Perhaps no industry in our lifetime has disintegrated as fast as American banking. In the last year, we have seen that playing with money in a virtual world of finance has real, tangible results. The consequences in housing and other sectors continue to unfold. And now, the jefes of banking are taking it out on their lower-level employees.
The number of financial jobs in the East Bay has dropped by 3,500 in the past year. Wells Fargo, which in April recorded a record first-quarter profit, just announced the layoffs of about 150 in San Leandro and a cut in pension benefits for the employees that remain. Of course, many honest people who worked in the mortgage industry are suffering, too.
Surprisingly, in his recent book A Failure of Capitalism: The Crisis of '08 and the Descent into Depression, one of the leading lights of conservative business ideology, Judge Richard A. Posner of the Seventh Circuit Court of Appeals, indicts the system. This free-marketer now believes in — horrors — financial regulation. "We are learning," Posner writes, "that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails." Milton Friedman, who is probably hanging out in the Buddhist realm of the "hungry ghosts," must be livid.
Posner absolves the individuals involved in the virtual banking collapse. "I do not think they can be blamed for it — implying moral censure — any more than one can blame a lion for eating a zebra," he states. Economist John Kenneth Galbraith once argued the opposite, maintaining that the financiers are motivated by personal selfishness. "A person's highest duty, it holds, is to his own income. This attitude is a powerful attack on the least fortunate of our citizens." I think that both are right; there is systemic and personal greed at work.
The dialectic of the personal and the systemic can be seen in the current Chrysler bankruptcy. A number of Posner's lions, led by a 39-year-old hedge-fund manager, George Schultze, thought they could make quick money by speculating on Chrysler's debt. Using other people's money, Schultze and his fellow "vulture" investors tried to extract money from Chrysler by buying impaired company bonds, thinking they could flip them for a king's ransom. Naming themselves the "Committee of Chrysler Non-Tarp Lenders," they hired lawyers to represent them in bankruptcy court but cowardly refused to divulge their identities. Their move was so bold, however, that not even the bankruptcy judge could go for it. Appropriately, they then got named, shamed, and blamed.
Due to the multitude of financial claims from many sources including retired autoworkers and local dealers, it soon became obvious that Schultze and his committee had miscalculated. The lions were outraged and started roaring. "Coincidentally," at the same time, an unsourced article with no byline appeared in the Wall Street Journal claiming that in the future bankers were going to be unwilling to loan any money to unionized companies or companies who had any commitments to retirees. The obvious message was that zebras had better keep their mouths shut or the lions would pounce. However, when his committee crumbled, Schultze had to come clean. In an article on Bloomberg.com, he openly made his greedy claims, blaming the retired assembly-line workers for his travails.
I am continually startled to hear people from an industry that collapsed so spectacularly through its own avarice blame everyone around them. Given the billions in bailout money to the financial industry and the pain and misery that is cascading throughout society, you would think that these guys would have some shame. But this is not the case. A couple months ago, the head of one of the largest financial entities, the Carlyle Group, tried to put some responsibility on all of us for the financial meltdown, exclaiming that "there are six billion people on the face of the earth, and probably about five billion participated in what went on." Huh?!
The maneuvering in the current Chrysler bankruptcy shows that the financial class still thinks regular Americans are their zebras. To blame the assembly-line workers at Chrysler for the ills of their company is outrageous. And to denigrate health care for these retirees is inhuman. For decades, Chrysler workers literally fought to force the company to pay them wages and benefits that would bring them into the middle class. They succeeded. As health-care costs began to rise, the workers, through their union, traded wage increases and other benefits for a promise that the company would pay health costs for them when they retired.
Isn't keeping one's promise a part of American values? But each time Chrysler was sold, the financiers who took money out of the company left inadequate reserves to fulfill the promise. It appears that, for a variety of mostly political reasons, the retirees may be able to keep some of these promises, but only a fraction. And East Bay Chrysler dealers in Oakland and Livermore will be completely forced out of business.
Activists are starting to put the heat on bankers, as they should. In Chicago recently, two hundred mostly Hispanic workers at the Republic window factory occupied their plant and put the heat squarely on Bank of America when the company closed due to the bank restricting credit. The bank was unable to hide behind company management and a campaign of political pressure forced the bankers to back up. It now appears that the plant is going to reopen as a green window factory. A similar struggle is underway at Hart Schaffner Marx, the preferred suit provider of President Obama. And in spite of the support that California's big public pension funds still give to Schulzte's industry, a number of pension and health and welfare funds are starting to take on the raw greed of the financiers, arguing that a sustainable long-term investment strategy must be developed that does not rely on financial exotica.
Like Posner says, beasts cannot be housebroken. I guess lions should never be let out of their cages.
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