Have we learned anything?
Louise Story’s article appearing in the April 26th edition of The New York Times hits like a bombshell. “After an Off Year, Wall Street Pay Is Bouncing Back”, she begins.
Hope you’re sitting down for this one. Here’s some of what she writes.
– “Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.”
The truth of the matter is that the banks are reporting those phony profits because of the massive infusion of taxpayer bailout funds. As the University of Missouri’s Professor William Black has stated, the banks are actually insolvent. “That’s why they must rely on the Troubled Assets Relief Program. But at the same time, they are claiming to be healthy. Both things can’t be true”, he states.
More excerpts from Ms. Story’s story:
– “If the pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay – much of it bonuses – recover from the lows of last year.”
– “‘Wall Street is being realistic. You have to retain your human capital,'” said one recruiter, echoing a front-page story in yesterday’s New York Times lamenting the ‘brain drain’ on Wall Street.
– “‘As you see a recovery, you’ll see everybody’s compensation beginning to rise,'” according to a Wall Street analyst.
– “Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $ 4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $ 569,220 per worker – almost as much pay as the pay in 2007, a record year …”
– “Some analysts point to Morgan Stanley as an example of the compensation conundrum. The bank had a dismal quarter, losing $ 578 million, but still put aside $ 2.08 billion for compensation.” But according to Morgan Stanley’s chief financial officer, ‘The number of fat cats making loads of money is much less than you think'”. [Yeah, right. They’re all on food stamps.]
– “Executive recruiters in the sector say prospective recruits are still being offered pay packages on a par with those of earlier recruits. Some banks that received taxpayer help are even offering guarantees to recruit workers.”
If it sounds like legalized thievery … well, that’s what it is. Ponzi was a neophyte compared to these manipulators. Forget about the “brain drain”. It’s the “money drain” that’s going to wipe us out.
“The whole bank scandal makes Teapot Dome look like some kind of kids’ doll set,” Professor Black said. “We have a situation where Treasury Secretary Tim Geithner can speak of a $ 2 trillion hole in the banking system, but at the same time all major banks report they are well capitalized. And you have seen no regulatory action against what amounts to a $ 2 trillion accounting fraud. The reason we don’t see it – aren’t told about it – is that if they were honest, prompt corrective action would kick in, and then they would have to deal with the problem banks.”
Elizabeth Warren, who chairs the Congressional Oversight Panel, states that it is “preposterous” that the government hasn’t fired the bank managers who are responsible for the derivatives disaster.
“The whole culture is rotten,” Professor Black states, and the housing/mortgage debacle is further proof of that statement. Mike Whitney puts everything into perspective in this recent analysis:
“A Housing Crash Update” – “Why is the press misleading the public about housing?” he begins. “The housing market is crashing. There are no ‘green shoots’ or ‘glimmers of hope’; the market is worn to a stump, it’s kaput. Still, whenever new housing figures are released, they’re crunched and tweaked and spin-dried until they tell a totally different story; a hopeful story about an elusive ‘light in the tunnel’. But there’s no light in the tunnel; it’s dark as pitch as far as the eye can see. There’s no sign of a turnaround or a ‘bottom’ in housing at all … The real estate market is freefalling … So why are the media still peddling the same ‘rose-colored’ claptrap that put this country in this pickle to begin with? …
“The only thing that’s keeping housing from collapsing completely is the Fed’s purchases of Fannie and Freddie mortgage-backed securities …
“We are now in uncharted territory – new home starts have never fallen to these levels for as long as the Commerce Department has been tracking this data …
“Housing will continue to deteriorate no matter what the Fed does; the downward momentum is too great to resist …
“In the last two months, roughly 9,000 mortgage modifications have been worked out under Obama’s Streamlined Modification Program. At the same time delinquencies have increased by roughly 195,000 per month …
“The backlog of homes on the market is still in the vicinity of 10 months. But that excludes the vast ‘shadowy inventory’ the banks are keeping off the market … Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale … ‘We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,’ said the vice president of RealtyTrac …
“Keep in mind that after investors were burned for $ 7 trillion in the dot.com swindle, tech stocks swooned and the NASDAQ plunged 80 percent over the next year and a half. Housing is headed down the same bumpy path. There probably won’t be an uptick in housing until the market is flat on its back and given up for dead.”
But Americans never learn. Even after the dot.com swindle they fell for the Y2K scam, and that didn’t come cheap. Then the World Trade Center event was staged – by Saddam Hussein, of course – and that ruse is costing us trillions of dollars.
Will Rogers could read us like a book. “I only know what I read in the newspapers,” was his taunt, and that repeated jibe, like everything else, went over our collective heads. His audiences never got the gist of that statement. He enjoyed paraphrasing P.T. Barnum’s uncomplimentary evaluation of us Americans, “There’s a sucker born every minute.”
Will Rogers knew it – Ponzi knew it – it is Wall Street’s modus operandi – and every politician knows how to cash in on such ignorance.
But like the infamous Ponzi scheme, or the Madoff Scheme, or the Stanford Scheme, the crash is inevitable. There’s a limit on the numbers of people and dollars that can be brought into a scam, and then everything comes crashing down. There are no “green shoots” or “glimmers of hope” – there is no “light at the end of the tunnel”. There’s nothing now but a lot of finger-pointing at those G7 and G20 gatherings.
It’s the end of the road. Every link in the international supply chain – the world’s lifeline – has given out. The world’s manufacturing centers are now inactive; as a result the maritime industry has laid up hundreds of unneeded vessels; as a result railroads and trucking companies have little freight to haul; as a result goods are in short supply in the retail and wholesale industries; as a result customers aren’t buying … but not just because the goods are in short supply. Customers aren’t buying because they have no money. And isn’t that what Abraham Lincoln tried to tell us years and years ago, when he said that nothing can be sold unless the prospect has the wherewithal to make the purchase?
Contrary to popular belief, the buyer isn’t at the end of the supply chain, the buyer is at the beginning of that chain. Like the keystone in an arch, the buyer is the master link in the supply chain. That’s where the demand comes from. The supply comes from the manufacturer in response to the demand initiated by the buyer … but the buyer must have the wherewithal to make the purchase.
So that’s it. No wherewithal, no buyer. No buyer, no demand. No demand, no manufacturer … and no goods, no ships, no railroads, no truckers, no buyers, no …
The “wherewithal” is what’s lacking, and only employment opportunities provide that wherewithal. But we’ve come to the end of the road. We’ve been adding more than 600,000 to the unemployment roles every month, and more than 24 million Americans are unsuccessfully seeking employment.
President Obama doesn’t know how to stop the economic freefall. Neither does Wall Street or the members of the G-20 group, or for that matter, neither does anyone else in the world … except us.