Comes now news from across the pond that executives at
one of the world’s most respected banks, Barclays, rigged Libor. Even the
venerable Bank of England is apparently being investigated.
For sports fans, this is like fixing the Super Bowl or doping a horse in
the Derby. But it is rather more serious. For the London Interbank Offered Rate
is the benchmark interest rate for trillions in loans around the world.
Manipulate Libor a small fraction of a point, and lenders reap millions
more in interest income on hundreds of billions in loans. How many more such
blows to their credibility can the financial elites sustain before people turn
on the capitalist system itself?
Recall. Three years into the Great Depression, the Republican Party–America’s Party since Abraham Lincoln’s time–was crushed by FDR. Socialist Norman Thomas won 900,000 votes in 1932. Communist William Z. Foster won more than 100,000. Charging “money-changers in the temple of our civilization” with moral culpability, FDR became the century’s most successful politician. Demagogic, perhaps, but in 1936 FDR would carry every state but Maine and Vermont.
In recent decades, a series of shocks has fertilized the ground for a
populist assault on global capitalism. In Europe, radical parties of the right
and left are rising–to overthrow the establishment center.
Manifest incompetence is but one cause of the sinking confidence in our
financial elite. In the Latin American debt crisis of the 1980s, our
idiot-bankers had to be bailed out with Brady bonds.
In 1995, one year after NAFTA passed, Mexico threatened to
default. Goldman Sachs was bailed out of its huge Mexican exposure by a
loyal alumnus, Treasury’s Robert Rubin, who dipped into the U.S. Exchange
Stabilization Fund. Mexico devalued and began dumping winter vegetables
into the United States, wiping out Florida producers, as U.S. plants moved
south to exploit the newly cheapened Mexican labor.
In the Asian debt crisis of the 1990s, Rubin and Alan Greenspan led the bailouts. Asia’s nations devalued and began exporting heavily to the United States to earn the dollars to pay back their loans.
Who paid for that bailout?
U.S. workers who lost manufacturing jobs when cheap Asian goods poured
into the U.S. market, forcing the closure of U.S. Factories. The Great
Recession of 2008-2012, too, is the creation of a financial elite and political
class who have largely escaped its consequences.
George W. Bush and Congress pushed banks to make home loans to
individuals who were credit risks. Fannie Mae and Freddie Mac bought up the
subprime mortgages and bundled them together into securities.
Big banks traded them like gilt-edged bonds. When the whole house of
paper collapsed in 2008, the banks screamed: “We’re too big to fail. If we go
down, the country goes down.” They were rescued. The Fed bought up the bad
paper, tripled the money supply and lent at near zero interest to the banks.
Profits soared.
But Middle America was not rescued. Middle America has gone through four
years of deprivation without precedent since the 1930s. But now something
beyond the incompetence of the financial elite and the big banks may be putting
capitalism in peril–an unmistakable odor of amorality, sleaziness and
corruption.
With the “Robber Barons,” one could see a connection between the wealth
of the Rockefellers, Harrimans, Carnegies and Henry Ford, and their
contributions. Railroads were tying America together. Oil was fueling industry.
America was surpassing Britain in steel production. Ford was putting the nation
on wheels. When J.P. Morgan took to the floor of the New York Stock Exchange in
1907 to issue a buy order, he stopped a panic.
There was perceived to be a connection between the wealth of these men
and their achievements. They were helping make America the most awesome
industrial nation known to man. But as scholar William Quirk writes in his
essay “Saving the Big Casino,” our big banks now seem to rise and fall on
profits and losses from the trading of “derivatives,” “credit default swaps”
and “exotic securities” that not one man in a thousand understands.
Fortunes are lost and made overnight. Names appear on the list of
richest Americans no one has ever heard of. Cheating and corner-cutting are
constantly being unearthed. Broker- and banker-gamblers in their 30s amass and
flaunt nine-figure fortunes.
Were the rest of America doing well, this might not matter. But America
is not doing well. And Americans are coming to believe that a system where
high-rollers rake in tens of millions playing Monopoly while workers who build
things and make things never see a pay raise is rigged and wrong.
Few begrudge a Bill Gates his fortune. But where vast wealth accrues to
people whose actions seem unrelated to any contribution to society or country,
and to have come simply from rigging the system for their own benefit, that
system will not endure. Our casino
capitalists are playing with fire.
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