Conservatives Lie When They Say They're Capitalists, They're Plutocrats and Captives of Modern Feudal Lords

Conservatives Lie When They Say They're Capitalists, They're Plutocrats and Captives of Modern Feudal Lords

Spare a thought this Labor Day holiday, when you fire up the barbecue for the last weekend of the summer and raise a beer for the workers in this country, for some of the notable men who have lost their jobs over the past 20 years. I’m thinking of Richard Fuld, Dennis Kozlowski and Eckhard Pfeiffer.

They aren’t union leaders who were fired for organizing for better wages or men who lost their jobs to sweatshop labor in Bangladesh. They aren’t even the engineers who have been put out to rust by robot-run assembly lines. They don’t really number among the almost 20 million who areestimated to be unemployed or underemployed [3].

No, these three names popped up in a review of the “Bailed Out, Booted and Busted” – a study released Wednesday [4] by the Institute of Policy Studies in Washington DC of the 241 people who have ranked as the highest paid CEOs in the US in the past two decades.
An astonishing 38% of these titans of finance and industry have either been kicked out of their jobs, put in jail or had to have their companies be rescued from bankruptcy. Fuld, Kozlowski and Pfeiffer are three that top the list.

“Outrageous pay packets seem to encourage outrageous behavior,” says Sarah Anderson, one of the authors of the new report.

Fuld raked in $466.3m in salary and stocks in seven years as CEO of Lehman Brothers, the Wall Street investment bank, before the company collapsed in September 2008, precipitating the last financial crisis [5]. He’s just one of 112 such CEOs whose companies were given a total of $258bn in taxpayer bailouts.
Kozlowski ran Tyco, a conglomerate which bought companies that did everything from laying undersea fiber-optic cables to making fire-fighting foam, from 1992 to 2002. He paid himself $170m in 1999 and $125m in 2000. Found guilty of systematically looting the company in 2005, he was sent to jail, and is now serving time at a minimum-security facility [6] near Central Park in Manhattan.
He joins 18 other top paid CEOs in the past 20 years that have led companies that were “busted” or ordered to pay more than $100m each for fraud-related fines and settlements.
Then there’s Pfeiffer, who ran Compaq computer from 1992 to 1999, and was fired when his company lost business to rivals Dell and Gateway. Like 27 other CEOs on the list, he was smart enough to have given himself a generous “golden parachute” contract, allowing him to walk away with $416m in compensation [7] on his final payday.
It’s easy to argue that there are a couple of bad apples in every cart, but think of it this way: if two out of every five pieces of fruit in a store were rotten, it would behoove the manager to tell stockers that if they didn’t cull the bad ones, customers would take their business elsewhere.
In other words: shouldn’t we be asking companies’ boards of directors to tighten the rules on CEOs to make sure they don’t fail at such an astounding rate? And what better way than tying it to their pay packets? And if the boards won’t do this, could government step in, if only to save the companies from their own CEOs abject levels of failure?
One of the simplest reforms that shareholder activists have lobbied for is a report by companies to shareholders comparing CEO compensation to that of their worst paid worker. This has been mandated by the US Congress under the 2010 Dodd-Frank legislation but companies have fought tooth and nail [8] against this being implemented.

Corporate America has been backed up by business school pundits who say that CEO compensation is not a matter that government should regulate. I asked VG Narayan, who runs the Board of Directors Compensation Committee Executive Education Program of the Harvard Business School what he thought of the IPS findings. “It’s terrible when poor performance gets rewarded with a high level of compensation,” he said via email.
But he firmly believes that corporate boards and executives are best placed to fix this. “Governmental and shareholder second-guessing on pay would create an environment of fear in which no board would dare try an approach that’s different from the herd’s or that is tailored to the company’s particular strategy,” Narayan wrote in 2009. “For instance, if the maximum ratio of CEO pay to worker pay were mandated, companies might respond by outsourcing the work of the lowest paid workers [9] rather than curbing CEO pay.”

David Larcker, the director of the Corporate Governance Research Program at the Stanford Graduate School of Business, also says that governments should be cautious about scaring away these CEOs.
“Executive compensation may be the lightning rod for shareholders in the wake of the financial crisis, but the truth about how pay should be structured is clouded by a lot of popular myths,” Larcker wrote in 2011. “Boards have to consider that how much they pay will have an impact [10] on the types of people who want to take the CEO position. You don’t want to drive talented CEOs out of public companies so that they can avoid scrutiny over how much they are paid.”
Well, these business schools have had decades to preach about better practices. Workers jobs are being outsourced anyway, and the CEOs are still getting away with outrageous pay packages. And the IPS study shows that these CEOs aren’t that talented – since they are failing at an incredibly high rate.

As Anderson says:
Boards of directors are not going to change this. They are mostly made up of other CEOs who says if you scratch my back, I’ll scratch yours. Unless regulators, lawmakers or shareholders do something to stop this madness, 20 years from now today’s corporate compensation will seem as modest as the pay levels of 1993.

The IPS report suggests several additional legal reforms in addition to encouraging narrower CEO-worker pay gaps such as bolstering accountability to shareholders and extending accountability to broader stakeholder groups.
Plus governments can eliminate taxpayer subsidies for excessive executive pay and encourage reasonable limits on total compensation by not giving out contracts to companies who pay excessive CEO salaries (effectively subsidized by the taxpayer) and rewarding those who pay their workers well.

Maybe fewer businesses would fail and more workers would be able to celebrate Labor Day if CEO’s had a government-led incentive to do a better job in the first place. Hopefully, the US Congress will get on this when they return from their summer vacations and barbecues.

But this kind of massive welfare for failure, unethical behavior, cronyism and outright corruption cannot be happening. Conservatives tell us all day every day that if we only had less regulation poor old corporate America would be buzzing along and hiring everyone in sight. Gosh, it turns out that business is raking in the cash like never before. CEOs are taking the capital created by low paid workers and working stiffs who buy their generally crappy products, and redistributing that money to bank accounts that get fatter no matter how incompetent they are. That is not fuzzy corruption, that is stealing from labor. Labor whose powers have been weakened by conservatism. Let's change the rules if corporate America can't get anyone to be a CEO for a reasonable amount of money, so what. Maybe we'll geta new class of business managers who are  humanitarians, patriots and capitalists, instead of modern day feudal lords who see average Americans as serfs.

OK So Freedom Is Not Free, The Conservative Economics Movement Has Bought It

OK So Freedom Is Not Free, The Conservative Economics Movement Has Bought It

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy. How have they pulled this off, and where have they gotten the money?

In a letter to Federal Reserve Chairman Ben Bernanke dated June 27, 2013, US Representative Alan Grayson and three co-signers expressed concern about the expansion of large banks into what have traditionally been non-financial commercial spheres. Specifically:

    [W]e are concerned about how large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.

After listing some disturbing examples, they observed:

    According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach.  They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .

    It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.

A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

How Banks Launder Money Through the Repo Market

In an illuminating series of articles on Seeking Alpha titled “Repoed!”, Colin Lokey argues that  the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.

Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities (stock).

That means they can buy up companies. Lokey writes, “It is common knowledge that prop [proprietary] trading desks at banks can and do invest in a variety of assets, including stocks.” Prop trading desks invest for the banks’ own accounts. This was something that depository banks were forbidden to do by the New Deal-era Glass-Steagall Act but that was allowed in 1999 by the Gramm-Leach-Bliley Act, which repealed those portions of Glass-Steagall.

The result has been a massively risky $700-plus trillion speculative derivatives bubble. Lokey quotes from an article by Bill Frezza in the January 2013 Huffington Post titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks“:

    If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.

That Explains the Mountain of Excess Reserves

Historically, banks have attempted to maintain a loan-to-deposit ratio of close to 100%, meaning they were “fully loaned up” and making money on their deposits. Today, however, that ratio is only 72% on average; and for the big derivative banks, it is much lower. For JPMorgan, it is only 31%. The unlent portion represents the “excess deposits” available to be tapped as collateral for the repo market.

The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.

Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.

Can They Do That?

Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO] reported:

    JPMorgan’s businesses take in more in deposits that they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary reponsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage backed securities, corporate securities, sovereign securities, and collateralized loan obligations.

Lokey comments:

    That passage is unequivocal — it is as unambiguous as it could possibly be. JPMorgan invests excess deposits in a variety of assets for its own account and as the above clearly indicates, there isn’t much they won’t invest those deposits in. Sure, the first things mentioned are “high quality fixed income securities,” but by the end of the list, deposits are being invested in corporate securities [stock] and CLOs [collateralized loan obligations]. . . . [T]he idea that deposits are invested only in Treasury bonds, agencies, or derivatives related to such “risk free” securities is patently false.

He adds:

    [I]t is no coincidence that stocks have rallied as the Fed has pumped money into the coffers of the primary dealers while ICI data shows retail investors have pulled nearly a half trillion from U.S. equity funds over the same period. It is the banks that are propping stocks.

Another Argument for Public Banking

All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that JPMorgan’s loan-to-deposit ratio is only 31% not because the bank could find no creditworthy borrowers for the other 69% but because it can profit more from buying airports and commodities through its prop trading desk than from making loans to small local businesses.

Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that banking needs to be a public utility. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from confiscation through “bail-ins” resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a long and successful history, and recent studies have found them to be the safest in the world.

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute.org, and has websites at http://WebofDebt.com and http://EllenBrown.com.

So conservatives and libertarians have been claiming for decades that America will only be truly free when everything is privatized. We are well on our way to their dream. Yet the more privatization and less regulation we have, the less freedom the middle-class and working poor have. Deregulation has made our economy dependent on a few large banks. It is like claiming a table is more stable with just two legs. Wall Street has more than recovered from the recession, yet where are the jobs saving Wall Street was supposed to create. They play games with exotic investments and corruption of interest rates while the middle-class is slowly becoming the barely getting by class.

Patriots Know The Deficit is Shrinking, Even Though Anti-American Conservatives Scream Otherwise

Patriots Know The Deficit is Shrinking, Even Though Anti-American Conservatives Scream Otherwise

Remember all those deficit hawks who screamed that the federal deficit is spiraling out of control and must be stopped with spending cuts that have a funny way of hurting the pocketbooks of the most vulnerable Americans? Their excuse for ripping us off has been literally disappearing, but a new Google survey shows that not only do the vast majority Americans not know it — half of the public actually believes that the deficit is growing [3].

Here are the facts: The U.S. budget deficit has been shrinking at a rapid rate over the last few months. The deficit peaked at 10.2 percent of GDP in 2009, but over the past four quarters, it has shrunk to a mere 4.2 percent of GDP. What’s more, the Congressional Budget Office predicts [4] that the deficit will fall to 2.1 percent of GDP in 2015.

Why such a disconnect? Unfortunately, disgraceful propaganda has left the public misinformed and confused.

Over in Economic Wonderland, the deficit hawk duo of Alan Simpson and Erksine Bowles have made a second career over the last several years wildly exaggerating the deficit issue and scaring Americans into thinking that deep cuts in the federal budget were necessary for the economy. The reality was just the opposite. If these two had ever sat down to read John Maynard Keynes, whose work is vital to understanding how to respond to economic crises, they would have known that cutting the federal budget when the economy is weak actually slows it down even more.  Yet to this day, Simpson and Bowles continue waging battle for a “grand bargain” that would shred the social safety net and cost many Americans their jobs by requiring trillions of dollars to be cut from the federal budget over ten years. All in the name of a “problem” that doesn’t even exist.

Deficit hawks like Simpson and Bowles, and their grand funder, hedge fund billionaire Pete Peterson, go on promoting the nonsense that the deficit is the major economic problem of 2013 despite the obvious facts and a growing consensus from economists that such a claim is utterly absurd. Incredibly, they do it even after the faulty work they relied on to make their case – a paper produced by two Harvard economists, Carmen Reinhart and Kenneth Rogoff – was discredited by a mere grad student [5] in one of the great academic revelations of our time. Even conservative economists are bowing to reality. The folks over at the conservative American Enterprise Institute, for example, have come to the conclusion [6] that austerity is a terrible idea and that without proper stimulus, the U.S. economy would look a lot more like Europe’s, where individual countries without sovereign currency have been forced to go the austerity route. It’s getting increasingly hard to deny that things have gotten pretty ugly over there because of deficit hawks and their ilk.

But deficit hawks are paid well to misinform the public. They write reports. They get corporate honchos to help them run campaigns with innocent-sounding names like “Fix the Debt.” They build websites. They write articles. They hold conferences. They pay off think tanks – even progressive ones – to play ball with them.  And the corporate dominated major media frequently are happy to play along. On it goes, until the lies repeated to the public take on the ring of truth.

So it’s no surprise that the public is not aware of the important news that the deficit is shrinking. Or that it is shrinking precisely for the reason progressive economists have been saying all along. When you have a recession, you have to juice the economy through government investment. That, in turn, reaps you the benefit of more money in people’s pockets, which leads to more jobs, more tax revenue for the government, and less reliance on social safety net programs like unemployment insurance or food stamps. If the original stimulus package had been bigger, the deficit would have shrunk even faster.

The deficit hawks have been more than spectacularly wrong. They have impacted policy in a way that turned the attention of Washington away from what it should have been focused on all along – jobs. Instead of a deficit commission, Obama should have called for a jobs commission to address the fact that hard-working people have not been able to find jobs to feed their families because of a Wall Street-driven financial crisis.

One might hope that the reality emerging will help squelch the calls to recklessly cut government investment in the economy. But there’s a big problem: Deficit lies benefit the 1 percent in the short-run. Rather than shrinking the deficit, what the short-sighted, greedy rich in America really want to shrink is their tax liabilities, which is why they don’t want to pay for things like education, infrastructure, and social safety net programs that benefit the population and ultimately help keep the economy humming.  The financiers among them would also dearly like to privatize things like Social Security so that they can collect fees on American retirement accounts. The corporate honchos like the way austerity drives up unemployment and drives down wages because they hold the mistaken view that keeping workers stressed and vulnerable is good for their bottom line. They want people like Larry Summers to head the Federal Reserve, who, while in the White House as the president’s chief economic adviser , famously presided over a stimulus program many economists warned was way too small.

In the fall, will deficit hawks in Congress manage once again to hold the American economy hostage? Or will reality finally rear its head? Facts have a tough time competing with well-funded mythology.

They're making up numbers and being shamelessly greedy because they believe, in the same way that cultist believe crap, that safety net programs like Social Security and Medicare are too expensive*. Conservative cultists dogma says that the people cannot join together to have the government run safety net programs for them - because we all know the history of economic recessions. We will have them and American workers always suffer the most. Conservatives and most libertarians just don't care. They always blame their screw-ups on workers and the poor. If workers and the poor had that much power we would have strong regulations in place that would prevent corporate America from acting like drunker casino dealers. The plutocrats will always come out on top, they don''t take risks with their money, they take risks with the assets of the American people.



* even though Social Security is run from its own fund and most of Medicare is funded by the working class Americans that need it most.)