The Financial Industry Takes Too Much
Today’s installment from Paulson in summary: Things are really bad, and they will get worse. Whatever we told you our plan to stop the markets from further hemorrhaging was last time, we have since changed our mind. We will let you know when we change our minds again.
In the mean time, the Dow dropped enough to more or less erase the gains realized in trading the last two weeks, posting the third worst point drop in history with the DOW closing down nearly 680 points.
So what are the mounting costs of the bailout to the public in total? Some estimates would have the bailout costs as high as $8.5 Trillion Dollars, while more conservative estimates are a mind-boggling $4.6 Trillion Dollars.
But these costs only represent the liquid assets the Federal Government has pumped into the system in the last few months through FDIC insurance payouts, FHA loan guarantees, Federal Reserve cash injections, the direct Treasury bailouts of public and private firms, and the equity stakes taken in others.
What about the non-bailout costs? What do we as consumers, as private companies, and as taxpayers actually pay on an annual basis to support this system? How much have businesses and consumers already given to the Financial Industry that now demands we put our grandchildren into debt to save their Golden Parachutes today?
John Bogle illustrated in his recent book Enough: True Measures of Money, Business and Life, the damage to, and dangers inherent in, today’s financial industry.
The financial sector itself has been building for many decades into the largest single element of the American economy. We have moved to a world where far too many of us seemingly no longer make anything; we’re merely trading pieces of paper, swapping stocks and bonds back and forth with one another, and paying our financial croupiers a veritable fortune.
In the process, we have inevitably added even more costs by creating ever more complex financial derivatives, in which huge and unfathomable risks have been built into the financial system.
According to Bogle’s more-than-qualified assessment, the Financial Industry produces little overall value for the economy, while the value extracted is considerable - and this is assuming a reasonably good economy.
Given the already demonstrated incompetence of the overly compensated Financial Industry CEO’s, their legions of sycophants, as well as the utter lack of oversight by the designated federal regulatory bodies, one has to wonder why none of the money from the troubled companies’ record profits and record-breaking executive compensation plans are on the table along with taxpayer monies in any discussion of a bailout.
The AP reported today that there were clear warnings of the risks of this crisis back in 2006, while others have produced evidence that Federal regulators were well aware of the problems and risks as early as 2002, according to FDIC documents.
Bogle also tells it like it is in a recent interview on NPR’s Weekend Edition Saturday - our apologies for previously identifying the clip as being from NPR’s Fresh Air, another quality show! (the money-shot is at 4:22):
I started to look at what was going on in our financial system, and to be honest, Allison, I got outraged. I did some research and found out the financial system costs six-hundred billion dollars a year.
That means, whatever the markets deliver, we investors get six-hundred billion dollars less because we pay it to this institution, or this series of institutions: mutual fund managers, hedge fund managers, stockbrokers, investment bankers, that we call, loosely, Wall Street.
And that means we lose to the market by, you know, over a half a trillion dollars, year after year after year. And investors have to know about that, because it speaks to a real flaw in our system, where the financial system is consuming an excessive share of the economy’s resources…it turns out the financial sector subtracts value from society.
This is not a message that the financial industry wants to hear, but when insiders with the repute of Bogle are banging this drum, it’s hard to shut the cacophony down. Maybe it’s time to examine more than just where the bailout dollars are going, more than who got us into this truly horrendous situation in the first place, and more than who we are trusting to get us out of it.
Maybe it is is time we step back and make a more holistic assessment of the costs and benefits of a financial system that demands the return of all the gains ever delivered now that times are bad, and also demands the lion’s share of the returns during the good times. Maybe we should be as outraged as John Bogle.
Maybe we should do this before they ask us for everything.
Anthony is a researcher, analyst and freelance writer who worked as a consultant to senior members of product development, secondary, and capital markets from the largest financial institutions in the country during the height of the credit bubble. Anthony’s work is featured by leading Internet publishers including Reuters, The Chicago Sun-Times, Business Week’s Business Exchange, Seeking Alpha, and ML-Implode.
The Author gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to Information-Security-Resources.com
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February 23rd, 2009 at 2:41 pm
Many thanks for your views on Bogle!
The other person who is lke Bogle who has been creating private and public accountabilty systems for CEOs as a career is Robert A. G.Monks, my home grown Maine international corp governance guru, like Bogle an accomplished insider whom many insiders decry as traitors to their class. My class at Sr College on Capitalism ism and the Corporation in Crises here this Spring opens with an intro to his book Corpocracy.
((Cor.poc.ra.cy [fr.L-corpus body Gk-kratia power, rule] government by the corporation; that form of government in which the sovereign power resides in corporations, and is exercised either directly by them or by elected and appointed officials acting on their behalf.))
The subtitle of the book paints an even more precise picture: “How CEOs and the Business Roundtable Hijacked the World’s Greatest Wealth Machine - And How to Get It Back”.Monks is at http://www.ragm.com, and has just done a very good paper advising Obama how to use foreign & US (Calpers) models to control CEOs.
Lots of luck wth your work! We need you! Matt Clarke 207 594 6453
He and Bogle and Marjorie Kelly have been perceiving pioneers, and acting assertively for years, and are ignored by the ignorant moral pygmies now in charge of saving us! Amazing bunglers who show not sign of understanding of Bogle! and Monks! and Kelly! (ex-Business Ethics publisher) those whose work are stuffed into my course!