we’d meant to start this column with a few choice expletives about Goldman Sachs and its gall in setting aside nearly $6.9 billion for year-end bonuses even after getting a $10 billion bailout check from the federal government. But someone at Goldman must have finally stuck his finger in the wind, because just before we went to press, the firm announced that its top seven executives would have to settle for their base salaries. (Goldman’s other 25,000 employees are still slated to receive their taxpayer-subsidized reward for a job well done.) Don’t fret for ceo Lloyd Blankfein, though. In 2007, the company paid him $68.5 million, a figure that must make Treasury Secretary Henry Paulson, who averaged a mere $11 million a year during his eight-year stint at Goldman’s helm, a little jealous.
And then there’s the tale of Mack Whittle, ceo of the South Financial Group, who last October suddenly moved up his “retirement date” and grabbed his $18 million golden parachute just days before his bank took nearly $350 million in taxpayers’ money. Nice timing. Had he waited until the government check hit his books, federal law would have prevented him from cashing in. At least Whittle actually ran his bank for 22 years; Alan Fishman of Washington Mutual got the same size severance when the feds took over his bank in September, after he’d been on the job for just three weeks. And speaking of smart moves: When Wachovia’s top execs realized that the shotgun marriage the feds had arranged with Citigroup could cost them their collective $225 million severance, they left Citi at the altar and threw themselves into the arms of Wells Fargo. At which point Wells Fargo issued a press release crowing that this deal “does not demand financial support from our government”—only to turn around and (thanks to an irs rule change the Bush administration had slipped in just a few days earlier) write off Wachovia’s losses so as to effectively offset all its profits. That means, as one analyst noted, that Wells Fargo is “basically getting Wachovia for nothing.”
And if that seems outrageous, think it through: Every penny of those taxes that Wells Fargo is now avoiding will have to be made up for by someone else. And that someone else is…? Exactly. Already, as former Goldman exec Nomi Prins calculates on page 33, the total government outlays for the various finance bailouts stand not at $700 billion, but at more than $3.4 trillion (yes, with a “tr”). And in case you’d forgotten, we’re borrowing this money; interest on the current total amounts to, give or take, $170 billion a year, every year, for decades. Our two babies, born in 2008, could still be paying it off when they graduate from college (if, that is, we can afford to send them).
Each day brings a fresh round of chutzpah: Detroit’s Big Three ceos flying hat in hand to DC on three separate corporate jets (the $20,000-per-trip cost funded by the taxpayers via yet another irs codicil); the leaders of the world’s 20 largest economies gathering at the White House in November to discuss the crisis over $500 bottles of cabernet. (At least it was California cab.) But what can we do except pick up the tab? We have been trained, after all, to regard the movements of finance like forces of nature. We might sooner hold back a hurricane than curb the cupidity of Wall Street. Right?
Maybe not. Maybe the lesson of the Goldman bonuses is that corporate America can be steered by the wishes of the people. Their future is in Washington’s—meaning our—hands. And they seem to have grasped that you can only flip off the people who write the checks so many times before they break out the pitchforks.
At this point, the acolytes of Ronald Reagan are sure to interject, Well, there you go again—you liberals just want a command-and-control economy. The assumption being that unregulated markets are an Edenic state from which only liberal meddling can cast us out (cue John Maynard Keynes as serpent). In fact, the economy has no natural, “free” state; it is shaped by the society in which it exists. For the past 30 years, it’s been steered toward unlimited profit taking at the top, book cooking, management for short-term shareholder return at the expense of actual viability, maximum greenhouse gas emissions, and so on. Washington wrote the rules. Wall Street and Detroit followed.
So what if we were to change the rules? What if we acknowledged that shareholders are also citizens—that they have interests beyond quarterly returns? The notion seems almost fanciful, we haven’t tried it in so long. But as we learned in 2008, sometimes things we thought could not happen…do.
And, indeed, the rules have already changed. Liberal and conservative pundits and economists no longer argue over whether government should fix the markets with massive public spending, only about how much must be spent: $150 billion, $500 billion, more?
Whatever the butcher’s bill ends up being, we better be damn sure we get the best possible return on investment. And here’s where things get interesting. Turns out that putting money into the hands of corporations or wealthy individuals has a negative roi—we get no more than 37 cents to the dollar. (See “Bang for the Buck.”) By contrast, a dollar spent extending unemployment benefits prompts $1.64 in economic activity; building roads and bridges (or the new utility grid we so badly need) brings $1.59. The very best return? Food stamps, which provide a full $1.73 in return for every dollar’s worth of stimulus, with the added benefit that we’re investing in the well-being of actual people—the same people who have borne the brunt of the past few decades’ corporate and political chicanery.
And how will we pay for it all? Pulitzer winner David Cay Johnston has a few suggestions here. Stop letting executives hide their money offshore—voilà, a $100 billion bump for the treasury. Or how about that corporate jet subsidy, which has taxpayers ponying up for execs’ vacation flights to Paris or Dubai—because, the irs rationale goes, it’s not safe for them to fly first class.
Sure, there could be a case for some direct aid to corporations. Maybe there is a sensible way to reboot Detroit. Step one: Backbench Rep. John Dingell, D-General Motors. (Done.) Next, push out all the top execs, sans parachutes, as none other than Detroit scion Mitt Romney has suggested. And the Big Three must be forced to build cars whose gas mileage leaves the Prius in the dust. But hello? Carmakers are in the shape they’re in because they’ve been criminally stupid and lazy, but also because health care accounts for more of a car’s cost than does steel, which is partly why more cars are now made in Ontario than in Michigan. Let’s not pretend we don’t know how to fix that.
The lesson here is this: Sometimes more is more. As our house economist, James K. Galbraith, points out, “stimulus” packages based on pumping cash into the economy are the equivalent of feeding it candy; after the sugar jolt comes the crash. Fixing health care, rebuilding roads and bridges, and inventing a new energy system are bigger projects, but they have bigger, longer-term benefits, too. As long as we’re sticking our kids with the tab, maybe we should leave them some souvenirs.