Third World America (18 page)

Early in 2010, he penned a lengthy essay in
Newsweek
called “Getting the Economy Back on Track,” in which he completely failed to explain or acknowledge—let alone apologize for—the key role he played in getting the economy off track in the first place.
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What grabbed my attention was not the 2,500-word piece, but the 28-word bio at the end of it: “Rubin is a former secretary of the Treasury (1995–99).
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He now serves as co-chairman of the Council on Foreign Relations and is a fellow of the Harvard Corporation.” Given that the piece is about the economic meltdown, it’s telling that the bio doesn’t include his nearly ten years at Citigroup—during the very time that ended with the bank having to be saved by the American taxpayers.
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But that’s how our system “works” these days: Someone like Rubin is able to wreak destruction, collect an ungodly profit, then go along his merry way, pontificating about how “markets have an inherent and inevitable tendency—probably rooted in human nature—to go to excess, both on the upside and the downside.”
¹¹⁰
This from the man who, as Bill Clinton’s Treasury secretary, was vociferous in opposing the regulation of derivatives—a key factor in the current economic crisis—and who lobbied the Treasury during the Bush years to prevent the downgrading of the credit rating of Enron—a debtor of Citigroup.
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The hidden costs of such crony capitalism are monumental for the middle class. Why would people strive to build
businesses—risking their money and their sweat equity—when they know there will always be someone on the other side of the table playing with a stacked deck?

So the deck is stacked. The fix is in. The cards are marked. And our economy is as rigged as a carnival ring-toss game.

But it’s even worse than that. Corporate America’s takeover of our democracy runs deeper than the simple quid pro quo of a donor swaying a politician. It has captured our leaders’ hearts and minds. It’s one thing for moneyed interests to be able to buy influence. It’s another for that industry’s agenda to become conventional wisdom across party lines.

“Politics is like sales,” write Simon Johnson and James Kwak in
13 Bankers
.
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“If you are trying to close a large deal with a major corporation, it helps to have friends on the inside, it helps to have buyers who see their fortunes aligned with yours, and it can even help to dangle the prospect of a high-paying job before the key decision-maker. But it is even better if the buyers really, independently want what you are selling. It is best of all if they believe that buying what you are selling is a symbol of their own judgment and sophistication—that buying your product marks them as part of the informed elite.”

That is what happened with the Vulcan mind meld between Wall Street and Washington, and it’s what laid the groundwork for the financial crisis—and the bailout with no strings attached that followed. Our leaders have completely bought what corporate America has been selling. It’s become
part of their DNA. This includes the key members of President Obama’s economic team. They are operating on the basis of an outdated cosmology that places banks at the center of the economic universe.

Talking about our financial crisis with them is like beaming back to the second century and discussing astronomy with Ptolemy. Just as Ptolemy was convinced we live in a geocentric universe—and made the math work to “prove” his flawed theories—Obama’s senior economic advisers are convinced we live in a Wall Street–centric universe and keep offering their versions of “epicycles” and “eccentric circles” to rationalize their approach to dealing with Wall Street.
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And because, like Ptolemy, they are really smart, they are really good at rationalizing.

If you believe the universe is revolving around the earth—when, in fact, it isn’t—all the good intentions in the world will be for naught. It’s no surprise that people such as Tim Geithner and Larry Summers believe in bank centrism—they’re both creatures of it. And in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail banks is the logical thing to do.

The longer this remains the dominant cosmology in the Obama administration—and the longer it takes to switch to a plan that reflects a cosmology in which the American people are the center of the universe and are deemed “too big to fail”—the greater the risk that the economic crisis will be more prolonged than necessary. And the greater the suffering. There is an enormous human cost to this dogma.

Writing about the “grand book” that is the universe, Galileo declared that it “cannot be understood unless one first learns
to comprehend the language and interpret the characters in which it is written … without these, one is wandering about in a dark labyrinth.”
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That’s where we find ourselves today, wandering about in a dark financial labyrinth—being led by good men blinded by an obsolete view of the world.

“The struggle of man against power is the struggle of memory against forgetting.”
¹¹⁶
So wrote Milan Kundera in
The Book of Laughter and Forgetting
. It is one of my favorite quotes and it popped into my head as I was thinking about how short our collective memory is when it comes to holding the powerful accountable.

Until the Securities and Exchange Commission sued Goldman Sachs for fraud in April of 2010, it was easy to forget that we have a regulatory agency designed to protect the public from the pillaging of corporate America.
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Six months earlier, the SEC had arranged a settlement with JPMorgan that showed how rigged the system is. The banking giant agreed to pay a $25 million penalty and cancel $647 million in fees owed by Alabama’s Jefferson County as the result of a complicated derivatives deal that blew up in the county’s face.
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As part of the settlement, JPMorgan neither admitted nor denied wrongdoing—despite overwhelming evidence that it had engaged in plenty of wrongdoing.
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This is what passes for justice these days. If you commit a petty crime and hammer out
a plea bargain, you’ll have to admit wrongdoing as part of the agreement. But put on a suit and commit a billion-dollar crime and you won’t even have to admit you did anything wrong—which makes it much more likely that you’ll do it again.

We saw the same dynamic played out in the saga surrounding the $3.6 billion in bonuses that was awarded to Merrill Lynch executives just before the failing firm was acquired by Bank of America (with a lot of help from American taxpayers, who handed BofA $45 billion).
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Bank of America executives failed to inform their shareholders that, as part of the acquisition, they were going to give billions to the executives who had been at the helm while Merrill lost $27 billion in 2008.
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Had the shareholders been told, the news would have put a major crimp in the shotgun marriage of the two firms.

Bank of America agreed to pay a $33 million fine to the SEC but—you guessed it—admit no wrongdoing.
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A heroic U.S. district judge, Jed Rakoff, refused to rubber-stamp the deal, which he called a breach of “justice and morality” that “suggests a rather cynical relationship between the parties.”
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The SEC and Bank of America came back with a $150 million settlement.
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The judge said he was forced by judicial restraint to accept the new deal, but did so reluctantly.
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“While better than nothing, this is half-baked justice at best,” Judge Rakoff said.

The total amount of fines levied by the SEC in 2008 was the lowest since the corporate scandals of 2002 led to stricter enforcement regulations.
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So while the financial system was on a fast track to collapse, the SEC was taking its hand off the brake. And even now the perpetrators of that near-collapse are avoiding accountability. When crimes are uncovered and the culprit is allowed to simply move on without even acknowledging
that a crime was committed, that’s a recipe for anarchy—not for a healthy democracy.

It’s really not that complicated: If you do the crime, you do the time. But the people who run the show like to make it seem like it is very complicated—all the better to obscure the simple moral principle of right and wrong. Why should it matter whether you commit your crimes in a boardroom or on the street? You should have to admit wrongdoing when you’re caught and pay a commensurate penalty. If that means jail for the street crime, it should mean jail for the boardroom crime.

Of course, it’s not just our too-big-to-fail banks that have been allowed to do wrong without having to admit any wrongdoing. The pharmaceutical, mining, oil, and health-care industries have been doing the “pay the fine but admit nothing” dance for years—chalking up the millions (and sometimes billions) in penalties as the cost of doing business.

But with corporate America earning major profits and middle-class America struggling to stay afloat, now is a very good time to revoke the “Get Out of Jail Free” card those at the helm of these companies have been given for far too long.

Three weeks after the Deepwater Horizon rig exploded in the Gulf of Mexico, BP finally released underwater video showing a massive column of oil gushing out of a broken pipe a mile below the surface.
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Watching the unrelenting geyser-like spew, it struck me as an inverse visual metaphor for the plight of America’s middle
class: While the thick black oil was being pushed inexorably upward, hour after hour and week after week, the quality of life for tens of millions of hardworking Americans is being pushed inexorably downward—month after month after month. And our leaders watch them both, either wringing their hands or waving them in anger and frustration.

When the oil spill first happened, it seemed troubling but nothing to be too concerned about. Within a week, Obama administration officials were describing it as “a very grave scenario” and “potentially … very catastrophic.”
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In other words, it was much worse than we thought it would be. Has there been a crisis in the last decade that turned out to be better than we thought it was going to be?

• We are still fighting two wars that were going to be cake-walks but have now lasted nine years and seven years—much worse than we thought it would be.
  
• Katrina looked like it could be bad but—even though there were plenty of people warning about a Category 5 storm breaching the levees—the devastation ultimately was much worse than we thought it would be.
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• Warnings were issued about the housing bubble that was fueled by the Wall Street casino. Even though we now know that people in the Fed were forecasting big trouble ahead as early as 2004, the warnings were ignored—and when the bubble burst in 2008, it was much worse than we thought it would be.
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• The foreclosure crisis hit hard in 2009. But the government promised to protect homeowners … so when the
  first quarter of 2010 brought the highest number of foreclosures since they began keeping records, it was clear the scope of the calamity was much worse than we thought it would be.
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• In October 2009, the unemployment rate hit 10.2 percent, a twenty-six-year high.
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  But the $787 billion stimulus package was going to bring that down. It has, but not by much. Turns out, the unemployment crisis is also much worse than we thought it would be.
  
• When BP first applied to operate the Deepwater Horizon rig, it submitted plans to the Minerals Management Service stating that “no significant adverse [environmental] impacts are expected” and predicting that a spill was an “unlikely event.”
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  Of course, as we’ve seen, the historic disaster is much worse than they thought it would be.
  

Perhaps we should start calling this the age of “Much Worse Than We Thought It Would Be.” Or, in honor of the standard excuse we hear in these situations, the “Who Could Have Known?” era.

See if this sounds familiar: An ambitious and risky undertaking is carried out with hubris and features the weeding-out of anyone who raises alarm bells, little to no transparency, an oversight system in which no central authority is accountable, and the deliberate manufacturing of ambiguity and complexity so that if—
when
—it all falls to pieces, the “Who Could Have Known?” defense can be trotted out.

Am I describing Iraq? The subprime mortgage market? The Enron-led financial scandals of the early 2000s? The BP
oil spill? The Upper Big Branch mine disaster? The Lehman Brothers and AIG–led financial meltdown of 2008?

The correct answer: All of the above.

When you look at the elements that were crucial to the creation of each of these debacles of the past decade, it’s amazing how much they all have in common. And not just in how they began but in how they ended: with those responsible being amazed at what happened, because … who could have known?

Well, I’m amazed at the amazement, because each of these disasters was entirely predictable. And, indeed, every one of them
was
predicted. But those who rang the alarm bells were aggressively ignored, and we let those responsible get away with the “Who Could Have Known?” excuse (“the struggle of memory against forgetting” continues).

Let’s start with Iraq, an unnecessary war that has cost America’s parents the lives of more than 4,300 sons and daughters, and American taxpayers three-quarters of a trillion dollars and counting (not to mention the future cost of $422 billion to $717 billion to care for American veterans through healthcare and disability coverage)—money desperately needed for some long-overdue nation rebuilding here at home.
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And for what? As the Center for American Progress’s “Iraq War Ledger” puts it: “there is simply no conceivable calculus by which Operation Iraqi Freedom can be judged to have been a successful or worthwhile policy.
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The war was intended to show the extent of America’s power. It succeeded only in showing its limits.”