by Bill Moyers
And second, the CEO of Goldman, Lloyd Blankfein, made mistakes and led his company into deep trouble. Now other companies are in deeper trouble. His company was in deep trouble and had to be rescued at that moment. We should change the leadership of these major banks.
And, yet, as I said earlier, Secretary Geithner’s chief of staff is the former lobbyist for Goldman Sachs. How do they make a dispassionate judgment about how to deal with Goldman Sachs when they’re so intertwined with Goldman Sachs’s mind-set?
I have no idea. It’s a huge problem.
So here’s the trillion-dollar question that I take from your blog: can someone like Timothy Geithner “really break with the vested elites” that got us into this much trouble? Have you seen any evidence that he’s going to be tough with these guys?
I’m trying to be positive. I’m trying to be supportive. I like the administration. I voted for the president. The answer to your question is no. I haven’t seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach. My intuition, from crises—from situations that have improved, from situations that got worse—my intuition is that this is going to cost us a lot more money. And we are going down a long, dark, blind alley.
What you’ve written comes down to this: we must break the power of the banks and their lobbies. How do we do that?
I think it’s quite straightforward, in technical or economic terms. At the same time I recognize it’s very hard politically. What you need to do is the stress test that, actually, Secretary Geithner outlined in his speech on Tuesday [February 10, 2009].
Which is?
You go in and you check the bank’s books, and you say, “Okay, using market prices and not pretend prices, not what you wish things are worth but what they are really worth, what are your assets really worth in the market today? And we also assess what will happen to the value of the things you own if there’s a severe recession.” It’s a stress test, like the one you get when you go to see the cardiologist: they put you on a treadmill and make you run to see how your heart is going to behave under stress. Now we need to look at how the bank’s balance sheets will look under stress. And then you say to them, “This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession. This is the amount of capital you need. Now you have a month, or two, to raise this amount of capital privately.”
This was done in Sweden, by the way, in the early 1990s. They did it with three big banks. One of the three was able to go to its shareholders, raise a lot more capital, and stay in business as a private bank, with the same shareholders. That’s an option. Totally fine. However, the ones that can’t raise the capital are in violation of the terms of their banking license, if you like.
We have no problem in this country shutting down small banks. In fact, the FDIC is world-class at shutting down and managing the handover of deposits for small banks, for example. They managed the closure of IndyMac beautifully. People didn’t lose touch with their money for even a moment. But they can’t do it to big banks, because they don’t have the political power. Nobody has the political will to do it.
So you need to take an FDIC-type process. You scale it up. You say, “You haven’t raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone.” Why? Because the bank has failed. This is a government-supervised bankruptcy process. In the terminology of the business, it’s called an intervention. The bank is “intervened.” You don’t go into Chapter 11 because that’s too messy, too complicated. There’s an intervention, you lose the right to operate as a bank. The FDIC takes you over.
I think we agree, everyone agrees, we don’t want the government to run banks in this country. It’s not gone well anywhere in the world. That’s not what we’re going to do. That’s not what the Swedes did. That’s not what the real banking experts are going to tell you to do. They’re going to say, you set up the government intervention and make it work. It might take three months, it might take six months.
But there’s a lot of private money out there—let’s call it private equity—and these people would like to come in and buy these reprivatized banks. You would have to attach antitrust provisions to this, so the banks are broken up as part of this transaction. Senator Bernie Sanders of Vermont has a great saying. He says if any bank “is too big to fail, it is too big to exist.” And he’s exactly right. So in this transformation, you’re bringing in private equity. To me, this is the right idea. You’re using part of the powerful financial industry against another part. You’re using private equity against the inbred insiders, big bankers. The new owners come in and do a lot of the restructuring. They’re going to fire all of these managers. I can assure you of that. They’re going to put in new risk management systems. They’re going to have to make the banks smaller, and the taxpayer is going to retain a substantial equity interest. And as these banks recover, the value of our investment goes up. That’s how we get upside participation.
You’re not talking about nationalization.
I’m talking about a scaled-up FDIC intervention. I think we need the FDIC to be empowered with the political support to get this job done.
Splitting this one powerful interest group into competing factions and taking them on one by one?
That is the classic strategy for breaking up an oligarchy. Now, I do admit that once you’ve done that, you have to worry about the new oligarchs. That’s why you’re breaking up the banks. You don’t want to just change the owners of banks that are too big to fail, because they’ll be coming around in five years for another handout. The structure of our banking system, the concentration of power in big financial institutions, has to change. There’s a lot of appeal to what FDR did in the Great Depression. I’d go back earlier than that, a hundred years, to Teddy Roosevelt, and think about trust-busting. We need to break up these big institutions for exactly the same reason that John D. Rockefeller’s Standard Oil and other interests were broken up at the end of the nineteenth century. They were too powerful, economically and politically. That’s where we are with the banks today.
HOLLY SKLAR
The sturdy backbone of democratic capitalism is the confidence of workers that they are getting a fair shake. But American workers can no longer count on it. Although they are working harder, they receive less of the wealth produced by their labor. Their struggle to stay in the middle class or simply make a living wage accounts for much of the anxiety in the country. According to census data, in 2009 the income gap between the richest and poorest was the greatest on record.
More unequal than Germany, France, and Britain. More unequal, in fact, than Guyana, Nicaragua, and Venezuela. As the gap widens between the rich and everyone else, people lose faith in the essential fairness of the system and call into question its governance. In her book Raise the Floor: Wages and Policies That Work for All of Us, Holly Sklar examines what it takes to make ends meet in America and how we can create a just economy to strengthen democracy. Sklar directs Business for Shared Prosperity, an organization of business executives and investors who are dedicated to our economy’s long-term success. She also runs the Let Justice Roll Living Wage Campaign, a coalition of faith, community, and labor activists working to raise the minimum wage to a living wage at the state and federal level.
—Bill Moyers
I read just the other day that a couple with two children has to work approximately three full-time minimum-wage jobs just to make ends meet.
That’s right. And still they don’t make ends meet. They’re constantly trading off. They’re going to food banks to feed their children. Do you know that we have people working in the food industry today who must go to food banks to help feed their children? People taking care of elderly folks can’t save for their own retirement. Although they will be working their whole lives.
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People working full-time can’t earn enough money to make ends meet. How does this happen?
We have really shifted expectations in a terrible way. It used to be assumed that if you were working full-time, you would not only make ends meet, but you were heading toward the American dream, when it was possible for one full-time worker to support a family, you could have a home, you could have health care, you could send your kids through college, and you could save for your own retirement. Now we have many two-income households who can’t even achieve what a single-income household could achieve before. We’ve been living the American dream in reverse.
Reverse?
In reverse. We have now gone back to the 1970s in terms of average wages, adjusting for inflation. The buying power of the minimum wage is lower than it was in the 1950s. Inequality of income and wealth is what it was in the 1920s. We are back at levels that we saw right before the Great Depression.
But the economy’s been growing. Why aren’t workers sharing in the prosperity that they’ve helped create?
That’s exactly the problem. It used to be that when productivity went up, wages went up.
You work harder, you got more of the results.
More people got a fair day’s pay for a fair day’s work. You shared in the rise of worker productivity. Now almost all the rise in productivity is going to the very top of the upper class. We have had a vast redistribution of income and wealth in this country in the last three decades. As that redistribution of wealth and income has been going up to the very top, most people have been treading water or going under.
Is it true that about 60 percent of our workforce make their living from hourly wages? And about 80 percent of the workforce are production and nonsupervisory workers?
When we refer to average workers, that’s usually what we mean. It’s just shocking what has happened to them. The people who have been driving this phenomenon, in corporations and in the government, have been saying we have to do this in order to make our country more competitive in the global economy.
We need to be leaner—
Exactly.
—and meaner.
Leaner and meaner, and they say we will all be better off in the long run because we will be more educated, more competitive and so on. Well, here’s the problem. We haven’t been making our country more competitive. We’ve been actually driving it into the ground. People at the top are like corporate raiders, raiding the whole country, milking it like a cash cow. That’s what’s been going on. So when you hear the expression “We’re the richest country in the world,” the truth is we’re the most indebted country in the world. We have an infrastructure that was built by the tax dollars of prior generations and is now crumbling. We don’t have a world-class infrastructure anymore. The infrastructure we built to recover from the Great Depression and after World War II is now crumbling. We’re not even fixing that, much less building a world-class twenty-first-century infrastructure. And we are spending less on research and development. Our education system is sliding further and further behind. The idea that we’re getting more competitive for the global economy is ridiculous, it’s a myth.
Why aren’t people in revolt over this?
Well, let’s remember what happened in the 1980s. The two longest periods without a minimum-wage increase have both taken place since 1980. Early in the Reagan administration, PATCO, the air-traffic control union, went on strike. And President Reagan essentially said, “You’re fired, good-bye.” He broke the union. And this, in effect, was a real green light to union-busting.
BusinessWeek and other business magazines have written about this. A real wave of union-busting followed, and it became normal to replace striking workers, not even just temporarily while they were out on strike, but basically saying, “Your jobs are gone.” The National Labor Relations Board lets companies get away with it, so one factor has been the sharp decline of union strength relative to the workforce.
There are plenty of studies that show that as unions increase their share of the economy, they bring other people who are not in unions up with them. They raise the wage standards for a lot of other people, too, right?
Absolutely. Now, another factor behind the decline is this: if everyone is afraid of losing their job, it’s much harder to ask for higher wages. You fear your company will turn to outsourcing like many others have. You’re caught in that grip.
How is it that our political system accepts this?
Accepts it, yes. That’s exactly the problem. Jobs should keep you out of poverty, not keep you in it. But instead of a growing middle class, we have a growing class of people who are working jobs and making poverty wages in real terms. The politicians give a lot of lip service to helping middle-class families, but not much is done. Otherwise they would be making it easier for workers to unionize, respecting labor rights, raising the minimum wage.
Why is the minimum wage so important? Because it sets the floor. The biggest signal the government can send is to say that people should get a minimum wage that is a living wage. Franklin Roosevelt used to talk about a fair day’s pay for a fair day’s work. He instituted the minimum wage, among other things, in order to set the floor. When government basically allows the minimum wage to become not just a poverty wage but a desperately poor wage, it sends a big signal. It’s okay for the minimum wage to be down there in quicksand dragging down wages above the minimum as well.
There is an argument that raising the minimum wage causes small businesses to lay people off and that it’s best to let the market, not the government, determine matters like wages.
Bill, we shouldn’t let the least that employers want to pay set the floor for wages, any more than we would set pollution policy by permitting the worst polluter to set the standard for the environment. No new employer should be able to stay in business based on the premise that they’re keeping their employees in poverty. There’s something basically wrong with your business model if you’re keeping your employees in poverty. Also, raising minimum wages doesn’t increase unemployment. It expands consumer purchasing power, decreases worker turnover, improves customer service. There are real benefits in raising wages.
The people earning minimum wage today are earning less than they would have forty years ago.
Oh, much less than they would have in terms of buying power.
And you write that those low-wage workers are actually subsidizing employers, stockholders, and consumers.
They are, because of what we talked about in terms of productivity. You are working, and you are creating value for the company, for the shareholder. Nowadays, a much bigger portion of that value is going to the very top of the corporation, to the top executives, to the owners, and to the shareholders. It’s not being fairly shared with workers. Executives at big corporations have basically doubled their share of company revenues in the last decade. It’s not that the pie has expanded so that if the rich are getting richer, that’s okay because then everybody’s improving. That’s not the case. The rich are just taking more.
The rising tide is not lifting all the boats.
The rising tide’s not lifting all boats. Little crumbs aren’t trickling off the table. What’s really happened is that so much is being ripped off at the top. It’s a level of extreme, almost pathological greed, and it’s not tolerated in any other of the democracies.
We have the greatest spread of inequality, I believe, of any industrialized country in the world.
And the highest rates of poverty. In other industrialized countries, they’re making themselves more competitive in part by raising their level of math and science literacy. We’ve gone the other way. They’ve built out their infrastructure. They’ve been reenergizing their economy by greening energy. They have a much lower gap between CEOs at the top and the workers at the bottom. They just don’t tolerate it.
What are the practical consequences of this inequality?
Well, one thing is that with so much wealth concentrated in so relati
vely few hands, we have a higher child mortality rate. We have lower life expectancies than many other industrialized countries in the world. A lot of Americans don’t realize this. We don’t have the highest life expectancy in the world. We’re the only industrialized country without universal health care. We don’t have the highest living standard. Those are the consequences of inequality.
Are we at some kind of breaking point?
We are at a breaking point. The question is, which way is it going to break? One of the reasons we’re at a breaking point now is that people did so much to try and make up for the real fall in their real wages. They maxed out their work hours, they maxed out their credit cards, they maxed out their home equity loans. Many people took on large debt. Not to take a vacation, not to put their kids through college—although people of course go into debt for these reasons—but they were using it, in many cases, to just maintain a basic living standard. Make ends meet. Well, that’s all maxed out now. The mortgage crisis cascading into the housing and the financial crises has carried us over the cliff. And people who had achieved not just a middle-class lifestyle but could save for retirement, help their kids make a down payment, put their kids or even their grandkids through college—that’s all going to be gone for millions of people. And we have this growing workforce of poverty-wage workers and middle class in trouble. The question is, what are we going to do now that the illusion is gone?
We are at economic and environmental breaking points. We have to green the economy in order to survive as a country and in the world today. If you don’t do it, it’s a disaster for us and for the world. If you do it, it’s a breaking point in the sense that it’s actually going to be used to jump-start the economy in a good way.
What are some of the changes you and your colleagues think we could make?