Dean Baker is co-director of the Center for Economic and Policy Research
Many of us have long advocated a green economy where jobs were generated in sectors like alternative energy and recycling. It was our hope that this economy could be both environmentally friendly and offer opportunities for high and rising living standards. Well, we've now got a green economy and there's plenty of recycling, but it's not exactly what most of us had in mind.
In a remarkable coincidence, last week we saw President Obama's deficit commission hold its final hearing. Just two days earlier, the Federal Reserve Board released data revealing the specifics of the trillions of dollars of secret loans it made at the peak of the financial crisis in 2008 and 2009.
While the specifics of the Fed loans may not have been especially surprising to most observers, it was still striking to finally know for sure what many of us had long suspected: the Fed had made trillions of dollars of loans, at well below market rates, to Goldman Sachs, Morgan Stanley, Citigroup and Bank of America. Without this bailout from the government, these Wall Street behemoths would have gone under. This would have wiped out their stockholders, left their creditors with big losses and sent their high-flying executives to the unemployment lines.
However, as a result of the taxpayers' generosity, the Wall Street banks are back on their feet again. The financial sector is again reporting record profits and the top executives at these companies are once more pocketing salary and bonuses in the tens of millions of dollars a year.
The fact that Wall Street's prosperity comes at a time when the rest of the country is experiencing near double-digit unemployment is undoubtedly annoying to many. But the Wall Street titans don't just take their money and walk away. The Wall Street gang recycles their money, supporting the politicians who ensured that they would have the government loans and guarantees necessary to get them through the crisis they had created.
In fact, because the Wall Street crew is forward looking and thinking about the potential tax burden on their children, they are demanding that the politicians whose campaigns they finance work to cut benefits like Social Security and Medicare. If these benefits are cut, then there will be less need for government revenue and, therefore, it will be less likely the children and grandchildren of the executives at Goldman Sachs, Morgan Stanley and the rest will have to pay higher taxes.
Of course, cuts to Social Security and Medicare are hugely unpopular. This could make it difficult for the politicians who support them to get reelected, even with their Wall Street funding.
The Wall Street crew has thought about that one as well. It has promoted the line that the cuts in Social Security and Medicare are actually necessary for the workers who are seeing their benefits cut. The story doesn't make much sense, as can be easily shown. But when you can get $1 billion from people like Wall Street investment banker Peter Peterson to push your case and a fawning media, you can get pretty far even with complete nonsense. Recycling really is great.
Of course, the ultimate triumph of recycling in Wall Street's green economy was getting Erskine Bowles as co-chair of President Obama's deficit commission. Bowles was openly getting $335,000 a year as a director of Morgan Stanley, even as he drew out plans for the future of Social Security, Medicare and tax policy for decades to come. In deference to Wall Street, none of the major media outlets noted this seeming conflict of interest.
This omission was especially striking when the co-chairs issued a report that excluded any mention of a tax on Wall Street speculation, a route now endorsed by even the International Monetary Fund. Instead, the Washington Post, National Public Radio, and other leading news outlets heaped praise on the co-chairs for their willingness to inflict pain on ordinary working people.
Bowles is also a tremendously important symbol for the politicians who worry that voting to cut Social Security and Medicare may hurt their political careers. Bowles himself is a failed politician who lost twice in runs for the Senate. Despite these setbacks, Bowles enjoys an enormous income and great prestige thanks to his Wall Street benefactors. In short, losing an election for serving Wall Street is no defeat.
In this new green economy, the money flows from taxpayers to Wall Street and then back to politicians who ensure that the flow continues and increases. Anyone got a problem with that?
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