Who Stole the American Dream? (65 page)
Read Who Stole the American Dream? Online
Authors: Hedrick Smith
THE WASHINGTON-WALL STREET SYMBIOSIS
1
“I sincerely believe”
Thomas Jefferson to John Taylor, May 28, 1816, in
The Writings of Thomas Jefferson
, vol. 6 (Washington, DC: Taylor & Maury, 1854), 604–8.
2
“In a political system”
Robert A. Dahl,
Who Governs? Democracy and Power in an American City
(New Haven: Yale University Press, 1961), 1.
3
“The finance industry”
Simon Johnson, “The Quiet Coup,”
The Atlantic
, May 2009,
http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364
.
4
What Woodrow Wilson once called
Woodrow Wilson, “Money Monopoly Is the Most Menacing,” speech, Harrisburg, Pennsylvania, reprinted in Philadelphia
North American
, June 6, 1911, cited in John Milton Cooper, Jr.,
Reconsidering Woodrow Wilson: Progressivism, Internationalism, War, and Peace
(Baltimore: Johns Hopkins University Press, 2008), 68.
5
The scale of its financial boom
U.S. Bureau of Economic Analysis, National Income and Product Accounts, figure 3–1, “Real Corporate Profits, Financial vs. Nonfinancial Sectors,” shows financial sector profits growing 800 percent from 1980 to 2005, while nonfinancial sector profits grew by 250 percent. See Simon Johnson and James Kwak,
13 Bankers: The Wall Street Takeover and the Financial Meltdown
(New York: Pantheon Books, 2010), 59–61; and John Bellamy Foster and Hannah Holleman, “The Financial Power Elite,”
Monthly Review
62, no. 1 (May 2010).
6
It overtook manufacturing
Johnson and Kwak,
13 Bankers
, 59; Kevin Phillips,
Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
(New York: Penguin Group, 2009), xiii, xv, 31. The financial sector jumped from 11–12 percent of U.S. GDP in the 1980s to 20–21 percent by the mid-2000s. See U.S. Bureau of Economic Analysis, “Gross Domestic Product by Industry,” table B-12, November 11, 2004.
7
Its profits soared
Johnson and Kwak,
13 Bankers
, 60–61.
8
They have lobbied successfully
Multiple financial analysts have developed these themes. See, for example, Phillips,
Bad Money
, xii–xvii; xxxii-xxxix; Johnson and Kwak,
13 Bankers, 1
–10, 75–88, 148–50.
9
Debt that dwarfed
Johnson and Kwak,
13 Bankers
, 59–60.
10
Financial sector poured roughly $318 million
Center for Responsive Politics, “Long-Term Contribution Trends,” based on Federal Election Commission data, March 27, 2011,
http://www.opensecrets.org
; “Lobbying: Finance, Insurance & Real Estate, Sector Profiles 2009 & 2010,” accessed March 8, 2012,
http://www.opensecrets.org/lobby/indus.php?id=F&year=2010
.
11
The line between government and banking
Julie Creswell and Ben
White, “The Guys from ‘Government Sachs,’ ”
The New York Times
, October 19, 2008.
12
Former New York Fed president
Jo Becker and Gretchen Morgenson, “Geithner, Member and Overseer of Finance Club,”
The New York Times
, April 27, 2009.
13
1,447 former government officials as lobbyists
Center for Responsible Politics and Public Citizen, report,
The Washington Post
, June 3, 2010.
14
Finance had a lobbying team
Kevin O’Connor, “Big Bank Takeover: How Too-Big-To-Fail’s Army of Lobbyists Has Captured Washington,” Institute for America’s Future, May 10, 2010.
http://www.ourfuture.org/files/documents/big-bank-takeover-final.pdf
. “For Lobbyists, Banks Tap Washington Pipeline, Report Finds,”
The Washington Post
, May 11, 2010. Center for Responsive Politics, “Lobbying: Finance, Insurance & Real Estate, Sector Profiles 2009 & 2010”
http://www.opensecrets.org/lobby/indus.php?id=F&year=2010
. DealBook, “Minting Bank Lobbyists on Capitol Hill,”
The New York Times
, April 13, 2010; Erika Lovley, “Washington Draws Ex-Lawmakers,” Politico, June 3, 2010.
15
“Effectively captured our government”
Johnson, “Quiet Coup.”
16
A matter not just of people, but of ideology
Ibid.
17
“Financial weapons of mass destruction”
Warren Buffett, “Chairman’s Letter,” Berkshire Hathaway annual report, 2002,
http://www.berkshirehathaway.com
.
18
“Should serve as a wakeup call”
Brooksley Born, testimony, House Committee on Banking and Financial Services, October 1, 1998,
http://www.cftc.gov
.
19
Greenspan, Rubin, and Summers
Brady Dennis and Robert O’Harrow, Jr., “A Crack in the System,”
The Washington Post
, December 30, 2008; Manuel Roig-Franzia, “Credit Crisis Cassandra,”
The Washington Post
, May 26, 2009.
20
“Greenspan was always against Glass-Steagall”
John Reed, interview, December 18, 2002.
21
Federal Reserve Board … permitted an escalating expansion
Nathaniel C. Nash, “Banks Ask Fed for Power to Underwrite Securities,”
The New York Times
, October 26, 1988; and Federal Reserve press release announcing proposed revision of regulation, raising to 25 percent from 10 percent the percentage of total revenues that commercial banks may derive from underwriting and securities dealings, December 20, 1996, effective March 6, 1997.
22
Weill knew that his dream merger
Reed, interview, December 18, 2002; Carol Loomis and James Aley, “ ‘One Helluva Candy Store!’ That’s What Sandy Weill Called the Megameld of his Travelers Group and John Reed’s Citicorp,”
Fortune
, May 11, 1998.
23
Come back to haunt the government
Jeffrey E. Garten, “Mega-Mergers, Mega-Influence,”
The New York Times
, October 26, 1999.
24
The country’s largest corporate welfare
“Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” Bloomberg, November 28, 2011,
http://www.bloomberg.com
.
25
All that cheap money
“In Obama’s Tenure, a Resurgent Wall Street,”
The Washington Post
, November 7, 2011.
26
A group of Democratic senators
“Senate Rejects Bid to Shrink Biggest U.S. Banks,”
The New York Times
, May 7, 2010.
27
When reformers wanted to revive
Michael Hirsh, “Bonfire of the Loopholes,”
Newsweek
, May 21, 2010.
28
John Reed, who apologized
Bob Ivry, “Reed Says ‘I’m Sorry’ for Role in Creating Citigroup,” Bloomberg, November 6, 2009.
29
“There’s an attempt to kill this”
“Resistance Bogs Down Financial Overhaul,”
The New York Times
, June 7, 2011.
30
Volcker later voiced his dismay
Paul Volcker, lecture, “Three Years Later: Unfinished Business in Financial Reform,” September 23, 2011,
graphics8.nytimes.com/packages/pdf/business/23gret.pdf
; see also Gretchen Morgenson, “How Mr. Volcker Would Fix It,”
The New York Times
, Sunday Business, October 23, 2011; and Zachary A. Goldfarb, “In Obama’s Tenure, a Resurgent Wall Street,”
The Washington Post
, November 7, 2011.
31
The law’s penalties and incentives
Paul Krugman, “Making Financial Reform Fool-Resistant,”
The New York Times
, April 15, 2010; Krugman, “Bubbles and the Banks,”
The New York Times
, January 10, 2010.
32
The reform was so weak
Jeffrey Lacker, “The Regulatory Response to the Financial Crisis: An Early Assessment,” May 26, 2010,
http://www.richmondfed.org/press_room/speeches/president_jeff_lacker/2010/lacker_speech_2000526.cfm
.
33
“Such is the lobbying power”
Liam Halligan, “Obama Signs a Bill That Lets Banks Have US over Barrel Once More,”
The Telegraph
(London), July 26, 2010,
http://www.telegraph.co.uk
.
34
“The government is pretty much run”
Center for Political Studies, University of Michigan, cited in William Greider,
Who Will Tell the People: The Betrayal of American Democracy
(New York: Simon & Schuster, 1992), 23; “Poll Finds Edge for Obama over GOP among the Public,”
The New York
Times/CBS News Poll, February 12, 2010. See poll data, 15, question 30,
http://s3.amazonaws.com/nytdocs/docs/192/192.pdf
.
35
Poll after poll has recorded
The September 21, 2008, Zogby poll found 82 percent thought that political parties, presidential candidates, and candidates for the U.S. Congress should be banned from receiving financial contributions from lobbyists or other representatives from those industries that are vital to the financial and national security of the country (Zogby, “Voters Not Sold on Government Bailout,”
http://www.zogby.com/news/ReadNews.cfm?ID=1555
). The January 2, 2007, poll from Roper recorded 81 percent saying Congress should move to enact “new regulations to reduce the power and influence of lobbyists in Washington” (The
Wall Street Journal
, January 3, 2007). The January 11, 2006, Pew poll found that 81 percent thought it was common for lobbyists to bribe members of Congress (PewCenter for the Press, “Americans Taking Abramoff, Alito and Domestic Spying in Stride,”
http://people-press.org/reports/display.php3?ReportID=267
).
36
“Institutionally trained to be passive”
Greider,
Who Will Tell the People
, 20.
37
“The available evidence”
Bartels,
Unequal Democracy
, 287.
1
As a lead mechanic
Pat O’Neill, interview, December 21, 2010.
2
“Of course, workin’ there”
Excerpt of interview of Pat O’Neill for the
Frontline
program “Can You Afford to Retire?,” March 13, 2006,
http://www.pbs.org/frontline
.
1
“The essence”
Excerpt of interview of Jamie Sprayregen for the
Frontline
program “Can You Afford to Retire?,” February 17, 2006,
http://www.pbs.org/frontline
.
2
“Bankruptcy’s terrible”
Excerpt of interview of Greg Davidowitch for the
Frontline
program “Can You Afford to Retire?,”
http://www.pbs.org/frontline
.
3
“It was an exciting time”
Pat O’Neill, interview, December 21, 2010.
4
Employers were operating 114,000
Pension Benefit Guaranty Corporation databook, accessed April 4, 2012. Table S-31 shows 112,000 single employer–defined benefit (lifetime pension) plans in 1985, plus 2,000 multiemployer plans. Peak coverage at 35 percent of active workforce was achieved in 1980 (table S-33), but peak participation of 34.5 million employees was in 2004 (table S-31) because this included retirees receiving benefits as well as active workers. See
http://www.pbgc.gov/res/data-books.html
.
5
Pat O’Neill, who ended up making
Pat O’Neill, interview, July 13, 2010.
6
Management struck a grand bargain
Adam Bryant, “July 10–16: Lean, Hungry Skies; United’s Employees, After 7-Year Fight, Buy Their Own Airline,”
The New York Times
, July 14, 1994.
7
United had a strong spurt
Roger Lowenstein, “Into Thin Air,”
The New York Times Magazine
, February 17, 2002.
8
Those were phantom gains
Ibid.
9
Union leaders said they had heard
Davidowitch, interview, “Can You Afford to Retire?”
10
United filed for bankruptcy
Edward Wong, “Airline Shock Waves: The Overview; Bankruptcy Case Is Filed by United,”
The New York Times
, December 10, 2002.
11
“The stock went zippo”
Pat O’Neill, interview excerpt from
Frontline
, “Can You Afford to Retire?”
12
Finally, his pension was cut
O’Neill, interview, July 13, 2010.
13
Probably one million workers and retirees
Pension Benefit Guaranty Corporation databook, table S-5, reports that 1,897,253 employees and retirees were affected by companies’ terminating their pension plans between 1975 and 2010. The ten largest pension plans with 543,825 participants were closed down through bankruptcy, and PBGC officials reported that was also true of 85 percent of 102 of the largest plans, with more than 1 million participants. PBGC officials say that is a typical pattern. If so, roughly 1.6 million participants would have had their benefits diminished by corporate bankruptcies or by companies on the verge of bankruptcy. Marc Hopkins and Jeff Speicher, PBGC press officers, emails and briefings, April 10 and 13, 2012; PBGC databook, 2010,
http://www.pbgc.gov/res/data-books.html
.
14
In one year alone
PBGC background briefing, December 8, 2010.
15
Overall, the percentage
U.S. Bureau of Labor Statistics. “National Compensation Survey: Employee Benefits in the United States, March 2011,” accessed January 31, 2012,
http://bls.gov/ncs/ebs/benefits/2011/ownership/private/table01a.htm
; Hacker,
Great Risk Shift
, 14.
16
Bankruptcy became the typical route
Since 2000, there have been waves of corporate bankruptcies in the airline, steel, automotive, energy, and financial industries. PBGC background briefing, press spokesman, December 8, 2010; PBGC databook, table S-5, reported 4,140 corporate pension plans terminated and more than 90 percent of the time, PBGC officials said, bankruptcy was the vehicle for companies’ dumping their pension plans. Speicher, email, April 14, 2010.
17
“The efficient working of American capitalism”
Jamie Sprayregen, interview excerpt, from
Frontline
, “Can You Afford to Retire?”
18
“Bankruptcy,”
retorted Elizabeth Warren Excerpt of interview of Elizabeth Warren for the
Frontline
program “Can You Afford to Retire?,” February 6, 2006,
http://www.pbs.org/frontline
.
19
“It’s an absolutely horrific experience”
Greg Davidowitch, interview excerpt from
Frontline
, “Can You Afford to Retire?”
20
“It says right here”
Excerpt of interview of Hugh Ray for the
Frontline
program “Can You Afford to Retire?,” February 28, 2006,
http://www.pbs.org/frontline
.
21
“Certain players have been made irrelevant”
Ibid.
22
“That’s the norm”
Ibid.
23
CEO Glenn Tilton
Wong, “Airline Shock Waves.”
24
“No way to exit”
Sprayregen, interview, “Can You Afford to Retire?”
25
United’s pension funds were … in the red
Pension Benefit Guaranty Corporation background briefing, December 8, 2010.
26
Corporate pensions were underfunded
Excerpt of interview of Bradley Belt for the
Frontline
program “Can You Afford to Retire?,” February 10, 2006.
27
“I wouldn’t call it cheap”
Jamie Sprayregen, interview excerpt from
Frontline
program “Can You Afford to Retire?”
28
Tilton preserved his own $4.5 million
retirement benefit Glenn Tilton, testimony responding to Sen. Ron Wyden, Senate Finance Committee
hearing, June 7, 2005.
http://finance.senate.gov/hearings/hearing/download/?id=d028276c-611f-447e-a266-f3b1cd6a62c6
.
29
“You are juggling all the time”
Robin Gilinger, interview, August 5, 2010.
30
By Gilinger’s calculations … United’s bankruptcy
Gilinger, interview, August 5, 2010.
31
The uncertainty
Excerpt of interview of Robin Gilinger for the
Frontline
program “Can You Afford to Retire?,” March 15, 2006,
http://www.pbs.org/frontline
.
32
“I feel very uneasy”
Gilinger, interview, August 5, 2010.
33
“You’d do six hundred miles a day”
O’Neill, interview, July 20, 2010.
34
“Twenty-two years on [the] graveyard shift”
Ibid.