Wall Street Congratulates Washington: A Job Well Done

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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June 28th, 2010 9:28 PM

Wall Street Congratulates Washington: A Job Well Done

New York Times columnist Thomas Friedman is well known for pretentious columns that consist of letters that he suggests some prominent person write. I licensed Friedman's literary tool in order to present the following letter from the Wall Street CEOs to the political leadership in Washington.

Dear Friends:

We want you know how much we value the support of the leadership of both political parties in your efforts to ensure that we did not suffer from the crisis that we ourselves created. As you recall, back in the fall of 2008, our banks were flat on their backs. If you had not rushed to our rescue with trillions of dollars in loans and guarantees from the Fed and the Treasury at a time where no sane investor would talk to us, most of us would be among the unemployed today. Instead, our banks are hugely profitable and we're happy to say that bonuses are again hitting record highs.

While this is the sort of support that we expect in exchange for our generous campaign contributions, we are especially impressed how you have managed to so effectively blunt any backlash from the public. After all, with the unemployment rate still near double-digit levels, millions of people facing the loss of their homes and tens of millions seeing their savings wiped out, there is naturally considerable anger. However, you have managed to deftly deal with this problem by diverting their attention elsewhere.

Instead of people being angry at us for the billions that we are pocketing while the economy is still in the tank, you have managed to make scapegoats out of the unemployed. At a time when there are five unemployed workers for every job opening, you have been able to whip up public resentment over unemployment benefits that average $300 a week (a few minutes' pay for us). This is truly skillful politics.

We were also impressed to see that you are taking steps to have the government punish people who default on their mortgage loans to us. Just because we are enormously rich and have huge banks doesn't mean that we know what we are doing when we issue a mortgage. We didn't think about things like the housing bubble when we issued a lot of those mortgages back in the boom. As a result, we lost a lot of money. We stand to lose even more if people keep defaulting - even when they are able to pay back our loans (sometimes referred to as a "strategic default").

Therefore, we appreciate your actions to have the government punish borrowers who default. By telling defaulters that they will not be able to have future mortgages insured by the Department of Housing and Urban Development or purchased by Fannie Mae, you are helping us squeeze more money out of these homeowners. This must be especially difficult since we know how much pressure there is on many of you to actually be helping the homeowners. But you folks have had the courage to stand with us even as foreclosures are continuing at a near record pace. We appreciate this.

And now, you have decided to put cuts to Social Security at the center of your agenda. This really takes courage. Here is a program that people have paid for with their taxes. This tax will be sufficient to fully fund benefits for the next 33 years, according to the Congressional Budget Office, and even after that date it could indefinitely pay more than 70 percent of scheduled benefits, assuming no changes are ever made to the program. This means that current and near retirees have already paid for their Social Security benefits.

But you're going to cut Social Security benefits anyhow. And this is even after the collapse of the housing bubble and the resulting downturn wiped out most of the housing equity of the baby boomers and much of the value of their 401(k)s. Frankly, under the circumstances, we wouldn't have been surprised if you were talking about increasing Social Security benefits. But, we're absolutely delighted to see you moving forward with plans for cuts. This will mean that we won't have to be taxed to repay the bonds held by the trust fund.

And, of course, there is the financial reform bill. You killed any plans to break up too big to fail banks (leaving us with huge government subsidies) and kept any talk of a financial speculations tax from being taken seriously.

Keep up the great work; we'll remember you at campaign contribution time.

Best wishes,

The Wall Street CEOs