- Chelsea Green - http://www.chelseagreen.com/content -

Wall Street Robber Baron Nets $2.4 Million an Hour While 28 Million Need Jobs

Posted By admin On February 4, 2011 @ 10:02 am In Politics & Social Justice | Comments Disabled

The following piece is by Les Leopold, author of The Looting of America [1]. It appeared originally on The Huffington Post.

January’s reported unemployment rate remains stubbornly high at 9.0 percent. The Bureau of Labor Statistics’ U6 jobless rate, which stands at 16.1 percent, is more accurate, since it counts “discouraged workers” who’ve given up looking for a job. Right now, more than 28 million Americans are without work or have been forced into part-time work. It will take more than 22 million new jobs to bring the official unemployment rate down to 5 percent (our current definition of full-employment).

Please don’t wait around for John Paulson [2] to create those jobs. He might have raked in a record $5 billion in 2010, but his job isn’t about employing people to make things or provide services. He’s a hedge fund manager. Paulson (a spiritual but not a blood relation of Henry, Bush’s Treasury Secretary) leads the list of America’s top “earners” for the year. If you divide his 2010 take by the standard work year of 2,080 hours, you’ll find that this ubermensch had a wage of $2.4 million an HOUR.

The robber barons of old earned their moniker by commandeering railroad, meatpacking, oil and steel monopolies. Paulson’s was a different kind of theft — but theft it was. In fact, he barely evaded prison for his role in Goldman Sachs’ Abacus deal [3], which suckered investors into buying securities that were explicitly designed to fail. Paulson colluded with Goldman Sachs to build a synthetic collateralized debt obligation (CDO) that bet on the very worst kinds of mortgage securities. Goldman got the fees and Paulson got a billion dollars for betting against those securities. The investors, trusting GS’s sales pitch, had no idea that Paulson was allowed to pick the most toxic securities to mix into the stew. As Paddy Hirsch of American Public Media’s “Marketplace” points out in this entertaining video [4], it’s like a gambler and a bookie colluding to field a horse they’ve groomed to lose. Eventually, GS was flushed out into the open by an angry mob of CDO investors and forced to cough up a record $550 million in penalties for “not disclosing the role of Paulson and Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to the CDO investors.”

Meanwhile, Paulson got off scot free. Not only was he never charged, he actually kept his winnings from betting that Abacus would fail — which it did spectacularly. More miraculously still, the financial media now hail him as the Harvard-educated genius who so wisely bet against the housing bubble — supposedly a cool head bucking against an irrational stampeding herd. But if Paulson was so insightful about the housing bubble, why did a near criminal conspiracy with Goldman Sachs to pocket a cool billion? Don’t ask CNBC. Ask Tony Soprano.

Given the enormous percentage of the nation’s wealth that is flowing into a high-stakes gambling casino, it hardly matters if Paulson bet on black or red, or if he rigged the roulette wheel. (Apparently, his 2010 riches mostly came from doubling down on gold.) What matters is that he’s part of the grand casino that will crash our economy again. And in the meantime, he’s enjoying and manipulating the wealth of our nation while creating nothing at all. Almost makes you misty-eyed for the days of Rockefeller, Ford and Carnegie. (Please see The Looting of America [5] for the sad tale of how we got here.)

Is Paulson really killing Jobs?
Remember all the urgency in Washington to save Wall Street from collapse? It sure isn’t there for the jobs crisis. Instead, all we get is a yawn and a mouthful of platitudes about the blind forces of GDP that must run their course — that can’t be hurried by human or even divine intervention. So patience, please, the recovery is in process. The jobs will come. Besides, there’s no public money to spur job growth now that we emptied Fort Knox to rescue Wall Street.

But… what about Paulson’s billions?

Yes, there is a connection between the hedge fund manager’s magnificent 2010 haul and our 29 million unemployed. But it’s not just Paulson. It’s the entire class of financial billionaires and their junior wannabes (making mere tens of millions) who are responsible for the jobs crisis — every single bit of it.

Just follow the money. In the years before the crash, hedge funds and giant banks gambled, big-time. As the bubble inflated, they took in billions by creating, buying and selling phony securities that turned out to be toxic. Some, like Paulson, made even more money by rigging bets against these securities. Then suddenly, in 2008, the entire house of cards we call high finance collapsed, killing upwards of $14 trillion in wealth and tens of millions of jobs. Desperate to prevent even more damage, we taxpayers bailed the bankers out. And now, a couple of years later, the bankers are making record profits again while millions of regular Americans are still searching for jobs that Wall Street destroyed.

The financiers gambled, won big, and when they lost, we made them all winners again. The money that is now whirling through their precarious casino is being siphoned away from the real economy — where it could be used to create jobs — where it could actually land in workers’ pockets.

How are we ever going to reclaim that money? We can start by abandoning the debilitating myths that prevent us from seeing that the money really is ours.

Do billionaire financiers help our economy?
Our economic experts don’t really know how financial elites haul in so much money. To cover up their ignorance, they wax euphoric about the wonders of “liquidity” that the hedge funds and big banks bring to markets. Odes are recited to the mysterious ways financial elites “deepen” markets and make them more efficient — how they even out prices. Supposedly, that means we pay less for securities and credit, and we can always trade our bonds and stocks without worrying about finding buyers or sellers (if that’s something you stay up late worrying about).

But here’s the test. If their contributions were so important, what would happen to our economy if hedge funds and the proprietary trading desks at too-big-to-fail banks disappeared entirely? Absolutely nothing. We wouldn’t notice any more than if a few high rollers were banned from the Vegas strip.

In fact it would be wonderful if hedge funds and proprietary desks at large banks disappeared entirely — since they’re robbing us blind. They exist only because avaricious policymakers decided around 1980 not to put them out of business. Instead of clamping down on speculation, we deregulated finance, and gave speculators incredibly favorable tax treatment. We also reduced taxes on the super-rich in general to make sure money flowed into the casinos. We called all this financial innovation, and it’s gotten us where we are today.

But it wasn’t always this way. From the New Deal to the late 1970s, government policy squashed the life out of financial speculation — because everyone knew it caused the Great Depression. We taxed the hell out of the super-rich for the same reason: We didn’t want to give them surplus capital they could play dangerous games with — like the toys we call hedge funds. And what do you know? We didn’t have a financial crash during that entire era — even globally, except in Brazil in 1964. And during the same period we created the largest, most prosperous middle class in history.

Things changed after we deregulated Wall Street. The world has suffered about 180 financial crises since 1980, including the big one that’s still crippling us. And the greatest middle class in history? It’s collapsing.

Speculation run wild torpedoed our economy and it still isn’t adding jobs to our economy. Sooner or later we will have to make a stark choice: Either we rein in speculation and invest in real goods and services ( like green jobs to save energy and the environment), or we learn to live with permanent high levels of unemployment and debt.

Do financial industry elites pay their fair share?
Were it not for the bailouts, Paulson and company would be on life-support. All their clever bets would have come to naught had the big banks and investment houses gone down. Mr. Paulson wouldn’t have been able to collect on his short selling if his counterparties all had gone under. His buddies in crime at Goldman Sachs were only days away from destruction when they were rescued by their Goldman alumni in government. We saved Paulson’s butt. In fact we saved all their butts. That’s why Paulson’s “earnings” belong to the taxpayer.

But — Paulson walks away with the money…and then doesn’t even pay his share of taxes on it! You see, his hedge fund take home isn’t even taxed as income. It’s taxed as “carried interest,” at a rate of 15 percent — assuming it’s taxed at all. If Paulson’s income was considered income by the federal government, he’d be paying the top tax rate of 35 percent. Paulson should be paying $1.75 billion in federal income taxes. Instead he’s paying at best $.75 billion. That extra billion he’s not paying? It’s enough to cover the wages and benefits for over 33,000 entry level teachers. But, sorry teachers, kids, and parents — we just don’t have the tax revenue to support those educators — we’ll have to lay them off.

Time is running out.
We watch the Egyptians out in the street, determined to bring down a corrupt government that has impoverished them. We’re still on the couch, but we’re getting a little antsy. We don’t really want to face up to this gargantuan Wall Street ripoff. It makes us squirmy to think about how the bankers are getting even richer with our money while we’re told to tighten our belts and get used to cuts in education, Social Security and health care.

Maybe to keep our sanity we’ll just have to make peace with the idea that Wall Street can never be controlled, that our political system has been bought, and that we’re in for generations of austerity. If so, people will start plugging their ears when they hear from crazies like me.

But before you turn me off, let me lay out this simple program one more time. It’s a big first step in getting control of Wall Street, our politicians, and our country. We squeeze Wall Street just like we did after the Depression. We suck money out of the financial sector, especially from financial billionaires, and use it to rebuild our economy. Conceptually, it’s not that hard:

1. End the carried interest loophole for hedge funds.
2. Institute a small tax on all financial transactions.
3. Pass a 50 percent windfall profits tax on all financial “earnings” until unemployment returns to 5 percent.


That alone will tame the deficit, and give us the money we need to create good green jobs and get the real economy moving. Eventually we’ll look back at this period as a time when we went collectively insane by believing that there was nothing we could do to keep financial markets from wrecking our lives.

But it all starts in our minds. Do we act? Or keep sitting on the couch?

Read the original article at The Huffington Post [6].

Les Leopold’s The Looting of America [1] is available now.


Article printed from Chelsea Green: http://www.chelseagreen.com/content

URL to article: http://www.chelseagreen.com/content/wall-street-robber-baron-nets-24-million-an-hour-while-28-million-need-jobs/

URLs in this post:

[1] The Looting of America: http://www.chelseagreen.com/bookstore/item/the_looting_of_america:paperback

[2] John Paulson: http://www.omaha.com/article/20110203/MONEY/702039851/0

[3] role in Goldman Sachs’ Abacus deal: http://realestate.aol.com/blog/2010/04/23/john-paulson-goldman-scandals-hero-or-villain/

[4] entertaining video : http://marketplace.publicradio.org/display/web/2010/04/16/whiteboard-sec-goes-after-goldman/

[5] The Looting of America: http://www.amazon.com/Looting-America-Destroyed-Pensions-Prosperity/dp/1603582053%3FSubscriptionId%3D1QZMGW0RRJC2PX87HDR2%26tag%3Dsalranexp-20%26linkCode%3Dxm2%26camp%3D2025%26creative%3D165953%26creativeASIN%3D1603582053

[6] The Huffington Post: http://www.huffingtonpost.com/les-leopold/wall-street-robber-baron_b_818558.html

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