Preface to the 2009 edition
When I was asked to reissue Pigs at the Trough in the midst of our current economic crisis, I sat down to reread it and was stunned by how much of what the book speaks to has brought us to our knees in 2009.
Sure, the characters are different, the accounting gimmicks have different names, the sophistication that allows the gimmicks to take place within the law is greatly enhanced, and the numbers have gone from mere billions to hundreds of billions and trillions. So, different pigs, deeper trough, worse result–but, other than that, the narrative is unchanged: CEOs and others at the top of the corporate ladder engaging in rampant–though often legal–corruption to improve the bottom line and line their own pockets until finally they fall prey to their greed and self-indulgence . . . only to find themselves routinely protected from the retribution of their beloved “free market” by their companies, their peers–and, ultimately, by the government.
“So the stomach-turning revelations of corruption that have come to light,” I wrote in the book in 2003, “are surely only the appetizer for a far larger banquet of sleazy scandals.” Little did I know at the time just how much larger the banquet of scandals would end up being. It turned into an all-they-could-eat buffet.
The corporate crooks of WorldCom, Tyco, Global Crossing, Adelphia, Enron, and others profiled in this book were largely playing with shareholders’ money (small comfort to the thousands who saw their nest eggs scrambled by the likes of Ken Lay, Jeff Skilling, and Bernie Ebbers). The new villains are playing with taxpayer money, trillions of it. During the French revolution, Marie Antoinette and her “let them eat cake” attitude became the symbol of not getting it. And just like Marie Antoinette, John Thain, the former Merrill Lynch CEO, didn’t get it even while being led to the corporate guillotine. Though Merrill Lynch was hemorrhaging money and preparing to lay off thousands of workers, Thain, reaching new heights of tone deafness, spent $1.2 million redecorating his office. Lowlights included $80,000 for an area rug and $1,400 for a trash can. And even after Merrill Lynch, in a deal brokered by the government and partially financed by taxpayers, was acquired by Bank of America in October 2008, Thain, sleeping through this wake-up call, asked for a $30—$40 million bonus. He was awarded a much more appropriate bonus of $0. But he was not stopped from ramming through $4 billion in bonuses for Merrill Lynch executives just days before the Bank of America merger became official.
Which brings us to the miserable job Thain did at Merrill, for which he wanted to so lavishly reward himself. As one insider told the Wall Street Journal, Thain “didn’t really have a good grasp of what was going on.” But apparently having a grasp of what’s going on isn’t one of the requirements for becoming America’s highest paid CEO, as Thain was in 2007, taking in a package worth around $83 million. This disconnect between performance and reward is at the heart of what has plagued our economy and has contributed to the crisis we are living through today. In no other industry is this gulf as wide as it is in the industry that most publicly celebrates its belief in the market system. Pigs at the Trough deals with the failures both of poorly regulated markets, which were magnified in the recent years, and of our market system to appropriately reward and penalize executives. As Treasury Secretary Tim Geithner put it, “Excessive executive compensation that provides inappropriate incentives has played a role in exacerbating the financial crisis.” The list of clueless Marie Antoinettes of the meltdown is very long.
Gateway Financial Holdings executives Ben Berry and David Twiddy, who received nearly $1 million in bonuses on the same day their bank received $80 million in bailout money.Wells Fargo and State Street. Both financial institutions received bailout money ($25 billion for Wells Fargo, $2 billion for State Street), then turned around and increased the amount of money they spent lobbying the government in the last quarter of 2008. Not a bad deal: we give them our money, which they use to pay lobbyists to buy off lawmakers to give them more of our money–a perfect (if very costly) Washington perpetual motion machine.
Citigroup, which received $45 billion in government bailout funds–but was still about to take delivery on a new $50 million corporate jet that featured a “plush interior with leather seats, sofas and a customizable entertainment center,” until public outrage forced Citigroup to cancel the order. Let them eat cake . . . while sitting on plush leather sofas!
Corporate jets, redecorated offices, lavish retreats, and CEO bonuses may be small potatoes compared to the bailout billions poured into the black hole of basically insolvent financial institutions. But they are emblematic of the tone deafness of those at the top of our crumbling economic pyramid. It’s as if nothing has been learned since the Enron days. It’s just that the numbers got larger. Two days prior to Enron going belly-up, the company gave $55 million in bonuses to senior employees while simultaneously coming out against additional help for the 4,500 unceremoniously fired workers. There was outrage and recrimination. But little did we know it was just a prelude.
Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude of its accounting fraud, the company’s inner circle began an extravagant, all-expenses-paid vacation at the Grand Wailea Resort Hotel and Spa in Maui–a foreshadowing of the $443,000 luxury spa retreat executives of AIG took in October 2008, just days after the government unveiled an $85 billion bailout package for the insurance giant.
And as outrageous as they were, the $165 million in bonuses paid out by AIG in early 2009 were in keeping with what has come to be expected on Wall Street–and come to be accepted in Washington. Which is why the Treasury Department pushed Senator Chris Dodd to put a loophole in the stimulus bill allowing these kinds of bonuses–and why a provision in the stimulus package that would have curtailed bonuses at bailed-out companies was killed in conference after it had passed the Senate. “It is the ultimate indictment of what Washington has become,” Senator Ron Wyden, cosponsor of the eliminated provision, said. “It’s a place where, again and again, the public interest is deep-sixed behind closed doors and withoutany fingerprints.”
In his inaugural address, Barack Obama defined what the New Era of Responsibility would entail: “A recognition, on the part of every American, that we have duties to ourselves, our nation, and the world.” But we are a long way from ushering in the New Era of Responsibility and tossing the Era of Not Getting It into the trash can, one that costs considerably less than John Thain’s $1,400 wastebasket.
Capitalism comes with great rewards–and commensurate risks. Allowing top executives to reap the rewards during the good times and having taxpayers pick up the tab when their gambles don’t pay off isn’t capitalism. It’s lunacy.
But unfortunately, while the collapse of communism as a political system sounded the death knell for Marxism as an ideology, the ideology of unregulated capitalism remains alive and kicking even though it has been proven to be a monumental failure. If a politician announced that his campaign would be guided by the principle “From each according to his ability, to each according to his needs,” he would be laughed off the stage. That is also the correct response to anyone who continues to make the case that markets do best when left alone.
William Seidman, the longtime GOP economic adviser who oversaw the S&L bailout in 1991, said that the Bush administration “made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight. To make the market work well, you have to have a lot of rules.” Even Alan Greenspan, whose owl-eyed visage would adorn a Mount Rushmore of unregulated capitalists, has begun to see the light, telling a House committee in October that he “made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.” Yet, as we are bailing out insolvent zombie banks while letting millions of average American home owners lose their homes and 401(k)s, it is clear that our leaders are still operating on the basis of an outdated cosmology that places banks and other financial institutions–rather than people–at the center of our economic universe.
Here is one example. Everybody agrees on the paramountimportance of freeing up credit for individuals and businesses.In a bank-centric universe, the solution was a bailout plan giving hundreds of billions to banks. It failed because, instead of using the money to make loans, the banks “are keeping it in the bank because their balance sheets had gotten so bad,” as President Obama acknowledged in March on The Tonight Show with Jay Leno. As a result, the administration, again according to the president, had to “set up a securitized market for student loans and auto loans outside of the banking system” in order to “get credit flowing again.”
But think of all the time we wasted while the first scheme predictably failed. And how much better off we’d now be if we had provided credit directly through credit unions or small, healthy community banks or, as happened during the Depression, through a new entity like the Reconstruction Finance Corporation.
Yet, in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail banks is the logical thing to do. In a bank-centric universe, it’s also no surprise that “mark-to-market” accounting rules, in which banks have to calculate and report their assets based on what those assets are actually worth, instead of what they’d like them to be worth, are being abandoned. A good name for the reworked accounting standards would be mark-to-fantasy, because that’s basically what balance sheets will be under these new rules. Of course, to a true believer in bankcentrism, the problem with mark-to-market is that it’s not good for the banks.
In the years covered in Pigs at the Trough, which ended with the collapse of the “new economy”–for which Enron was the poster child–“restatement of earnings” became the euphemism du jour to refer to out-and-out fraud in overstating earnings in the supposedly meticulous annual reports prepared by well-established accountants and auditors.
At the G-20 meeting in 2009, Gordon Brown proclaimed that “the old Washington consensus is over.” Wishful thinking, Mr. Prime Minister, because when it comes to attacking the financial crisis, the Wall Street/Washington consensus that has everything in America orbiting around a few big zombie banks is still the order of the day.
Back in the days after the collapse of Enron, executives at Citigroup and JPMorgan Chase appeared on Capitol Hill to be lambasted for helping Enron defraud shareholders to the tune of $8 billion. But after being publicly raked over the coals–branded as bold-faced liars and criminal accessories–they were allowed to go back to Wall Street, heat up the derivatives market, and produce what turned out to be a financial Chernobyl. And once again, in 2009, the Wall Street chieftains were brought back to Capitol Hill to be theatrically attacked for their misdeeds while, at the same time, hundreds of billions of taxpayer dollars were being allocated in an attempt to save them. It’s a slap on the wrist the executives will take every time.
This toxic collusion between financial interests and policy makers is the only explanation for policies that appear more driven by the perceived need to save particular banks than by the clear necessity to serve the American people. This is hardly an ideological fight. It’s a battle between the status quo and the future, between the interests of the small but extremely powerful financial/lobbying establishment and the public interest.
None other than Anna Schwartz, the coauthor of Milton Friedman’s seminal work, A Monetary History of the United States, 1867—1960, described the battle this way: “They should not be recapitalizing firms that should be shut down. Firms that made wrong decisions should fail.” You’d think so, but not while bank-centrism is the dominant cosmology of our public policy. It’s time to put the American people at the center of this economic universe.
There is an enormous human cost to this bank-centric dogma. Unemployment, already at levels not seen since 1983, is skyrocketing. As of this writing, in many places in the country, it’s approaching 20% (and in Detroit it’s 22%). And the depressing indicators keep piling up, each statistic representing more pain and hardship.
More than thirty-two million people received food stamps in January 2009, an increase of 16% from a year earlier. In Philadelphia, demand for emergency food assistance is up 31%. In New York City, the number of homeless families entering shelters is up 40%. In Massachusetts, 20,000 new applications for food stamps are coming in each month, along with 18,000 requests for extensions.
In Arizona, there’s been a 100% increase in the number of people seeking social services from the state. In Contra Costa, California, 40,000 families applied for 350 available affordable housing vouchers. In San Francisco, food banks report a 30% rise in demand for emergency food assistance. In Lehigh Acres, Florida, demand is up 75%.
With national unemployment approaching double digits, the Center on Budget and Policy Priorities estimates that the number of Americans driven into poverty will rise by 7 to 10 million–on top of the 37.3 million currently living below the poverty line (and while that number is the latest from the Census Bureau, it’s from 2007, before the worst of the downturn).
Making matters worse–much worse–is the fact that the growing need is being met by a decrease in government programs and charitable services: Eighteen states cut their welfare rolls last year. The number of families receiving government financial assistance is at a forty-year low. In South Carolina, low-income women under forty with breast or cervical cancer have had their treatment cut. In Nevada, the state’s largest public hospital has stopped providing outpatient oncology services. In Arizona, programs to prevent child abuse and lower the number of children in foster care were slashed. In Florida, home services for poor seniors are on the budget chopping block. In Utah, 20,000 poor people face being removed from the state’s primary care health network. And more cutbacks like these seem inevitable as forty-four states are facing budget shortfalls over the next two years.
“The scale of this is unprecedented,” AARP vice president Elaine Ryan told the Los Angeles Times. Ryan says that in her nearly thirty years of working on health-policy issues, “I really have never seen anything like this.”
Meanwhile, over half of the nation’s charitable organizations saw a decrease in donations in the final quarter of 2008, normally the time of the year when charities receive the majority of their annual contributions.
This brutal combination of rising need and lowered services has led to a growing sense of anxiety, uncertainty, and fear. “The first thing we see in times like this,” Los Angeles police chief Bill Bratton told me, “is a rise in domestic violence.” Adding to the volatility, gun ownership is on the rise. According to FBI data, gun sales in February 2009 were 23% higher than February 2008.
A study by the National Domestic Violence Hotline found that 54% of those calling the hotline had experienced a change in their family’s financial situation in the past year. “Domestic violence is about power and control,” says a spokesperson for the hotline. “If you lose control in one area of your life, like losing your job, you may want to exert more control in another area of your life, like at home.”
Even though there has not been a spike in other types of crime, criminologists say there is usually a one-year delay between economic downturns and a rise in crime. Not good news when juxtaposed with a new report that found 63% of police agencies across the country are facing budget cuts. You can see America’s already-frayed safety net coming apart, strand by strand.
Writing about the “grand book” that is the universe, Galileo declared that it “cannot be understood unless one first learns to comprehend the language and interpret the characters in which it is written . . . without these, one is wandering about in a dark labyrinth.”
That’s where we find ourselves today, wandering about in a dark financial labyrinth–being led by good men blinded by an obsolete view of the world. But navigating our economic crisis using maps based on a cosmology that places banks at the center of the universe can only lead to our being lost for years to come.
If you compare the relative amount of attention given to the banking part of the financial crisis–both by the government and by the media–to the amount of attention given to the fore closure part, the catastrophe faced by millions of American home owners, the contrast is staggering.
But we are facing nothing less than a national emergency, with 10,000 Americans going into foreclosure every day and 2.3 million home owners having faced foreclosure proceedings in 2008. When we put flesh and blood on these numbers, the suffering they represent is enormous, and so is the social disintegration they entail.
“The banks are too big to fail” has been the mantra we’ve been hearing since September 2008. But when you consider the millions of American home owners facing foreclosure, aren’t they, collectively, also too big to be allowed to fail?
Despite being treated like an afterthought, foreclosures are actually a gateway calamity: every foreclosure is a crisis that begets a whole other set of crises. Someone loses his or her home. It sits vacant. Surrounding home values drop. Others move out. Squatters move in. Crime goes up. Community tax revenues plummet, taking school budgets down with them.
So why hasn’t the foreclosure crisis gotten the attention it deserves? A combination of perverse priorities and flawed thinking and the myopia of an increasingly clubby and isolated political, media, and financial establishment. At the congressional celebration of Lincoln’s birthday in February, the Senate chaplain thanked God for our sixteenth president who, as he put it, was able to “transcend the flawed thinking of his time.”
Clearly, the thinking of our time has been deeply–and disastrously–flawed. The public interest–people being able to keep their houses–is not aligned with the banks’ interest. Banks don’t want to adjust nonperforming mortgages down to their actual current value because it would lead to marking down the value of the massive asset pools they have rolled the mortgages into. But it is time to start treating America’s home owners as well as we’ve been treating Wall Street’s bankers.
It is also time to do something about the growing credit card crisis in the country. According to the Federal Reserve, the total outstanding credit card debt carried by Americans reached a record $951 billion in 2008–a number that will only climb higher as more and more people take the only option available to them and reach for the plastic to make ends meet.
What’s more, roughly a third of that is debt held by risky borrowers with low credit ratings. Credit card defaults are on the rise and expected to hit 10% this year. This will obviously drive many banks closer to failing their stress tests–but it will have an even greater im pact on the lives of people who find themselves sinking deeper and deeper into levels of debt that, when coupled with skyrocketing interest rates, they will never escape.
It’s a particularly vicious economic circle: every day, Americans, faced with layoffs and tough economic times, are forced to use their credit cards to pay for essentials like food, housing, and medical care–the costs of which continue to escalate. But as their debt rises, they find it harder to keep up with their payments. When they don’t, or even if they miss a payment by a day, the banks then turn around and hike interest rates and impose all manner of fees and penalties . . . all of which makes it even less likely consumers will be able to pay off their mounting debts.
And that’s not the end of the economic downward spiral. As more and more Americans default on their credit card debt, banks will find themselves faced with a sickening instant replay of the toxic securities meltdown from the mortgage crisis. In another example of Wall Street “creativity,” credit card debt is routinely bundled into “credit card receivables” and sold off to investors–often pension funds and hedge funds. Securities backed by credit card debt is a $365 billion market. This market motivated credit card companies to offer cards to risky borrowers and to allow greater and greater amounts of debt. As these borrowers continue to default, banks and the investors who bought their packaged debt will take a serious hit.
And how are the credit card companies trying to offset the rise in bad debts? By raising rates on the rest of their customers–making it likely that more of them will end up defaulting, causing even more losses for the banks. And round and round and round we go. Short-term gain for bankers and their friends. Long-term losses for everybody else.
And such is the paradoxical nature of the meltdown that Americans are encouraged to go back to spending in order to get the economy rolling again. But the problem is, more and more Americans are broke. So the only way they can spend is to charge it, running up balances on credit cards that are structured in a way that makes it harder and harder to pay them off.
Getting dizzy yet?
For years, credit card companies have been fattening their bottom lines with an ever-widening array of fees. Late fees, cash advance fees, over-the-limit fees. In 2007, lenders collected over $18 billion in penalties and fees. JPMorgan Chase, the nation’s top credit card lender, began charging many of its customers $10 a month for carrying a large balance for too long a time–that’s on top of the interest they are already collecting on those balances.
And interest rates are escalating. In February, Citibank warned customers that if they miss a single payment, they could see their interest go up to 29.99% (so nice of them to shave off the .01 to keep it from being 30%, isn’t it?). The company also raised rates by 3% on millions of nonpayment-missing customers. Citibank is not alone: Capital One raised its standard rate on good customers by up to six points, and American Express raised rates by 2 to 3% on the majority of its customers.
Senator Chris Dodd, chairman of the Senate Banking Committee, accuses the banks of “gouging,” saying, “the list of questionable actions credit card companies are engaged in is lengthy and disturbing.” Perhaps he should send the bankers a Bible bookmarked to Deuteronomy 23:19: “Thou shalt not lend upon usury to thy brother.”
For their part, the bankers have tried to cloak their behavior with nonsense corporate-speak. A Citibank spokesman called the rate hikes the result of “severe funding dislocation,” and said, “Citi is repricing a group of customers in our Citi-branded consumer credit card business in the U.S. to appropriately manage these risks.” An AmEx spokeswoman chalked up its rate hike to “the cost of doing business.”
Making such pronouncements particularly galling is the fact that many of the banks summarily raising interest rates and piling on the penalties were receiving billions in bailout money while they were raising the rates on the taxpayers funding the bailout. Our money. We gave Citibank $45 billion, Bank of America $45 billion, JPMorgan Chase $25 billion, American Express $3.4 billion, Capital One $3.6 billion, and Discover $1.2 billion. In fact, American Express and Discover converted to bankholding companies to make themselves eligible for bail out funds. Yet that money seems to have been delivered with no strings attached. Banks cash their bailout checks, then turn around and gouge their most vulnerable customers. Priceless.
One of the ironies of the credit card crisis is that the financial industry laid the foundation for much of the trouble we are seeing with its full-throated–and deep-pocketed–support of the cynically named Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a truly loathsome piece of legislation that opened the door to many of the banking abuses currently ravaging the country. It made it much tougher for Americans to file for bankruptcy–even the millions of hardworking Americans whose bankruptcy is the result of a serious illness (fully half of all bankruptcies are the result of crushing medical expenses). It also did nothing to rein in the kinds of lending abuses that frequently and predictably turn manageable debt into unmanageable personal financial catastrophes.
The financial industry spent $100 million lobbying to get the bill passed–and millions more in campaign contributions. The shameful result was a sweetheart deal for the financial industry–with eighteen Senate Democrats voting for it.
And the banking lobbyists are at it again. There are currently several bills in Congress designed to roll back some of the worst provisions of the 2005 legislation and to bring about credit card reform. But the banking industry is pushing back hard. Wait, you might ask, aren’t the banks broke? So where’d they get all that money to lobby against credit card reform?
From us. There may not be much transparency about the hundreds of billions of taxpayer dollars doled out through the TARP program, but we know that at least some of the money has gone into making sure that none of the Bankers Gone Wild behavior that led to the current disaster is curtailed.
In Pigs at the Trough, I write how we have spawned a business culture that has made gods out of those who choose to do the easy thing–whether it’s ripping off shareholders, avoiding taxes, or slicing and dicing workers–instead of the right thing.
And while some of the corporate Zeuses chronicled in these pages crossed the line into criminal activity, countless others pulled off elaborate financial scams, bankrupted their companies, and plundered their shareholders without needing to break the law. As Michael Kinsley once famously pointed out, the real scandal in Washington is what’s legal.
Flash forward to today, as we try to dissect and unravel the even more elaborate financial scams that led to the current economic catastrophe, and see that they, too, were pulled off without the law needing to be broken.
As you read Pigs at the Trough, many names will be familiar to anyone following our current crisis. It’s a lot like a prequel to where we find ourselves today. Names like Larry Summers, who is currently part of the White House team working to bring about our economic recovery, and who, during part of the period covered in Pigs at the Trough, was Treasury Secretary under Clinton and played an important role in convincing Congress in 1999 to pass the Gramm-Leach-Bliley Act, which re pealed key portions of the Glass-Steagall Act and allowed commercial banks to get into the mortgage-backed securities and collateralized debt obligations game. The measure also cre ated an oversight disaster, with supervision of banking conglom er ates split among a host of different government agencies–agencies that often failed to let each other know what they were doing and what they were uncovering. At the signing of the bill, Summers hailed it as “a major step forward to the twenty-first century.” And a major step back ward for mankind.
Summers also backed Phil Gramm’s other financial time bomb, the Commodity Futures Modernization Act, which allowed financial derivatives to be traded without any oversight
or regulation. So it was on his watch that the credit-default swaps warhead that has blown up our economy was launched.
Indeed, during a 1998 Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street. “The parties to these kinds of contracts,” he said, “are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.”
It would be hard to make assumptions that turned out to be more wrong than Summers’s were. For a more accurate portrayal of what Summers described as “largely sophisticated financial institutions,” I turn to Matt Taibbi’s devastating depiction of AIG’s upper management as utterly clueless about the “selective accounting” scam being run by credit-default swap pimp Joseph Cassano, head of AIG’s 400-person Financial Products unit (Taibbi dubs Cassano “the Patient Zero of the global economic meltdown”).
“For six months before its meltdown,” writes Taibbi, “the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the eighteenth-largest company in the world had no one at the helm in these positions just prior to its collapse. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company–like, for instance, how much exposure the firm had to the residential-mortgage market.”
Taibbi describes Cassano getting on a conference call with investors in 2007 and, as his credit-default swap portfolio was racking up $352 million in losses, announcing: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions.”
These are the kinds of “parties” Summers was so confidentcould regulate themselves and be “eminently capable of protecting themselves from fraud and counterparty insolvencies.”
Of course, it’s not just the Financial Products unit at AIG that belies Summers’s glib predictions. The toxic balance sheets at megabank after megabank also tell a very different story.
In a speech at the Kennedy School of Government in September 2000, Summers declared: “The traditional industrial economy was a Newtonian system of opposing forces, checks, and balances. . . . While, in contrast, the right metaphors for the new economy are more Darwinian, with the fittest surviving.” He forgot to add the part about the “fittest” surviving by being bailed out by the rest of us.
Real economic Darwinism–or Randian capitalism–would mean letting old institutions that have failed die. Keeping them on life support is not just catastrophically burdensome for taxpayers but also prevents new institutions from flowering.
What Kevin Phillips, the author of Wealth and Democracy, describes in Pigs at the Trough as the “financialization of the economy” reached new heights as the first decade of the new century progressed, and the power of government regulators was deliberately weakened. “The processes of money movement, securities management, corporate reorganization, securitization of assets, derivatives trading, and other forms of financial packaging are steadily replacing the act of making,growing, and transporting things,” Phillips wrote. In this financialization fun house, real profits weren’t necessary; you could simply make them up.
And with George W. Bush’s deregulating regulators refusing to stand guard, the wizards of Wall Street turned the financial carnival into an “every-bet’s-a-winner” casino, where Bernie Ma doff, Allen Stanford, and the AIG Financial Products unit could flourish undetected.
Now Summers and Tim Geithner are trying to clean up the mess. But the way they are going about it proves that the toxic thinking that got us into this mess is part of their DNA–and even more dangerous than the banks’ toxic assets. Geithner remains a creature of Wall Street, habitually sympathetic to the people at the top of the financial system. While president of the New York Fed, Geithner eliminated two key regulatory measures–a quarterly risk report and a ban on major acquisitions– that may have prevented (or at least lessened the impact of) the unraveling of Citigroup, which his office was responsible for supervising. Then, together with Hank Paulson, he was instrumental in the original bailout of AIG and the creation of the TARP plan.
And now he has surrounded himself with others who share his Wall Street Weltanschauung, including his chief of staff Mark Patterson, a former lobbyist for Goldman Sachs who had fought against then-Senator Obama’s 2007 bill to reform CEO pay. It’s all one big happy family.
Geithner’s Masters of the Universe, the people he still thinks are the ones we should trust to save the day, are the same people who brought us here. So we continue to know very little about what’s happening to the stunning amounts of money that have been doled out over the last few months. The lack of oversight and transparency has meant that, again and again, what we know is dwarfed by what we don’t know, and what renders this even more dangerous than it might otherwise be is that these are truly extraordinary times when things that we never would have imagined are happening all around us.
(Only a year ago, if you’d have said that $7 trillion of shareholder wealth would be lost in the stock market in 2008, and that the government would spend $2.2 trillion and commit to spending another $7.7 trillion to bolster America’s struggling financial system–and that it probably will need to spend even more–no one would have believed you.)
Pigs at the Trough helps explain how we got here and how the table was set for today’s pigs to gorge themselves at the public trough, while the average American struggles to make do with the leftovers.