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Business-as-usual is back in the saddle

September is a time to remember 9-11 and the financial free-fall of 2008. The sad truth is that the Masters of the Universe haven't heeded the call for common sacrifice.
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Over the past several days much has been said and written about the eighth anniversary of 9-11 and also the financial events of September, 2008. The most discouraging aspect of these anniversaries is that business as usual appears once again in the saddle.

There was an outpouring of patriotism and national solidarity in the weeks following 9/11/2001. For a brief period, we were back in the post-Pearl Harbor days in which our citizenship and common values made us stand as one against an external threat. People, tears in their eyes, saluted the flag and sang the Star Spangled Banner or God Bless America and meant it.

General public reaction to financial meltdown a year ago among big institutions mainly was angry. And that was entirely appropriate. Ordinary working families who played by the rules, paid their mortgages and taxes, saved for their kids' educations, and invested for retirement suddenly found themselves financially devastated because of the greed and stupidity of high-rolling Masters of the Universe and the public regulators who let them get away with it.

That anger still is there — expressed in health-care forums, anti-tax tea party demonstrations, and in the present and prospective unseating of public officials perceived to be associated with the economic fall. Solidarity understandably has waned since 2001 on other fronts, partly because no further terrorist attacks have hit our homeland, although they still could.

Reform of financial practices and regulations has not taken place. Federal regulators have been feuding over turf. Big financial houses are still designing and selling risky derivatives. Bernie Madoff, Anthony Mozilo of Countrywide Financial, and a handful of others have faced legal action. Several major institutions, including Washington Mutual, have failed or been merged. But only a few of the generally unregulated hedge funds have closed. Pay on Wall Street is almost back to normal. (The 30,000 Goldman Sachs employees will each earn an average $700,000 this year; senior executives will reap multi-millions again in salary and bonus.)

Treasury Secretary Tim Geithner, White House economic czar Larry Summers, and others have cautioned that we should not dampen the initiative (some would call them "animal spirits") of financial leaders by limiting their compensation. I have worked over the years with several of the Wall Streeters involved; mainly I see them as greedy predators unable to see beyond themselves.

There is a sense of entitlement among these highly paid Wall Streeters — one that Geithner, at the New York Fed before becoming Treasury Secretary, came to accept as normal. If you asked the Masters, they would tell you that they deserve every penny of their compensation and that the shattered lives and lost businesses, savings, and jobs of ordinary citizens have nothing to do with them. That is how it must be with Masters of the Universe.

Even at state and local level, we see signs of insensitivity and entitlement which do not reflect well on us.

For instance, I was shocked earlier this month when outgoing Mayor Greg Nickels suddenly disclosed that his Mercer Project — a nominal traffic project mainly meant to benefit the South Lake Union commercial development of Vulcan Inc. — now had a $290 million rather than $190 million price tag for taxpayers. At the same time, the Mayor is seeking new public subsidies for the running-empty Allentown trolley from near Westlake Center to South Lake Union, also intended to benefit the Vulcan project. Had he no shame?

A few days before, the University of Washington Regents, a public body appointed to govern a public university, signed President Mark Emmert to a five-year contract which included sweeteners, including a six-month paid sabbatical (worth $450,000). His new contract will require the Regents to pay him a $1-2 million lump sum should he be fired. When economic downturn hit last year, Emmert refused to take a voluntary pay cut, as his counterpart at Washington State University did, even though Emmert was the second-highest-paid public university president in the country. (Although we UW alums take pride in our alma mater, we should recognize that it ranks only in the middle of major public universities, well behind those in Austin, Ann Arbor, Berkeley, Madison, Minneapolis, Charlottesville, Los Angeles, and Chapel Hill, among others).


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Comments:

Posted Tue, Sep 15, 9:19 a.m. Inappropriate

HERE IS A FINE PIECE ON WHAT'S KNOWN AS "MINSKYISM"
http://www.boston.com/bostonglobe/ideas/articles/2009/09/13/why_capitalism_fails/?page=full
i am quite willing to forego my inveterate Trotkyism for "Minskyism"
which proposes from the bottom up bail out, full employment at minimum wage should prime the pump so that the useless no good except for themselves rich masters of the universe can feed of us who will have something to be fed off!

mikerol

Posted Tue, Sep 15, 12:10 p.m. Inappropriate

Good piece, Ted.

The pain caused by the greed on Wall Street to middle and poor income families in this country is staggering and will have long-term ramifications for the country. There has been little remorse and more significantly, little reform.

I think you were also right that Obama bite off too much early on. I think he would have been wise to focus on real, substantive banking and financial market reform - he would have had the angry public behind him and that would have helped overcome the lobbyists on Capitol Hill. It would also cement a key portion of his base. He would also be seen as fighting for middle America and dealing directly with the culprits that caused this mess.

But I think his appointment of Geithner and Summers was very telling and unfortuante. These folks were among the architects of much of this excess. Although Obama has talked about a cabinet of rivals - he would do well to replace some of his economic team with smart progressives with a deep understanding of the financial system and a willingness to take on the Masters of the Universe.

bjorn

Posted Wed, Sep 16, 5:55 p.m. Inappropriate

Obama's effort to spin the blame for this massive fraud onto the failures of regulation is tragic - these people ripped us off, took a run on their own banks, then a run on the treasury and the future of America with the help of both Bush and Obama.

These are not masters of the Universe, these are, to put it frankly, nothing but abusive trash and their continued presence in positions of authority is a damnation of our Financial and Governmental systems.

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