While many Americans – and certainly those of us whose livelihoods are tied to the battered construction industry – are dealing with the prospects of drastically lowering our expectations for a joyous holiday season, it is shaping up to be a very, very Merry Christmas for the those who work on Wall Street.
After first receiving billions in taxpayer aid, and now reaping the gains of ultra-cheap funding from the Federal Reserve, Wall Street banks are set to end the year on a record-setting pace. In fact, 2009 and 2010 will go down as the two best years ever for Wall Street.
But, the assistance hasn't stopped with taxpayer bailouts like TARP. The Fed is in the process of buying $600 billion in government debt from…wait for it…banks. As part of its quantitative easing program, the Fed has announced its purchases ahead of time, giving the Wall Street big shots another opportunity to rake in fat profits on the trades.
Never mind the rise in unemployment, the rise in home foreclosures, or the escalating – and problematic – gap between rich and poor, and the continuing spread of poverty. Apparently, none of this matters because the idea of equality and shared prosperity that serves as the foundation for a health Middle Class America is now passé.
But, on Wall Street, Christmas has a special meaning: it's bonus time, baby! With all of that cash piling up, Wall Street firms are set to pay out $144 billion in bonuses this year; which will break a record for the second year in a row. And to top it all off, they are getting a tax cut, too! For those Wall Street fat cats raking in $1 million or more this year, they will see an almost $100,000 tax cut
It is repugnant that, after the worst financial crisis since the Great Depression, caused in part by large-scale gambling on Wall Street, unemployment has remained stuck around 10 percent – and at close to 20% in the construction industry. But, the denizens of Wall Street do have problems of their own. Many are conflicted about whether to spend the holidays skiing in the Swiss Alps, or sunning themselves on the beaches in the Caribbean.
Corporations, meanwhile, are hoarding cheap cash instead of using it to create jobs. According to Federal Reserve data released this month, companies increased their cash holdings by 7.3 percent in the third quarter, setting a new record. Relative to their short-term liabilities, corporations haven't sat on this much cash since 1956.
And those companies and industries that are interested in moving forward with construction projects cannot do so because credit remains tight. Anything remotely resembling a commercial real estate loan is virtually unavailable today, and overzealous application of rules is continually choking off lending. This has to stop.
It is inconceivable and, in my mind, borderline criminal that Wall Street pay practices, which rewarded short-term risk-taking and outright fraudulent gambling in the years leading up to the crisis, have worsened, according to a new report by the Council of Institutional Investors. Rules that were intended to make chief executives more concerned for the long-term health of their firm have instead caused their salaries to grow, without adding any real incentive to curb excessively risky behavior, the report concludes.
Even more "jaw dropping" are the recent disclosures of just how much money the Federal Reserve gave banks and other institutions. In total, Wall Street banks received an estimated $3.3 trillion in emergency loans and other assistance during the financial crisis. That’s right, I said $3.3 TRILLION! No wonder Fed Chairman Ben Bernanke tried like Hell to prevent that disclosure from being made public.
Imagine the jobs that could have been created had that $3.3 TRILLION been used to, oh I don’t know, perhaps repair and re-build our nation’s infrastructure so that we are better able to compete with China in the global economy (China is currently in the process of building 100 new airports across that nation; not to mention scores of new highways and a robust alternative energy sector).
So, today we have a situation where big banks have been the beneficiaries of unprecedented amounts of taxpayer handouts, and where they now have nearly $1 trillion in excess reserves parked at the Federal Reserve. But, the Fed is not requiring those institutions to increase lending to small and medium-size businesses as a condition of the bailout. At a time when large corporations are more profitable than ever, why doesn’t the Fed demand that corporations and banks that received backdoor bailouts use their rapidly accumulating cash to create jobs and expand the economy? On the other hand, when the Fed lent money to investors holding credit card debt, it did not require any interest rate caps for consumers, leading many of them to pay credit card interest rates of 28 percent or higher.
All in all, this raises serious questions about the degree to which secret Fed loans turned out to be direct corporate welfare to big banks.
Merry Christmas Wall Street. Enjoy your “Champagne Wishes and Caviar Dreams.” Maybe someday you’ll thank the American taxpayer – after all, we paid for them.
Here’s hoping you find a soul in 2011.