Common Sense
10-17-2011
A friend of mine posted this sign and asked for responses:
Images like these provoke strong emotional responses. As much as I share this student's point of view, it is crucial to remember the larger context of consumerism, excess, and irresponsibility that forms the background for these protests. Instead of understanding Occupy Wall Street divisively as the 99% against the 1%, we should see it as a common sense movement opposed to the rampant greed and selfishness of the last 10 years.
I remember where I was on Dec. 29th, 2009. I was on vacation with my extended family. We were having a great time. And I was fuming.
The cause of the steam emanating from my ears was Steven Brill's superb cover story of that weekend's NY Times Magazine, What's a Bailed-Out Banker Really Worth? This article made me livid—I can remember grabbing a red pen and underlining it, commenting on it, and then forcing everyone in my family to read it. When I look at the Occupy Wall Street protests now, what I think about is Steven Brill's article.
Brill exposes the corruption and hubris of what might be called a pervasive if not ubiquitous Wall Street mentality. His window into that moral morass into which parts of Wall Street sank was Ken Feinberg, the man in charge of reigning in excessive compensation at the companies that we—the United States tax payers—bailed out. He cites evidence from Feinberg to show that when calculating their bonuses in 2009, the year after they were saved from bankruptcy by American taxpayers, the big banks decided that every single one of their executives had performed above average and deserved extravagant bonuses:
To take a near-comic example, the firms did not present a single executive as meriting a pay grade below the 50th percentile of their supposed peer group.... In fact, all 136 of the executives (the 25 top earners for each of the seven companies, less 39 who left during the year) were depicted as well above average, typically in the 75th percentile or higher. And the peer groups they were supposed to be in were often inflated; for example, someone running a unit might be portrayed as a chief executive because, the argument went, he ran a really big unit.
Citigroup and Bank of America, Brill writes, "concluded that everyone in their executive suites was above average when compared with peers at other giant banks that didn’t need a bailout." The banks then proposed that their average executives deserved bonuses of between $10-$21 million. After months of negotiating and cajoling, Feinberg talked them down, so that in the end, the average banker received a year-end bonus of $6.5 million at Bank of America and $6.2 million at Citigroup.
Where was the young student above in 2009? Where were the bankers who didn't use leverage, who didn't reward themselves with million dollar commodes? Where were the responsible people on Wall Street and off? It would have been nice if someone might have said:
I currently have cash in the bank and live comfortably in my nice house or apartment, send my kids to public school, take vacations, enjoy my family, and have everything I want. I don't pay $49,000 for each of my three kids to attend tony private schools, I don't have a private jet or four houses or 5 babysitters and two chefs. My bank is solvent and so am I. I would not blame "the financial system" for my own bad decisions. I live within my means and my company makes money without greedily seeking to maximize profits by taking outsized risks. I expect nothing to be handed to me and I expect to work my @$$ off for every dollar. That is how it is supposed to work. I am not the 1% who expects to reap astronomical profits in good times and get bailed out and reap astronomical profits in the bad times too.
Where was such anger at the time of the bailouts? Possibly it was submersed in fear. But the bald truth is too many good people were silent.
Now, it seems, everybody is angry. Many people who are in the 1% are angry as well—and they are not only angry at having to pay more in taxes. Many, many people who are in the 1% are angry at the corporate bailouts, and not only Warren Buffet. This fight is not between the 99% and the 1%. I think that is a mistake. It is between those who understand that capitalism for profits and socialism for losses is wrongheaded, for the wealthy as well as for the middle class. In other words, the fight really is between all of those with common sense and those without it—at least if we understand common sense as Hannah Arendt does, as that shared concern with what is common.
While I have sympathy for the young person who expressed the sentiment above and while I agree we all need to take responsibility for our actions, we cannot simply ignore the fact that we have in the last four years bailed out some of the richest Americans and let the poorest Americans suffer. Why do the wealthy get bailed out while the middle class gets locked out? Why is it that in a country famous for its patriotism, public feeling, and pursuit of the common good, we have somehow lost touch with our sense of what we share in common?
The worst of the worst offenders during the last decade was the giant insurance company A.I.G.
Brill tells the story of one trader at A.I.G., "a mild-mannered math whiz who worked at a unit of A.I.G. Financial Products that, he says, had nothing to do with the small London-based credit-default-swaps group that sank the company." In the 1990's and 2000's, this trader made millions, even tens of millions of dollars, every year—bonuses based on a bonus pool that was artificially inflated because of the outsized risks and profits from the Financial Products group that eventually lost hundreds of billions of dollars. When the crisis hit, he and his colleagues negotiated "retention contracts" that would guarantee them large bonuses even though the firm was losing hundreds of billions of dollars and was only being kept alive by, in the end, $180 billion of tax payer bailouts. When word leaked that taxpayers were paying for multi-million dollar bonuses, these executives defended themselves.
"Why should I simply walk away from a contract?” he now argues. “I earned that money, and I had nothing to do with all of the bad things that happened at A.I.G.
The arrogance and deafness of such arguments is hard to believe. These contracts would be worthless if we taxpayers didn't save this man's company. We came to the rescue. The least these bankers could have done was to thank us and renegotiate their contracts. If they had any decency or common sense, they would gladly offer to cut their pay today in solidarity with people who have lost their jobs or are being foreclosed upon and losing their homes. But no, they insist that when these people make bad decisions, they should suffer the consequences.
Compare the defense of contractual integrity by bankers to the current debates over public employee pensions. As with the bankers' bonuses, the pension deals signed between policemen, fireman, and teachers with municipalities through the 1990's and 2000's were based on inflated expectations and irresponsible risk assessments. Many of these municipalities are now currently being bailed out by the Federal Government, which is subsidizing their poor choices. No serious economist thinks that these pensions will ever be fully paid. And on Wall Street, the assumption is that these contractually guaranteed pensions will be reduced. They may be right, but what hubris! When bankers have contracts guaranteeing them a 7 or 8 figure bonus, the taxpayers should pay it, but when public employees who teach our children and protect us have contracts guaranteeing a comfortable retirement, we should tell them we are broke and can't honor those contracts? This is risible arrogance and self-centeredness. It is a total abandonment of common sense.
The point is, people are angry. They are angry partly because they are realizing their dreams for a comfortable life are collapsing around them. But also because they see that the dreams of many of the super wealthy (mostly in the financial industry) are being held together by taxpayer-funded bailouts. And they are angry because the super wealthy—not the 1% but the .1% who make on average $5.5 million every year or the .01% who make on average $24 million every year—are so wealthy that they seem to be divorced from the reality most Americans face.
It is true that not all wealthy Americans were bailed out. It is not an accident that the protesters aren't picketing at Apple or Microsoft and they are not picketing Alcoa or Johnson & Johnson. I am sure we can complain about the tax strategies, outsourcing, and off-shore accounts such companies use, but they are running businesses that have not failed. These companies produce products. Their executives live well, often very well, but they don't ask for bailouts when they lose. Similarly, hedge fund investors did not take bailouts in 2008. These managers should pay income taxes on their income rather than the much lower capital gains rates, and Occupy Wall Street should make this a core of its message. But most hedge fund managers have large parts of their personal fortune in their funds, giving them a huge incentive to manage risk well, and thus distinguishing them from bankers who typically risk only other people's money. It is a mistake to lump the wealthy into one boat, just as it is a mistake to personally target individuals simply because they are wealthy.
It is also true that many of the so-called 99% are guilty of irresponsibility. Many middle class people bought houses they couldn't afford, put two gas-guzzling SUVs in the driveways of their McMansions, and sent their kids to private colleges by borrowing upwards of $50,000/year. It is hard to have sympathy for these folks. That is why the student above has a point. To bail out all those who are suffering is clearly unfair to those who did not partake in the narcotic of easy credit. The student is right.
Finally, it is true that the problems we now face do not all stem from the failings of the 1% or the 99%. Middle-class jobs are threatened by globalization, which provides millions of educated workers willing to do the same jobs for significantly less money. Middle-class jobs are also threatened by automation and intelligent robots that can work faster, longer, and often better than humans can. The problems facing our nation's future are profound and persistent, and no amount of protest will make them go away.
But to ignore the justifiable anger at the hypocrisy and entitlement of many in the wealthiest classes is simply to ignore fundamental facts about what has happened in the last 4 years. We are in danger of losing our common sense, and if that goes, the country will be in trouble. For how can people live, sacrifice, and celebrate together if they do not share a common world?
As long as bankers and other representatives of the wealthiest classes continue to say that asking them to pay more in taxes is class warfare, the anger against them will only grow. This is the anger that fuels the Occupy Wall Street protesters. I have problems with their tactics and with the fuzziness of their message. I have questioned their thoughtfulness and worried about their scapegoating. But boy do I understand their anger.
-RB