Casino capitalism: Day of reckoning
By Max J. Castro
majcastro@gmail.com
Casino capitalism may finally have its day of reckoning or, at least, its moment of discomfort. Because, for all the outrage at the banks and all the debate in Congress about financial reform, the banks and the bankers are still making out like bandits.
Grilled by members of Congress last week, Goldman Sachs executives failed to show any sign of shame or repentance. After all, the firm’s last profit report was colossal, and the huge bonuses have kept flowing to the top executives. As for charges by the Securities and Exchange Commission (SEC) that Goldman broke the law, Goldman has a slew of lawyers to proclaim its innocence.
Yet Goldman cannot afford to feel too smug yet. The Justice Department is in the early stages of a criminal investigation of the firm. Should the inquiry result in an indictment and conviction, it would be very bad news indeed for the legendary firm. History shows that corporations that suffer criminal convictions don’t survive. Goldman Sachs may get its comeuppance yet.
The misdeeds at Goldman Sachs are only the tip of the iceberg when it comes to financial misdeeds on Wall Street. For the last 20 years, banking has been transformed from a sober business to a clone of Las Vegas. For decades after the Great Depression, banks were closely regulated to prevent the repetition of that catastrophe. But since the 1980s the myth of the infallibility of the market took hold, and the system of regulation was progressively and systematically dismantled under both Democratic and—especially—Republican administrations.
The lessons of the 1930s were forgotten. The financial system responded with a flurry of new, ever more complex and speculative financial instruments. With George W. Bush in the White House, the hedge fund managers and other financial “wizards” were rewarded with huge tax cuts the better to accumulate their enormous fortunes. Meanwhile workers and the middle class saw their incomes stagnate or decrease.
But the bankers’ juggling act of making ever more risky bets with other people’s money finally broke down and the whole business threatened to crash down. As it turned out, the tentacles of the financial system were so intertwined that the government was faced with a bad choice and a worse choice: bailing out the bandits and endure “only” a Great Recession or letting them fail and provoke a second Great Depression. Understandably, the government, both Bush’s and Obama’s, chose the first option.
Ironically, while economic devastation has been a direct result of an ideology which, for George W. Bush and the Republican Party, functioned as a virtual theology, it is Barack Obama and the Democrats that may suffer the wrath of the voters for the bank bailouts, the unemployment, and the loss of people’s homes as a result of massive foreclosures.
Not that the Democrats are without blame. The corruption of the U.S. political system is such that both political parties have benefitted greatly from hefty Wall Street political contributions. But it is no less true that the Republican Party has been and is the better friend of Wall Street. Last week, for three straight days, Republican Senators blocked a financial reform bill even though it had already been watered down to try to achieve a bipartisan consensus. Faced with being portrayed accurately as the defenders of Wall Street, the Republicans agreed to begin debate on the legislation. But look for the GOP to continue to obstruct and to weaken any legislation that will hurt the profits of their Wall Street friends.
This entire affair has created great anger in the country. People cannot and should not accept the fact that big banks that can’t pay their debts get gobs of government money to make good on their obligations while average individuals lose their houses if they can’t pay the mortgage. But much of this anger has been misdirected at scapegoats: Barack Obama, taxes, big government, and immigrants.
With a view toward the November elections, the task of the Democratic Party is to redirect that anger toward the real culprits: the financial speculators and their political enablers. They need to use the finance reform bill to make clear which party stands with Wall Street and which party stands for the middle class. And they need to expose, at every turn, how the Republican Party has been complicit in the rise of a tiny fabulously wealthy financial elite parasitically feeding off the real economy (where real things are made and services are provided) and luxuriating at the expense of the decimation of the middle class. Beyond the election, to deal a death blow to casino capitalism, the Obama administration must implement policies to reduce the grotesquely inflated role of the financial sector in the American political scene.
