As the “Occupy Wall Street” movement continues and spreads to other cities, it’s nice to see economist and Nobel laureate Joe Stiglitz and economic historian Jeff Madrick out addressing the crowd in New York City (video and transcript here—thanks to my son Nick). From the beginning of the crisis, Stiglitz has scoffed at the idea of banks being too big to fail. On the contrary, he says, they’re not too big to be reorganized—that is, take them into bankruptcy, wipe out the equity holders, replace management, and move on—that’s the customary way of dealing with failed banks. Jeff Madrick’s latest book is Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (2011); he’s also a frequent contributor to the New York Review of Books.
Two excerpts from the Wall Street event (October 2):
Stiglitz: Our financial markets have an important role to play. They’re supposed to allocate capital and manage risk, but they’ve misallocated capital and created risk. We are bearing the cost of their misdeeds. There’s a system where we’ve socialized losses and privatized gains. That’s not capitalism! That’s not a market economy. That’s a distorted economy, and if we continue with that, we won’t succeed in growing, and we won’t succeed in creating a just society….
Madrick: The FBI actually told the powers that be that there was an epidemic of fraud in 2004 in the mortgage market. Washington and the Federal Reserve had the power to do something about that. They did not. The more bad mortgages went on, the predatory lending got worse, and the powers that be—in particular and let me name names, Alan Greenspan, the Chairman of the Federal Reserve—was able to retire in glory. Is there something with this picture? There sure is…
My only question is why the demonstrations didn’t happen sooner. Perhaps it has taken this long for it all to sink in. Not only did Wall Street recklessness create the crisis as government regulators looked on, but now bankers are back playing the same game and complaining of government interference, with no acknowledgment of the bailout that pulled them back from the brink.
But why should we be surprised by actions that are bred deeply into Wall Street culture? A year ago at a Wall Street bar, Adam Davidson and Jane Feltes of NPR’s Planet Money interviewed three patrons for an episode of This American Life. One works in a bank on Wall Street, another is an institutional investor, and the third works for a credit rating agency. What’s interesting is how strongly the three resist acknowledging how much they owe to the government bailout for the fact that they still have jobs. (I’ve corrected the transcript where it departs from the audio source):
Davidson: I can guarantee your bank would’ve gone under. Your stock valuation would’ve collapsed. Your credit rating agencies…would’ve been out of business. All three of you directly benefited from the bailout
Bar Patrons (together): What? You’re crazy…
Davidson: How am I crazy?
Bar Patron 1: You’re crazy, bitch! So what do you do—don’t bail it out? Yeah, that’s the question. Do you not bail it out?
Feltes: I don’t know.
Bar Patron 1: OK. So you let it tank. It’s up to you.
Feltes: I would like to bail it out, and I’d like to walk into a bar in lower Manhattan and have one of you thank me: “Thank you. I still have my job, and I appreciate it.”
Bar Patron 1: Why do you want that?
Feltes: Come on, you guys still have your jobs…
Bar Patron 2: Because I’m a smart person.
Feltes: You think you got to keep your job because you’re smart? You got to keep your job because you got bailed out.
Bar Patron 2:No, no. no. That’s not why I have my job. I mean, survival of the fittest.
Bar Patron 1: Because I’m smarter than the average person.
Davidson: And even if the government bails out your industry that failed, you still say it’s because you’re smarter.
Bar Patron 1: No. The government bailing out an industry was out of necessity for whatever the situation was. The fact that I benefited from it is because I’m smart. I took advantage of a situation. Ninety-five percent of the population doesn’t have that common sense. The only reason I’ve been doing this for so long is because I must be smarter than the next guy.
Notice how these Wall Street men cordon off the government’s decision to bail out the banks from their own ability and initiative. “It’s up to you [to bail out the banks or not]… The fact that I benefited from it is because I’m smart.” This agrees exactly with what anthropologist Karen Ho says about Wall Street culture in her important book, Liquidated (2009). In her telling, the young graduates recruited from top Ivy League schools are groomed by investment banks to think of themselves as the best and brightest. However, it’s not just success, but survival that is a top concern for them in a world of mergers, acquisitions, downsizing, and—Ho’s major theme—the mantra of “shareholder value.” From the 1980’s on, corporations and the investment banks that serve them see maximizing shareholder value as their primary mission. Really, their only mission. That means squeezing every expense out of a firm’s budget that might limit growth of the bottom line—including employee compensation and, when necessary, the employees themselves. So it’s no surprise that Wall Street expresses no gratitude for the bailout. Instead they attack government. Adam Davidson recalls another bar interview when a Wall Street worker says, “I swear to God, they’re trying to destroy business in America.” The odd and scary thing is how these finance workers describe the world beyond Wall Street as if it were nothing to them, except as a source of annoyance. There are only two things that matter: job survival and making money.