What I would say is that things could get much worse if we don’t do something.
— Joe Stiglitz
It's time to polish off 2014. If the year ended today, it couldn't get worse, right?
I was reminded of this while reading Fed Grants Volcker Reprieve in Banks' Second Big Win This Month (Business Week, December 22, 2014).
Banks added to their wins in Washington this month by getting a reprieve from the Volcker Rule that will let them hold onto billions of dollars in private-equity and hedge-fund investments for at least two more years.
The Federal Reserve granted the delay yesterday after banks said selling the stakes quickly might force them to accept discount prices. Goldman Sachs Group Inc. has $11.4 billion in private-equity funds, hedge funds and similar investments, while Morgan Stanley has $5 billion, securities filings show.
“This is a great holiday present by the Fed,” said Ernest Patrikis, a former Federal Reserve Bank of New York general counsel who is now a partner at White & Case LLP.
A guy at Marketplace tells us why this is a "great holiday present" for Wall Street.
Much of the derivatives sold by American International Group Inc. (AIG) would have been worthless, putting huge holes in the balance sheets of the banks and brokerages. This systemic threat is exactly why there was a panic on Wall Street and institutions such as Bear Stearns and Lehman Brothers failed. Without taxpayer support, banks would have been next as counterparties called in the loans.
Now, the “push-out” rule is gone, so we’re in the same position again. And the Fed has delayed a potential roadblock to a taxpayer bailout. In essence, the Federal Deposit Insurance Corp. and the Fed are implicitly suggesting that losses from hedge funds and private equity won’t hold up government support.
Ultimately, let’s be honest, the delay isn’t just a delay, it’s to buy time so the bank lobby can eliminate the Volcker Rule altogether. These investments produced risky, but potentially big, returns. Why is it that the bankers are the only ones with good memories?
Yes, over the next two years the Republican-controlled Congress will dismantle whatever financial "reform" we've had—and that isn't much. The Man of Hope & Change, the Great Compromiser, will not veto the bills those repeals are attached to because 1) the Republicans will throw him a bone, and 2) he needs that Big Finance money to keep flowing to Democrats.
This is as good as it gets.
We will soon be back right where we were in 2007 prior to the crash, wondering when the next crash will occur. Some people are already wondering about that.
"Every day — every single day — we are at risk of a market meltdown that would wreck our economy even worse than the 2008 crash did, or even than the 1929 crash did," Rep. Alan Grayson (D-Fla.) told HuffPost. "Six years after the fact, we have taken no significant action to reduce the Wall Street gambling or 'too big to fail' concentration that caused the 2008 crash. If we can’t even implement the Volcker Rule, an extremely modest effort to stave off total disaster, then total disaster is exactly what we can expect."
So maybe it's time people like Joe Stiglitz stopped warning us about the coming shitstorm. What's the point of warning us about shit we can't do anything about? If we can't do anything about it, well, that's just cruel.
Of course, Stiglitz makes a living explaining "exploitation." That must be nice for Joe!
JS: In a more careful, academic way of putting it I would say that one of the explanations of what is going on is increased exploitation.
You see the ratio of wages to productivity going way down, and that certainly is consistent with increased exploitation [graph below].
And you see that the ratio of CEO pay to worker pay has gone up. So what I would say is that some of the explanations have to do with weakened worker bargaining power, weaker unions, asymmetric state liberalization where capital moves but labor can’t move, corporate governance laws that provide relatively little check on abuses of corporate power by CEOs, and an increase of monopoly power because of network externalities.
So there are certainly a number of factors that would lead one to suggest that overall there is an increase in market power. There are some things where there’s more competition — because of the Internet, for example, there’s more competition on the price side, but overall, when you look at the ratio of wages to productivity, there’s a marked increase in market power.
Probably there are limits — sometimes the degree of exploitation is expressed as the ratio of wages to marginal productivity of labor, and when that ratio gets down to zero – that’s a limit!
What I would say is that things could get much worse if we don’t do something. That’s a relevant issue. What’s important is whether or not we’re on a path that’s looking worse and worse.
blah, blah, blah blah, blah...
Ah, sorry ... I meant thanks, Joe!
Because "what’s important is whether or not we’re on a path that’s looking worse and worse." Certainly from an existential point of view, I couldn't agree more.
You know, when I write these posts, I am not complaining about what's going on. After all, what's going on is totally predictable. And that's what I'm trying to say to you—Hey, look! Check out what the humans are doing to you now!
It's time to put 2014 to bed. I'm writing a Flatland essay, and I think I'll stick with that. This is my last post until 2015.
Happy holidays to you.