This month marks the fifth anniversary of the collapse of Lehman Bros.
Which is a good time to reflect upon three pillars of the American economy we
thought we knew:
1) Banks keep our money safe and also make loans to help us buy stuff.
Is there anybody out there who still believes this? Of course not, and
here’s why. Imagine falling asleep in Bedford Falls and waking up in
Pottersville. The Bailey Savings and Loan is long gone. So is good old George
Bailey. You’re drowning. But George isn’t there to save you because Clarence
isn’t there to save him. You see, in this nightmare there is no Clarence.
Potter owns the bank, the town, and the country.
You missed a couple of mortgage payments. Potter foreclosed on your
house and kicked you and your family out. You rented a room in a broken down
building--which Potter also owns. To pay your rent you took a job at Potter’s
Potables--the local liquor store. Since Potter pays less than minimum wage and
no benefits, you had to go to Potter’s Payday Loans for an advance on your
salary in order to make ends meet. The interest rate was 5000%---which made
Potter rich enough to buy even more politicians who were only too happy to cut
Potter’s taxes and change all the laws in Potter’s favor. It’s snowing. You’re
on a bridge staring down into the icy black water. The only thing left of your
American Dream is that small life insurance policy clutched in your trembling
hand as Potter’s sarcastic voice echoes in your brain, “You’re worth more dead
than alive.” This is the country we have built for our children. It’s not a
wonderful life.
2) The stock market exists to help companies find capital.
Seriously? A guy wakes up one day and decides America needs widgets, and
he’s just the one to make them. He goes downtown and finds a bunch of folks
haggling in the square. He convinces some of them to give him money for his
widget business. In exchange, they get shares of stock in his new widget
company. Widget Guy uses the money to buy equipment and hire people. If he
makes a profit, so do his investors. If he doesn’t, they don’t. Whether or not
Widget Guy and his investors make money, lots of people get hired and paid in
the process. And lots of real stuff gets bought and sold. That’s the way the
market is supposed to work.
But Potter took over and screwed everything up. He went down to the
square and convinced those investors that they were chumps for buying shares in
Widget Guy’s company. After all, it takes time to build a successful business
and who wants to wait that long to make money? Potter’s got a better idea. If
investors like widgets so much, instead of giving money to Widget Guy, they
should give it to Potter. He’ll find other investors and they can all bet with
each other on the price of widgets. Potter’s the bookie. What fun. They can bet
on Widget Guy’s stock price going up or down without ever giving him any money
at all. And when they get bored with betting on widgets, Potter’s got a million
other things they can bet on. The price of cars in China, the temperature in
Sri Lanka, the rainfall in Iowa, or for that matter--anything else that moves.
Every day Potter comes up with more exotic bets to suck all their investment
capital out of the real economy.
How many bets is Potter booking while nobody’s looking? Let me put it
this way. The federal budget deficit this year is down by half from four years
ago. But it’s still humongous at three quarters of a trillion
dollars. If you add up all the federal budget deficits over the last 200 years
you get the national debt—which is about $16 trillion. At this very moment,
Potter is holding bets (he calls them derivatives) worth approximately $600
trillion. That’s 37 times the national debt—all tied up in betting slips.
And whether Potter’s clients win or lose their bets, Potter always wins because
he gets a fee on every bet. Meanwhile Widget Guy never sees a penny. Oh,
there’s one more reason why Potter always wins. If he guesses wrong, the rest
of us have to cover his losses.
3) Everybody should pay their fair share of taxes.
Congress doesn’t even pretend to believe this
anymore. Today, the official policy of the country is: tax wealth at a lower
rate than work. Potter makes $10 million a year and pays less than half
the tax rate of Widget Guy who earns $100 thousand a year. And that’s just the
tip of a very dirty iceberg. Potter doesn’t pay a penny more in Social Security
taxes than Widget Guy either--despite pocketing a salary that’s 100 times
higher. On Capitol Hill, Potter decides what’s fair. On Wall Street, Potter
decides what’s right. Widget Guy lives on Main Street.
In
Pottersville, Main Street doesn’t have a chance.
