On the Hook

Sunday’s article in The New York Times, “Bernie Madoff Is No John Dillinger”, almost escaped our attention. We dismissed the escapades of Dillinger a long time ago and Bernie Madoff, to be frank, is no longer getting the ink he got in recent months. But the name of the columnist who authored the article caught our eye – Frank Rich – one of the best. So we read the piece. Here’s some of it.

“Madoff, it turned out, was no Public Enemy No. 1 to rival John Dillinger, the Great Depression thug at the center of Hollywood’s timely release this holiday weekend, ‘Public Enemies’. In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric and (often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.

“The estimated $ 65 billion involved in Madoff’s flimflam is dwarfed by the more than $ 2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $ 180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.

“Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month’s Vanity Fair, ‘In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy – and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens.’

“Not just in the developing world, but in America. Look at what we saw last week alone.

“To beat out the implementation of new regulations, banks are rapidly jacking up checking-account charges and credit card fees, even for those who have paid their bills on time. As Eric Dash of The Times reported on Thursday, the institutions that received the most bailout loot are often the biggest offenders.

“That would include the too-big-to-fail Citigroup, which has so far received $ 45 billion in taxpayers’ money, along with guarantees on $ 300 billion in toxic assets, to mitigate its reckless risk-taking during the reign of such obscenely rewarded (and now departed) executives as Charles Prince and Robert Rubin. While taxpayers will soon own some 34 percent of Citi, it is not only increasing our credit card interest rates (to nearly 30 percent in some cases) but raising its own base salaries (by 50 percent) to work around Washington’s new restrictions on bonuses. New rules may come and go, but loopholes remain eternal.

“We have also learned, from the Wall Street Journal on Thursday, that Goldman Sachs, another bailout recipient, is on track to pay its employees an average of $ 700,000 each in 2009, which, incredibly, is a bit higher than its compensation average in the pre-crash year of 2007. In a scathing and controversial new article in Rolling Stone, Matt Taibbi accuses Goldman of having earned such awards by engineering ‘every major market manipulation since the Great Depression.’

“What’s uncontroversial and indisputable is that Goldman alumni have played key roles in both the Bush and Obama administrations’ responses to the current crisis – even though Goldman has a big stake in the outcome. The dense revolving-door conflicts of interest are appalling. Goldman is howling over Taibbi’s article, but the bottom line was articulated last week by the economic blogger Felix Salmon of Reuters. He wrote that he couldn’t ‘think of a single government regulation over the past couple of decades which has remotely harmed Goldman Sachs’ as opposed to the many that ‘have done it a world of good.’

“Goldman also rules at the New York Fed, a supposed monitor of Wall Street. Until May the Fed’s chairman was serving simultaneously on the Goldman board; he resigned only after The Wall Street Journal reported that he was still buying Goldman stock during his Fed tenure. At least that other failed watchdog, the Securities and Exchange Commission, has now cleaned house. But Politico reported last week that its new chairwoman, Mary Schapiro, had been the star draw at a lavish June banquet for the S.E.C. Historical Society, an independent organization that sold tables for up to $ 7,500 to ‘law and lobbying firms that do business with the S.E.C.’ Among the buyers: Standard & Poors, a credit rating agency that enabled the subprime bubble by giving its approval to wildly speculative derivatives.

“It’s against this backdrop of business-as-usual at the top of the pyramid that we learned at week’s end that the speed of job losses is accelerating again. The government also reported that Americans who still do have jobs now have an average 33-hour workweek, the lowest since tracking began in 1964.

“The Obama administration’s response to the economic crisis is rapidly facing its own stress tests. We will soon learn the ultimate fate and stringency of the regulatory package sent to Congress, including the consumer-protection agency the banks want to maim or kill. The stimulus’s ability to put Americans back to work remains an open question. Should we have a jobless recovery or, worse, a second-wave recession like the one that blindsided FDR in 1937, it will be as catastrophic for the Democrats as it will be for the rest of the country.”

Here’s where the rub comes in:
• “… more than $ 2.5 trillion paid so far by American taxpayers …” An Emergency Shipbuilding Program could be underway and operating for about one-tenth of that amount.
• “ … turned to Wall Street to manage the recovery.” Wall Street – a system without job-generating capability – is also without management expertise.
• “The stimulus’s ability to put Americans back to work remains an open question.” No it doesn’t. We’ve seen nothing but millions of layoffs since the stimulus was initiated.

Add it up. Reopened shipyards + Millions of jobs + Thousands of newbuilds = Economic recovery.