October 20, 2011

Occupy Wall Street

Most people think the phrase, “It takes money to make money” to be a truism, and in doing so they make apparent their belief that the economic rules regulating our world are rigged.  Statistics seem to prove this view out.  Over the last decade, the wealthy have gotten richer, while the middle-class have lost net worth through diminished home equity and 401K balances.  While many Tea Party members believe this to be unfair, they think our government is part of the problem, and they're so steeped in cynicism that many aim for the dismantling of our government, despite its duty to protect and defend. They cheer when Grover Nordquist says we must drown the government in a bathtub and they fight against nearly all regulation, believing that government is best when it stays out of the way.

Now the same people are criticizing the Occupy Wall Street movement, which protests the economic reality that says the wealthy need not shoulder a commensurate obligation to maintain the nation's well-being.  Why conservatives choose to protect Wall Street interests can only be explained by their need for the campaign contributions big business lavishes on its cronies.  But here's their dilemma: They must either 1) acknowledge that there's something wrong about bankers getting bailed out while regular people get foreclosed upon and do something about it, or 2) argue that the perception is incorrect.  The former will require regulation from a government that they demand to be less intrusive, and the latter can't be advisable, since the belief that our system is corrupt is central to the Tea Party's suspicious worldview.  

I was once a Wall Street banker--in fact, I was one of those guys who used to buy mortgages and turn them into various derivative instruments--but I applaud Occupy's efforts.  We, as a nation, must force corporate leaders to act responsibly and penalize them for reckless behavior that jeopardizes the livelihoods of employees and society in general.  That said, I believe Occupy's endgame is misplaced.  To say the bailout of the nation's largest banks was wrong (and that we should never do it again) is to say we must accept the consequence of a drastic loss of market liquidity and a world-wide economic collapse.  Sure, we could have punished bank CEOs by letting their institutions fail, but would that have been the right course of action for the tellers and other employees who would have lost their jobs, or the borrowers who needed loans?  Would that have been the best thing for an already weak economy that required improved market confidence to operate properly?  

Second, I don't see how charging bank CEOs with crimes will lead to anything good.  I suspect any such effort will cost a lot of money and only demonstrate how poorly judgment had been exercised.  And as far as I know there are no laws prohibiting stupidity.  In a way, shareholders and boards of directors share much of the blame.  They approved our current system whereby a CEO is paid handsomely for taking idiotic risks that happen to work out but won't claw back compensation for decisions that backfire.  In a way, the real problem we face is accounting related.  We need to ensure that when a CEO is paid millions of dollars, the company is clean of hidden liabilities that can come back to haunt it.  In other words, CEOs should only receive significant performance bonuses after the results of their gambling are fully manifest and liabilities associated with risk taking are eliminated.  It would also help if, as is the case for many European companies, boards of directors included employee representatives.  These actions would result in more responsible behavior.  
If CEOs want to take huge risks that have the potential of destroying capital, let's tell them to use their own money.

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