The United Sates has become much more of a “casino” economy in which vast sums are wagered on what will happen to various aspects of economic activity in the future. This transition is revealed by the fact that financial companies account for about twice the proportion of the GDP as they did 30 years ago and up to 40 percent of current corporate profits.
The “best and the brightest” of college graduates are being attracted into the financial sector, where they can make big money fast; however, this “churning” of financial assets adds little or nothing to the betterment of society. If manufacturing was a much bigger component of the U.S. economy, many of these graduates could be going into a business that makes useful products for the society.
Is there a high standard of ethics among our Wall Street professionals? A 2007 poll of 2,500 Wall Street professionals paints a troublesome picture: they were asked if they would use inside information to make $10 million, if the chances of getting caught were 50 percent. Seven percent said yes. But if there was a zero percent chance of getting caught, 58 percent said they would break the law.
Some of the questions that could be asked about big business ethics are: “Is corporate corruption, in general, rampant?” “Is ethical bankruptcy on the rise?” “Are corrupt business models becoming more common?” “Has the market become more of an exclusive gambling club for the very rich?”
In the wake of the bailout of large financial firms during the Bush administration, public anger was ignited when it was revealed that upper management types were going to swanky clubs and locations for business meetings. The anger became, if anything, more extreme when top executives began to receive very large bonuses even when their companies had taken a bailout because of bad performance.
According to the Wall Street Journal, the years 2009 and 2010 turned out to be record breakers for Wall Street, as total compensation and benefits at the top New York banks, hedge funds, money management firms and security exchanges hit $128 billion and $135 billion, respectively, for the two years.
Despite this generous compensation and huge bonuses, the financial industry’s performance has been dismal: countless lenders have gone out of business and many still standing have seen their stock prices decimated after they loaned immense amounts of money to people who couldn’t repay it.
What about President Obama’s culpability in the financial meltdown and the attempt to recover from it? He certainly was not responsible for the TARP bailout program, which was legislated during the very end of George W. Bush’s tenure in office — although Obama did rally Democratic lawmakers to vote for the bailout program.
In the effort to put some regulatory restraints on the financial industry, Obama has not been very visible nor vocal. The Dodd-Frank bill passed into law has been widely derided as being too weak to curtail destructive actions by financial institutions.
In regard to the Consumer Financial Protection Agency, Obama sided with the banks in keeping it within the Federal Reserve system, where critics said it would be swallowed up and lose its independence.
President Obama has been proactive in trying to find a solution for those many homeowners who are deeply underwater in their mortgage payments. The media has done a good job in keeping track of how well the rescue programs have worked and they have found that Obama’s programs have helped a very small percentage of people, in part because the programs have not been well promoted.
Obama has recently abandoned his “Yes we can!” rhetoric on the housing crisis, as he told a town hall meeting that the housing crisis was too big a problem for a federal program to solve. He added, “Some folks just bought more home than they could afford, and probably they’re going to be better off renting.” There will be more on the housing crisis in a later blog.
The next blog will focus on what Obama should do or should have done to rein in the excesses of big business.