charged with taking over the banks and being a "socialist." As done by Bush's Treasury Secretary Henry Paulson, Obama's Tim Geithner, former head of the New York Fed, is bailing out the banks with few, if any, strings attached. That's the banks controlling government, not the government controlling the banks. That's a lot like fascism, not socialism. __________________ Hollywoods Brilliant Coda to Americas Dark Year By FRANK RICH Hollywoods Brilliant Coda to Americas Dark Year By FRANK RICH 12/12/09 ON Christmas Day, Hollywood will blanket America with a most unlikely holiday entertainment. Thats when Up in the Air, the acclaimed new movie starring George Clooney, will spread from its big-city engagements to more than 2,000 screens. Clooney plays Ryan Bingham, a corporate road warrior for a small, Omaha-based contractor hired to lay off employees for companies that prefer to outsource that unpleasant task. Ryan has fired so many people in so many cities that he is approaching a frequent-flier status unknown to all but a few Americans. How could a film with that premise be a Christmas hit in a country reeling from the highest unemployment rate in decades? By using the power of pop culture to salve national wounds that continue to fester in the real world. Up in the Air is not a political movie. It wont be mistaken for either a Michael Moore or Ayn Rand polemic on capitalism. What makes it tick is Ryans struggle to reclaim his own humanity, a story that will not be described or spoiled here. But the films backdrop is just as primal and these days perhaps more universal than the personal drama so movingly atomized by Clooney in the foreground. Here is an America whose battered inhabitants realize that the economic deck is stacked against them, gamed by distant, powerful figures they cant see or know. Up in the Air may be a glossy production sprinkled with laughter and sex, but it captures the distinctive topography of our Great Recession as vividly as a far more dour Hollywood product of 70 years ago, The Grapes of Wrath, did the vastly different landscape of the Great Depression. While Up in the Air opens with a remix of Woody Guthries Depression-spawned This Land Is Your Land, its dispossessed Americans dont resemble those in a black-and-white Dorothea Lange photograph. Theyre not the familiar contemporary blue-collar factory workers in our devastated manufacturing economy. They are instead mostly middle-class refugees from the suburban good life depicted in credit card ads. Their correlative to the Dust Bowl is a coast-to-coast wasteland of foreclosed office spaces where desk chairs and knots of dead phones lie abandoned in a fluorescent half-light. Up in the Air taps into the desperation, fear and anger that both the populist left and right are trying to articulate right now, and that leaders of both parties have failed to address. Retailers are down 20 percent, Ryans boss tells his troops in a conference room. Auto industry is in the dump. Housing market doesnt have a heartbeat. It is one of the worst times on record for America. This is our moment. And so it is. In constant flight from hub to hub, his staff parachutes into troubled companies to lay off dozens of workers with impressive assembly-line efficiency. The genial Ryan and his fellow transition specialists never use the word fired, of course. They tell employees they are being let go and not to take it personally. They hand their prey slick-looking severance packets and, with a doctors bedside manner, intone that were here to talk about the future. Soon its time to send the discarded employee to collect his personal effects on the way to the exit. A new colleague of Ryans, a dynamite young woman from Cornell, comes up with an innovative strategy for downsizing the downsizers. To eliminate travel costs, she proposes that in-person firings instead be executed long-distance by teleconference, with ranks of termination engineers at computer screens reciting from a script titled Employee Termination Workflow. In a dry run, the guinea pig is a burly 57-year-old office worker who refuses to stay in the camera frame and staggers off in a paroxysm of anger and sobs. Its like watching a man being assassinated by a predator drone. But this is Detroit, not Waziristan. The fictional doings in Up in the Air, adapted from a 2001 novel by Walter Kirn, are bookended by brief montages culled from interviews that the director, Jason Reitman, conducted with real-life laid-off workers while shooting in Detroit and St. Louis. He asked the interviewees what they had told or wished they had told the H.R. bureaucrats who let them go. On the stress level, Ive heard that losing your job is like a death in the family, says one man. But personally I feel more like the people I worked with were my family, and I died. In rolling out his latest jobs initiative last week, President Obama said, Sometimes its hard to break out of the bubble here in Washington and remind ourselves that behind these statistics are peoples lives, their capacity to do right by their families. True enough, and in this movie you see a few of the lives behind the statistics, however fleetingly. But the point of Up in the Air is not to deliver the message that mass unemployment is a terrible tragedy. We hardly need a movie or a politician to deliver that news at this late date. What gives our Great Recession its particular darkness and gives this film its haunting afterlife is the disconnect between the corporate culture that is dictating the firing and the rest of us. In the shorthand of the day, its the dichotomy between Wall Street and Main Street, though that oversimplifies the divide. This disconnect isnt just about the huge gap in income between the financial sector and the rest of America. Nor is it just about the inequities of a government bailout that rescued the irresponsible bankers who helped crash the economy while shortchanging the innocent victims of their reckless gambles. What Up in the Air captures is less didactic. It makes palpable the cultural and even physical chasm that opened up between the two Americas for years before the financial collapse. The private-equity deal makers who bought and sold once-solid companies like trading cards, saddling them with debt, never saw the workers whose jobs were shredded by their cunning games of financial looting. The geniuses in Washington and on Wall Street who invented junk mortgages and then bundled and sold them as securities didnt live in the same neighborhoods as the mortgagees, small investors and retirees left holding the bag once the housing bubble burst. Those at the top are separated from the consequences of their actions. They are exemplified by Robert Rubin, formerly of Citigroup and a mentor to both Obamas Treasury secretary and chief economic adviser. He looked the other way when his bank made ruinous high-risk bets, and then cashed out and split, leaving taxpayers to pay for the wreckage while he escaped any accountability. Such economic wise men peer down at the country from a hermetically sealed bubble of privilege and self-interest, much as Ryan does from the plane flying him to his next mass firing. And they tend to think, as Lloyd Blankfein of Goldman Sachs notoriously put it, that they are doing Gods work to sustain our free-market system. Mad Men literally whacked one such executive this season. Its fans loved watching a drunken office-party accident maim a visiting overseer from the British corporation that had swallowed and downsized Sterling Cooper, the shows fictional Madison Avenue ad agency. The episode was set in 1963, but Mad Men resonates in part because it prefigures todays corporate culture. One recent plot line dealt with the mercurial machinations of the hotel tycoon Conrad Hilton, a potential client of Sterling Cooper. As coincidental thematic synergy would have it, Up in the Air portrays Ryan as an elite cardholder in a Hilton Honors program that defines brand loyalty with a mercenary zeal the Connie Hilton of Mad Men would relish. Last week Goldman Sachs announced it would grant some of this years bonuses in stock, not cash, to try to stanch the public backlash to the record profits it piled up thanks to government largess. But Washington remains strangely oblivious to the mood out there. Financial reform has been embattled on Capitol Hill, where the financial industry has spent $344 million on lobbying in the first three quarters of 2009. The big ratings agencies that gave triple-A stamps of approval to Wall Streets junk are back to business as usual. Bank of America and Citi are racing to return TARP money to Washington not because they have necessarily recovered but because they want to shower rewards on their executives with impunity. The rage engendered by this status quo is across the political map. As unlikely as it sounds, Ron Paul and Jim DeMint, political heroes of the tea party right, and Bernie Sanders and Alan Grayson, similarly revered on the left, have found a common cause in vilifying the Federal Reserve Bank and its chairman, Ben Bernanke. The Fed is hardly the root of all evil, but you can see why it is a handy scapegoat. Like the institutions it failed to police during the boom, it wields its power from on high with little transparency to those below. Meanwhile, at the company where I work, as at many others, the latest round of layoffs will be completed by Christmas. Even for the survivors it feels a little like serial deaths in the family. And who believes were near the end of this story? For all of Wall Streets and Washingtons rumors of a recovery, the fate of Americans on the ground remains very much up in the air. ___________ The Other Plot to Wreck America By FRANK RICH The Other Plot to Wreck America By FRANK RICH 1/9/10 THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, weve all become counterterrorists. But in the 16 months since that other calamity in downtown New York the crash precipitated by the 9/15 failure of Lehman Brothers most of us are still ignorant about what Warren Buffett called the financial weapons of mass destruction that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.s and credit-default swaps, not so much. What we dont know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks secure that it can keep the bonanzas while we get stuck with the losses. The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washingtons already limited capacity for heavy lifting, especially in an election year. The White Houses chief economic hand, Lawrence Summers, has repeatedly announced that everybody agrees that the recession is over which is technically true from an economists perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning. Its against this backdrop that this weeks long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquirys chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation. He wants to examine the financial sectors greed, stupidity, hubris and outright corruption from traders on the ground to the board room. Its important that we deliver new information, he said. We cant just rehash what weve known to date. He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened. Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail. As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the banks executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price. Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave Rubin has never apologized, let alone been held accountable. But hes hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sundays Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his banks implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that. Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weills some 1,600 public libraries, just for starters but also for creating a steel empire that actually helped build Americas industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obamas Economic Recovery Advisory Board, said recently, there is not one shred of neutral evidence that any financial innovation of the past 20 years has led to economic growth. Citi, that innovative banking supermarket, destroyed far more wealth than Weill can or will ever give away. Even now despite its near-death experience, despite the departures of Weill, Prince and Rubin Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadnt grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for not paying back their loans. This from a bank that still owes taxpayers $25 billion of its $45 billion handout! If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, its because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citis credit card operation. Johnson was the only Senate Democrat to vote against Congresss recent bill policing credit card abuses. Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecoras triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesnt even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commissions report. More daunting still is the inquirys duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities. Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldmans Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next. If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Streets status quo largely intact. Thats the ticking-bomb scenario that truly imperils us all. © 2003 Continuous Improvement AssociatesTop of Page |
