Armageddon
Page 21
They get a special tax break—called “carried interest”—even though they are not risking their own money but are simply managing money for others, yet they get to treat their income as a capital gain. But even though they are like all other wage earners, they only pay a 20% capital gains tax, not the almost 40% they would pay if their checks were treated as ordinary income. The carried interest loophole is a $13 billion annual subsidy to hedge fund managers.
Donald Trump will end it. He said “the hedge fund guys are getting away with murder.” Pledging to end the carried interest loophole, Trump said “the hedge fund guys won’t like me as much as they like me right now—I know ’em all, but they’ll pay more.”42
As the playing field has been tilted sharply in favor of big banks and their employees and against small banks, the top six banks—JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—have assets equal to 67% of the total assets of all US banks combined. Six banks out of 6,000 (one-tenth of 1%) have two-thirds of the bank assets. Over the past five years, these six biggest banks have grown by 37% in their assets while the total assets of the other banks have risen by only 8% over the same time period. These top six banks now have almost $10 trillion in assets.
Obama famously denounces “trickle down” economics when the rich get tax cuts that they fail to pass on down the line. Yet, there is no form of trickle down as blatant as the fiscal policy of the Fed under Barack Obama’s management. But as president, Obama exploits resentment against the massive Wall Street wealth in order to keep the loyalty of his Democratic, blue-collar legions. His rhetoric soaks the rich while they flood him with campaign contributions and he drenches them in cash in return. With such income inequality created by the Fed giving the richest banks extra money year after year, any Republican attempt to win back alienated voters has got to start with a full frontal attack on Wall Street.
But the attack must do more than simply give middle-income voters a chance to vent their anger at Wall Street. We must make clear that the massive money paid out by Obama to Wall Street was money that was supposedly for job creation in middle America. But it never reached us. Obama gave it to the richest people in America instead. The Fed swore that making Wall Street richer was just an unintended consequence of a policy designed to create jobs. Baloney. It was the Federal Reserve Board governors and staff feathering the nests of the banks from which they came and to which they planned to return once their government careers ended.
Obama’s policies have concentrated wealth and growth at the upper end of the banking spectrum. These banks are not about to lend much money to Joe’s Corner Grocery or the local manufacturing plant. They do business on Wall Street and prosper, not by lending to create jobs, but by the free interest they get from the Federal Reserve Board.
Wall Street and the Clintons: A Long-Term Romance
Is there a connection between the huge donations Wall Street gives to Hillary and the Democrats and the Fed’s largesse? You bet there is.
Hillary Clinton is uniquely a beneficiary of Wall Street and its corrupt money. Since they left the White House in 2001, the Clintons have raked in more than $100 million from Wall Street in personal speaking fees (income to them), donations to the Clinton Foundation (which they control), and campaign contributions.
In fact, a few months after Hillary left the State Department, she gave two speeches to Goldman-Sachs for a quarter of a million dollars each. This cool half a million was not paid out in campaign contributions that go only to political purposes nor to the Clinton Foundation, but went directly into Hillary’s and Bill’s personal bank account. Cash income for Hillary and Bill. Her record makes her the poster girl for Wall Street and running against Wall Street is the key to defeating her.
According to a May 2106 New York Times report, between them, Bill and Hillary Clinton have made “at least $30 million over the last 16 months, mainly from giving paid speeches to corporations, banks and other organizations, according to financial disclosure forms filed with federal elections officials.”43
Remember that it was Bill Clinton who opened the door to the massive giveaway to Wall Street by signing a bill to repeal the Glass–Steagall Act in 1999 and by approving legislation to bar federal regulation of derivatives (highly risky Wall Street bets with big returns if you win).
Wall Street’s current rampage started with the repeal of the Glass–Steagall Act that had reined in its investment opportunities for 65 years. Reinstating the Glass–Steagall Act, over Wall Street’s and Hillary’s strenuous objections, must be the centerpiece of the Republican campaign to win back alienated voters who resent the rich getting richer while their incomes stagnate. We must make Glass–Steagall not merely an issue, but a rallying cry. Reinstating it is the only way to stop Wall Street from the excesses that leave the taxpayer holding the bag.
Glass–Steagall was passed during the Great Depression as bank failures gripped the nation. Millions stood on line only to have their bank’s window shut in their face as they tried to take out their savings deposits. (Dick recalls that his own mother, as a 15-year-old girl, was sent by her illiterate Hungarian mother to run to their bank to take out their money as the market crashed. She came away empty handed—a story that has a sacrosanct place in family lore.)
The banks, which usually keep only a fraction of the money deposited in their vaults on hand while they lend out the rest, could not honor the demands when everybody tried to pull out their money at once. Banks coast to coast closed down and millions lost everything. On taking office in 1933, FDR declared a bank holiday to stop the panic and gradually reopened the banks, one by one, as they were certified to be financial solvent.
For a longer-term solution, New Deal liberals called for federal deposit insurance so that ordinary Americans would not face the loss of all they had during depressions and bank panics. But Virginia’s crusty, conservative senator Carter Glass, chairman of the Senate Finance Committee, stood in the way. Glass, who was FDR’s original choice for Treasury Secretary, said he was only going to let deposit insurance out of his committee if legislation accompanied it to control how banks invested their money. Glass’s point was that he was not prepared to give depositors a taxpayer guarantee if the banks could use the federally guaranteed money to gamble on the stock market. He insisted on rigid controls over banks barring them from investing in securities and other risky assets. And so the Glass–Steagall Act passed as a companion measure to federal deposit insurance.
For decades, the banks have chaffed under the restraints of Glass–Steagall and lobbied hard for its repeal. Of course, the banks wanted to get rid of the Glass–Steagall restrictions but were very happy to continue to accept federal deposit guarantees. (During the crash of 2007–2008, a new de facto layer of federal guarantees of bank capital emerged when the “too big to fail” doctrine made its way into national policy. Now not only would depositors’ money be protected, but the risky investments and wagers of the bank, its managers, and its owners would, in effect, be guaranteed as well.)
The big task before the GOP in 2016 is to make it clear that Hillary is the candidate of the big banks while Donald Trump is their opponent.
Bernie Sanders has done all he can to make people understand the connection between the Hillary and Bill Clinton wing of the Democratic Party and the Wall Street speculators. We have only to quote him to prove that part of our case. In the first Democratic debate, Sanders opened up on Hillary over the issue: “Here’s the story,” the Vermont senator said. “I mean let’s not be naive about it. Over her political career, why has Wall Street been a major, the major, campaign contributor to Hillary Clinton? Now, maybe they’re dumb and they don’t know what they’re gonna get, but I don’t think so.”44
Sanders was appropriately dismissive of Hillary’s claims that she would not be influenced by swimming in Wall Street money. “I have never heard a candidate,” he said, “—never—who’s received huge amounts of money from oil, from coal
, from Wall Street, from the military-industrial complex, not one candidate, who doesn’t say, ‘Oh, these contributions will not influence me, I’m going to be independent.’ But why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that.”45
Hillary replied by claiming that she had “hundreds of thousands of donors—most of them small—and I’m proud that for the very first time, a majority of my donors are women—60 percent.”46 Of course most of one’s donors are small contributors. But even though the Wall Street money comes from only a few donors, the total of the donations constitutes a huge part of her total campaign treasury.
Then Hillary tried to say that the Wall Street money she got was given as a gesture of gratitude for her help to the downtown New York City area after 9/11. She said this of her support from Wall Street: “I represented New York on 9/11 when we were attacked. Where were we attacked? We were attacked in downtown Manhattan where Wall Street is. I did spend a whole lot of time effort helping them rebuild. That was good for New York, it was good for the economy, and it was a way to rebuke the terrorists who had attacked our country.”47
Who does she think she is kidding? The contributions she got were in gratitude for relief measures for downtown New York after 9/11? No, they were payoffs for her past support of Wall Street and down payment for future favors.
The most important of those favors came in 1999 when President Bill Clinton abandoned the traditional Democratic position against repeal and signed legislation to wipe Glass–Steagall from the books. (Was it any coincidence that Clinton must have known that his law license was in jeopardy in the Paula Jones case—he was, in fact, stripped of it as he left office. How would he earn a living? In fact, he raked in massive fees for paid speeches, much of it from the very banks he had helped by signing the repeal legislation. Were they paying him back for signing the bill?)
The repeal of Glass–Steagall catalyzed the huge returns Wall Street has reaped since. Goldman-Sachs launched an initial public offering (IPO), taking 12% of the company public in 1999, just as the ink was drying on the repeal of Glass–Steagall. That year, now that Glass–Steagall no longer bound its hands, Goldman acquired Hull Trading Corporation, one of the world’s top market-making firms for $531 million, and bought Speer, Leeds & Kellogg, one of the largest firms specializing in the New York Stock Exchange, for $6.3 billion in 2000. And when the banks crashed in the subprime crisis of 2007–2008 and the feds stepped in to give them TARP money to bail them out, the concept of depositor insurance was, de facto, extended to the banks and their executives. Everyone but the taxpayers.
The Wall Street Casino was open for business.
Reinstate Glass–Steagall
Reinstating Glass–Steagall is a crucial first step in reining in Wall Street and ending the gross wage inequality it has caused. Democrats, led by Hillary Clinton, have opposed reinstatement (to do so would be to condemn her husband’s position) while many good Republicans have embraced reinstatement. Old Senator Carter Glass had a good point. If we let Wall Street do as it pleases while we protect their depositors money through the FDIC and safeguard the bank’s profits through the “too big to fail” policy, we had better restrict banks to conservative investments.
The rich get richer because the Federal Reserve Board sees to it that they do. That wasn’t their original mandate. The Fed was established in 1913 to strengthen the banking system after a series of catastrophic failures during financial panics. Over the years, the Fed has expanded its job to include fighting inflation and protecting the currency. In 1947, the Congress added the goal of promoting full employment to the Fed’s mission. Now, in theory, the Federal Reserve Board has three purposes:
• Maximize employment
• Stabilize prices
• Moderate long-term interest rates
But these days, its formal mandate has been eclipsed by its desire to keep Wall Street wealthy and growing. The Fed has become a personal piggy bank for the richest bankers in America to use to play the stock market and drive up prices. The Fed’s former focus on creating jobs and stabilizing prices has fallen back in its priorities. Now—with the strong support of Obama’s Treasury Department—this mission has been eclipsed by their personal financial interests, and those of their friends, to keep stock prices soaring even in a tepid and largely stagnant economy.
Even as the personal income of the average American stayed flat and the American economy (GDP) grew by only 20% during the four-year period between 2009 and 2014 (unadjusted for inflation) while the Dow Jones Industrial Average rose by 143%! Wall Street doesn’t make its money from a growing economy. It makes it from the rise in stock prices reflected in the Dow Jones index. And the policies of the Fed—by pumping in money the banks can use to buy stocks and take risks—have made the phenomenal income increases on Wall Street over the past five years possible. Indeed, it makes them inevitable.
Why is the Fed so solicitous of Wall Street and its top executives? Two reasons:
• The Fed staff and board members came from there.
• They will return to Wall Street when they leave.
There is a revolving door between the Federal Reserve Board and the banks it is supposed to regulate. A study by the New York Federal Reserve Banks found that 10% of all Federal bank regulators left the Fed just in 2014 alone to take jobs with the banks they used to regulate. There is an especially active exchange between the major banks and the Treasury Department. Jack Lew, the current secretary, came from Citigroup. Timothy Geithner, his predecessor, went to the private equity firm Warburg Pincus after leaving Treasury. And his predecessor, Henry Paulson, was the CEO of Goldman Sachs before becoming Secretary of the Treasury.
This revolving door creates an identity of interests between the regulators of the Fed and the Treasury Department on the one hand and the big banks on the other. The regulators who are working for the government want to protect their future earnings for when they return to Wall Street. And if they are now on Wall Street, they can keep reminding the bureaucrats of their shared interests whenever the need for special favors or bailouts arises.
Hillary’s Pathetic Wall Street “Reform” Plan
Under pressure from her supporters like Massachusetts Senator Elizabeth Warren and opponents like Vermont Senator Bernie Sanders, Hillary released her own Wall Street regulatory plan in a December 7, 2015, Op-Ed in the New York Times. The key part of the plan was what was not in it: She opposed reinstatement of Glass–Steagall.
We Republicans must make reinstatement of Glass–Steagall our rallying cry in 2016. This one law, albeit with some updating, is the key to stopping the kind of federally insured Wall Street gambling that has put the taxpayers on the hook and created historic income inequality. Instead, Hillary proposed to “impose a new risk fee on . . . banks with more than $50 billion in assets . . . to discourage the kind of hazardous behavior that could induce another crisis.”48
The idea of fining or taxing banks is popular with the Obama administration and their allies on Wall Street because, while the fines seem high and sound like a harsh punishment, they really matter little to the big banks who are the offenders. They know full well that the feds will never fine them so much that it risks their business—because they are, after all, too big to fail. They treat the fines as a cost of doing business. In fact, it is a kind of fee splitting with the federal government as the fines are paid to Washington to use as it pleases rather than to provide any relief to the ordinary Americans Wall Street’s corrupt practices have defrauded.
Indeed, Obama uses the revenue from fines like these to support community action groups that are allied with him politically. He has broad discretion in the use of these monies and uses it to his advantage. You will never discipline Wall Street with fines. The bankers will just laugh.
Hillary dismisses the Glass–Steagall Act as a “depression-era rule” and laments that it wouldn’t have stopped Lehman Brothers or AIG from their conduct in th
e financial scandal. She attributes her opposition to Glass–Steagall to the need to regulate such nonbank institutions. But obviously, any reinstatement of Glass–Steagall will include updating it to cover these growing nonbank firms. The principle behind Glass–Steagall is what is key: Federally insured deposits must not be used for insecure, speculative investments.
Hillary has left herself very vulnerable on the Glass–Steagall issue and we must hammer her over it. Remember that five of the top six organizations that have given campaign money to Hillary Clinton since her current political career began in 1999 are all big banks:
Big Bank Donations to Hillary Since 1999*
Citigroup Inc.
$891,501
DLA Piper
$852,873
Goldman Sachs
$831,523
JPMorgan Chase & Co
$801,380
Morgan Stanley
$765,242
And this total of over $3.5 million does not include speaking fees paid directly to the Clintons nor does it include donations to either the Clinton Foundation or the Clinton Global Initiative. Never has a candidate gotten more money from a single source than the Clintons have received from Wall Street.
Wall Street will loom large in the election of 2016. Exposing Obama’s failure to control it, and his record in allowing it to grow at the expense of the rest of us, will be key to winning.
Turning Class Warfare against the Democrats
But most important, the Wall Street issue can turn the whole class warfare shtick of Obama’s around to work against Hillary. Mrs. Clinton’s prodigious involvement with Wall Street, her husband’s approval of the law repealing Glass–Steagall, and her own refusal to support reinstating the law, make her very vulnerable on the issue.