Sunday, March 22, 2009

Beside the Point

Early in the week, when the brouhaha about the AIG bonuses began breaking into the news, I did a quick calculation: $165 million divided by $170 billion equals about one-tenth of one percent—not even a penny on the dollar. Normally, we don’t think much of pennies, much less their miniscule fractions, so I am somewhat amused by the outrage over this paltry sum in the cascade of billions now flowing from the Treasury to private financial institutions.

Of course, the outrage is not really about the bonuses, it’s about the whole financial meltdown and our seemingly complete dependence on the financial wizards who got us into the mess to somehow get us out. We’re all afraid and ready to take up arms against The Enemy, just like the neighbors in the Twilight Zone episode, “The Monsters are Due on Maple Street”. The AIG bonuses are simply a spark in the greater conflagration.

The bonus brouhaha is j a sideshow. Yeah, it’s a rip-off, but compared to the massive transfer of wealth upward in the past few decades, it’s a pittance. Compared to the loss of a productive economy or a financial sector that actually serves investment, this week’s revelations are nothing new. Of course, we were all too happy with that financial system when it showed up in ever growing assets on our investment statements. We were all part of the “owning class”, remember? Not many of us were outraged then, were we?

We are outraged now, ready to kick some financial sector butt. Not, mind you, to look hard at what we’ve been doing by way of national economic policy, at how the nation systematically jettisoned the regulatory structures created during the Great Depression precisely to keep this sort of thing from happening again. No, we want the magic of the marketplace to return, to begin showering us with goodies, to go back to that sweet life where we were all becoming rich capitalists. We want it so badly that we will turn to the same pied pipers who’ve been fleecing us for years.

You won’t find it in the mainstream media, which is filled with the language of the real Owning Class, but alternatives to allowing the perpetrators of the fraud to dictate a so-called recovery do, in fact, exist. The Nation has offered two excellent articles on what I would call a public-oriented recovery. The first, by Nobel Laureate Joseph Stiglitz, points out that law and custom hold the perpetrators of a problem liable for its resolution (“the polluter pays”) which clearly fixes the loci for capitalism’s latest panic. He also notes and that the nation has a longstanding, effective procedure for dealing with financial institutions that become insolvent. Of course, his solution would require the Owning Class to eat their own losses, which is why this approach is little discussed in the corridors of power. Somehow, what has been a demonstrated success in maintaining financial institution credibility is inappropriate when the economy becomes “too big to fail”.

The second article, by William Greider based on the work of economist Jane D’Arista, describes how the Federal Reserve System has been rendered largely irrelevant to the modern financial system which consists of an array of instruments and institutions that dwarf traditional banks which the Fed regulates. During the past three decades, the financiers have come to rule the market in their own interest (cleverly cloaked in the garb of expanded economic opportunity for all). The Fed under a series of chairmen, most notably Alan Greenspan, let it all happen because The Market was a “far better arbiter” than some government bureaucrat. In contrast, Greider looks toward restoring a credible monetary policy that serves public rather than narrow private interests.

Between them, Stiglitz (who is also co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict) and Grimes offer a good nuts-and-bolts analysis of capitalism’s latest crisis. I see precious little of that in the mainstream media that I do frequent. That absence explains why Americans are so willing to continue pouring money into a private financial system only to vomit when they see that those private interests do little for the public interest and all for their own. We are Wylie Coyote beyond the cliff. Too bad Wylie didn’t have the bankers, the president, Congress and the media telling him he could continue to float.

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