It is now 18 months since Wall Street melted down in the fall of 2008, and people are still trying to come to grips with it. In this vein, 60 Minutes' Steve Kroft interviewed Michael Lewis, author of The Big Short on Sunday, February March 14.
Wall Street should not exist in two senses. In the first, more narrow sense, Goldman Sachs, Citigroup, J.P. Morgan Chase, Morgan Stanley and other lesser houses of theft should not exist because they would not exist if the government hadn't bailed them out. And in Lewis' view, which is widely held among banking experts, these banks would probably fail now if the government suddenly withdrew its under-the-table support.
But in the broader sense I'm talking about here, Wall Street in its current form should not exist period. Here's Lewis responding to Kroft's question about whether these financial geniuses are overpaid—
... on Wall Street, the business has become very obviously divorced from ... productivity, from productive enterprise. So, in that sense, no, they don't deserve it, they didn't earn it, what they did is finagle it ... They were very good at putting themselves in the middle of large financial transactions that probably shouldn't have happened in the first place and taking out little pieces of [these transactions]. They generated trillions of dollars of subprime mortgage loans that should never have been made... The world would be better off if that whole industry had never existed.
I defy anyone, anyone at all, to make a sensible, compelling argument for the continued existence of Goldman Sachs. Go for it, give it your best shot. If you object that, well, some relatively small part of the Giant Squid's business does support productive economic activity, then the obvious response is that those assets could easily be sold off to some other bank. Etc.
Lewis hit on the key to understanding why Wall Street shouldn't exist, saying "the people on Wall Street completely lost any sense of responsibility to the people in their society." In other words, they live in their own amoral, unethical, greedy little world. "Once they are in that place, they are of that place" says Lewis. Exactly right.
It is a tragic testimonial to how far gone we are here in the United States that public debate now rarely questions the existence of a parasitic, many-tentacled Financial Octopus in the midst of our society. Note that Lewis did not say the world would now be better off if the whole industry did not exist, but that's the obvious conclusion we should draw. Instead, we get self-serving lies from sycophants like Tim Geithner or Larry Summers. We are told that saving Wall Street averted another Great Depression. Nothing could be further from the truth. Saving Wall Street ensured beyond all doubt that we will indeed get another Great Depression. All the bail-outs did was kick the can down the road.
These Too-Big-To-Fail banks must have government assistance for their continued existence. Co-opting a corrupt federal government is the sine qua non of their "business model." The reason for this is not hard to find. First, you need to understand that these banks are rent-seekers.
Rent seeking is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled... The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.
Wall Street must seek advantage through the political arena because, in recent decades, they lack any legitimate economic justification for their continued existence. They are wealth-destroyers, not wealth-creators. They divert capital to themselves, which siphons it away from productive activity. This has terrible effects on the Real Economy over time, as anyone without a vested interest in the current arrangement can plainly see. In short, they are parasites—"organisms that live in or on and take its nourishment from another organism. A parasite cannot live independently."
The world is far simpler than people pretend. Such pretending usually only serves to rationalize present arrangements from which the rationalizers are in some way benefiting, or from which they hope to benefit in the future.
It's really very simple: Goldman Sachs should not exist.
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