Opinion

The Great Debate

The income mobility myth

By David Callahan
The opinions expressed are his own.

Top Republicans have a simple answer to surging public concern about America’s vast wealth divide: More income mobility. “We want success for everybody,” House Majority Leader Eric Cantor said last week, adding that Americans shouldn’t “excoriate some who have been successful.” This remedy for economic unfairness taps into the popular American belief that public policy should ensure equality of opportunity, not outcome.

Too bad it won’t work.

Changes in the economy mean that, no matter how hard people work or how much they invest in education, they may still find themselves barely treading water. Even before the financial crisis, there weren’t enough good jobs to go around – thanks to globalization, automation, declining unionization, and lax labor standards. The majority of new jobs created during the presidencies of Bill Clinton and George W. Bush were low-wage positions with no benefits. These trends – not, say, a lack of ambition – help explain why half of all American households bring in under $50,000 and have no assets.

“Success for everybody” is simply not possible against this backdrop of structural inequality. Ironically, conservatives like Cantor are placing ever more faith in the great American virtues of hard work and self-improvement even as these virtues deliver less and less mobility.

Once upon a time, for example, Americans with a strong work ethic but little education could move upward thanks to unionized manufacturing jobs. But as both manufacturing jobs and unions started to disappear in the 1970s, earnings of high school-only males fell off a cliff: declining by 15 between 1973 and 1989. Today, about a third of poor families with children include a parent who is working full-time.

Realizing that plain hard work doesn’t mean upward mobility anymore, Americans have been piling into college at record levels – only to find that a degree is no magic ticket to success, either. Pay for college educated males has largely stagnated over the past few decades while living costs have soared. For example, nearly all the modest income gains of middle income families between 1999 and 2009 were eaten up by rising healthcare costs. Increasingly, too, white collar jobs are disappearing in the same way that blue collar jobs did – being shipped overseas or eliminated by technology or reclassified as temporary with no benefits.

Occupy the mortgage lenders

By Simon Johnson
The opinions expressed are his own.

Participants in the Occupy Wall Street movement are right to argue that the big banks have never properly been investigated for the mortgage origination, aggregation, and securitization behavior that was central to the financial crisis – and to the loss of more than eight million jobs. But, thanks to the efforts of New York’s attorney general, Eric Schneiderman, and others, serious discussion has started in the United States about an out-of court mortgage settlement between state attorney generals and prominent financial-sector firms.

Talks among state officials, the Obama administration, and the banks are currently focused on reported abuses in servicing mortgages, foreclosing on homes, and evicting their residents. But leading banks are also accused of illegal behavior – inducing people to borrow, for example, by deceiving them about the interest rate that would actually be paid, while misrepresenting the resulting mortgage-backed securities to investors.

If these charges are true, the bank executives involved may fear that civil lawsuits would uncover evidence that could be used in criminal prosecutions. In that case, their interest would naturally lie in seeking – as they now are – to keep that evidence from ever seeing the inside of a courtroom.

from Katharine Herrup:

Are corporations really occupying #OccupyWallStreet?

There are two stories about the corporate hijacking of #OccupyWallStreet on Reuters.com. One piece talks about how U.S. ice cream maker Ben & Jerry is making a laughing stock of the protestors by issuing a statement in support of the protest:

The directors of the board of ice cream maker Ben & Jerry’s released a statement saying they were supporting the protest.

But this corporate alignment doesn’t seem to have had the desired effect. Instead of drumming up support for the protestors it has made them something of a laughing stock. Papers, blogs and TV reports are running competitions for the best flavour ice-cream Ben & Jerry’s could create to honour the protests (ocu-pie is gaining some traction). But all of this is distracting from promoting the protestors’ aims and message.

Three principles for a new Wall Street

By Don Tapscott
The view expressed here are his own.

Protesters set up the “Occupy Wall Street” base camp in New York a month ago because the location epitomizes the economic forces that control the U.S. and global economies. As one sign read: “This is not a recession. It’s a robbery.” To many it feels like just that. The financial services industry is in desperate need of reform. Many bankers have behaved as secretive corporate titans serving only their own interests, and insist the devastating consequences are not their fault. They are failing to fulfill their obligations to society—in some cases, even to shareholders–and a growing number of critics view the day-to-day behavior of the financial services industry as unacceptable. If the industry doesn’t initiate reform from within then it will eventually have more extreme reform imposed from outside.

In 2008, the routine gambles of Wall Street almost brought down global capitalism and yet, so far, nothing fundamentally has changed. Restoring long-term confidence in the financial services industry requires more than individual banks changing their behavior or even governments intervening with new rules. The industry needs a new modus operandi, where all of the key players (banks, insurers, investment brokers, rating agencies and regulators) adopt the three facets of collaboration: integrity, transparency, and embracing the commons.

Integrity. Trust is the expectation that the other party will act with integrity – be honest, considerate, and abide by its commitments. To re-establish trust, the financial services industry needs to have integrity as part of its DNA. But the cavalier manner in which many banking executives violated integrity was stunning. For example they sold sub-prime mortgages to people who could never make the payments; bundled them into securities and convinced rating agencies to classify them as AAA, and insurance companies to insure them.  They then sold these to unsuspecting investors. They violated all the values of Integrity. Everyone in the process suffered and the global economy was sent into a tailspin.

The politics of America’s wealth chasm

By David Callahan
The opinions expressed are his own.

Economic inequality – the meta concern of the Wall Street protesters – is not an issue that typically gets much traction in American politics. Anger at the Haves tends to surge when times are tough, only to melt away when former Have Nots are again flush enough to go back to the mall.

A year ago, with the economy improving, it seemed the U.S. was well along in this cycle. The wrath against Wall Street had died down, replaced by a more familiar conservative politics blaming “big government” for America’s ills.

Suddenly, though, the rich are once more under attack, with protesters even marching this week on the swanky Upper East Side digs of JP Morgan Chase chief Jamie Dimon. What happened?

from David Rohde:

Wall Street’s long occupation of the middle class

Last Friday morning, a 24-year-old New Jersey woman told me why she joined Occupy Wall Street. Around her, balding activists in their 50s tried to rekindle 1960s-era protests. Young Marxists flew red Che Guevara flags. The young woman, though, was different. 

She commuted to the protests, she said, while holding down two part-time jobs. She lived at home and helped her schoolteacher mother, who also worked two jobs, support her jobless, 60-year-old father. She asked to be identified only by her middle name – Susan – because she feared her bosses would fire her for attending protests. She didn’t talk of revolution. She talked of correction.

“Like any great nation and country, there are also hitches in the plan,” she told me. “And things that need to be changed.”

Bank CEOs and the infinite pile of cash

By Roger Martin
The views expressed are his own.

The three-week old, 60’s-style Occupy Wall Street protest raises once again the question that won’t go away: What on earth were those bankers doing in the period leading up to the 2008 financial meltdown? This street-level insurgency combines with last month’s smackdown-from-on-high administered by the U.S. Federal Housing Finance Authority’s (FHFA), which sued 17 leading global financial institutions for $196 billion, charging that they knowingly peddled shoddy mortgage-backed security products to unsuspecting customers. With the European financial system continuing to teeter on the brink due to the massive bank losses and bailouts, the U.S. economy stagnating and its equity markets close to free-fall, the answer of Chuck Prince, former Citigroup chair, that “we danced until the music stopped” has not mollified either Occupy Wall Street or the FHFA, or anybody else for that matter.

It is obvious that they did keep dancing.  But it leaves unanswered the question: Why did it make sense to them to keep dancing?  And also: When the music did finally stop, how did we manage to have asset-backed derivatives contracts outstanding with an estimated value of three times the size of global GDP?

The answer was that thanks to the structure of their compensation, major bank CEOs were obsessed with their stock price and trying to keep beating expectations until the music stopped.  And the asset-based derivatives market was their clever device for beating expectations for much longer than could have happened before – because it was the world’s first market of infinite size. And it worked for them.  When the music stopped and expectations came crashing down, they were by and large wildly rich.

Occupy Wall Street’s message: more than a sound bite

By David Callahan
The opinions expressed are his own.

Pop quiz: What’s so bad about the financialization of the U.S. economy over recent decades?

If you’re like most people who are uneasy with the outsized power of finance, chances are you can’t boil down your concerns to a pithy sound bite. So why is there such ridicule of the protesters “occupying” Wall Street for lacking a coherent message?

Three years after the 2008 financial crisis, it is still hard to neatly encapsulate the problem with letting bankers and traders dominate American economic life. Once Congress passed the Dodd-Frank reform law last year, most political leaders and commentators moved on to other issues, leaving behind an unfinished debate about Wall Street’s influence.

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