The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [52]
Case 4: The Financial Lobby Bailouts and Bonuses
The financial saga has been equally illuminating. The 2008 financial crash resulted from a confluence of forces: deregulation, monetary mismanagement, and reckless irresponsibility by the top management on Wall Street, who lusted after profits with sheer disregard for their shareholders, workers, and clients. Behind it all, of course, were the astounding wealth and power of Wall Street, which epitomizes the translation of big bucks into power, power to achieve a massive bailout when the going got tough in 2008.
Not only was Wall Street bailed out, but the corporate leadership was allowed to continue to rake in megabonuses even as the firms were on Washington’s life support systems. During 2009, I exchanged views on several occasions with Larry Summers about the need to rein in the egregious bonuses, which had no merit in market forces or morality. He staunchly defended the administration’s “hands-off” position—hands off in the peculiar sense of giving the bailouts but then leaving the CEOs alone to pocket them. Absurdly, after the Treasury pumped tens of billions of dollars of bailout funds into AIG, Summers claimed that he couldn’t find a way to stop the company from paying megabonuses to the very traders who had caused the disaster: “We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”
Suffice it to say that the limits were never found. The extraordinary political power of Wall Street arises from many quarters. The top decision makers such as Rubin, Paulson, Summers, Rahm Emanuel, Orszag, Jack Lew (Orszag’s successor at the Office of Management and Budget and a former Citigroup executive), Daley, and countless others have one foot in Wall Street and one in Washington. Wall Street was, of course, one of Obama’s main campaign financiers. Obama’s campaign was properly renowned for mobilizing Internet-based donations from small donors, but it is still the case that 65 percent of his donations came from individuals who gave $200 or more and 42 percent came from individuals who gave $1,000 or more. Obama depended on the heavy-hitter campaign contributors from Wall Street and elsewhere just like other more traditional candidates.16
The links of Wall Street and Washington go far beyond the White House, the Fed, and the Treasury. The industry has established a remarkable army of lobbyists carefully detailed by the Center for Responsive Politics.17 During 2009–2010, the financial services industry (including banks, investment firms, insurance companies, and real estate companies) “commissioned 1,447 former federal employees to lobby Congress and federal agencies,” including an astounding “73 former members of Congress, accounting for 47 percent of the 156 former members who have reported lobbying in the time period.” These seventy-three former members included “17 former congressional members [who] served on the Senate or House banking committees.” Moreover, “at least 42 financial services lobbyists formerly served in some capacity in the Treasury Department; and at least seven served in the Office of the Comptroller of the Currency, including two former comptrollers.”18
Case 5: The Proliferation of Tax Havens
The globalization of capital markets has also made it far easier for companies to hide their profits in offshore tax havens. This is part of the “race to the bottom.” The use of tax havens has soared in the past thirty years, and what was once a dodge for wealthy individuals avoiding the IRS has become a systematic vehicle for hiding corporate income from taxation. Yet what is even more notable is that the IRS is often a willing handmaiden to these practices. A recent report on