Published CommPro.biz 2014.05.13

 

A New Gilded Age?

By: W.T. “Bill” McKibben

In 1873 Mark Twain and Charles Dudley Warner published The Gilded Age: A Tale of Today. The name stuck, roughly covering the period from the end of the Civil War to the Trust Busting Teddy Roosevelt era. At its height around 1900 the top 10% percent of Americans soaked up about half the income with the top 1% getting about 40% of that amount. That left the 90% to divvy up the other half, slim pickings at best.

After Teddy Roosevelt leveled the playing field and the labor movement spread the bucks around even more, income inequality was not as big an issue. The two World Wars that devastated the infrastructure of nearly all developed economies, except the United States gave America a running start during most of the last 100 years. However, toward the end of the 20^th Century and into the early part of the 21^st the rich and powerful began to tilt the table in their direction again. The laws put in place following the Great Depression that protected little folks fell to a “Deregulation Era.” Enter a new Gilded Age.

Tax loopholes and corporate subsidies added in to tilt the American landscape toward the super rich. So we find ourselves just where we were in the last Gilded Age, half the bucks going to the top 10% and 40% of that going to the top 1%. The middle class has been devastated and the poor are scrambling to keep their heads above water. Basically a set of social problems covered by a “thin gold gilding” the same outlook seen by Twain and Warner in 1873.

That leaves some questions. Is it morally and ethically acceptable? Is it financially sustainable? Teddy Roosevelt didn’t think it fit inside any of those parameters. He saw it as just wrong. It isn’t as if this new Gilded Age came about through the efforts of those who are benefiting. When the laws of the land are twisted to give any group an advantage it’s just plain wrong. What’s really bad about the current situation is that the recession so many are struggling to crawl out from under was triggered by reckless bankers who we had to bailout to avoid a major depression. They are now doing better than ever and the stock market is booming.

A recent Pew Research Center study shows that almost all Americans understand how the makeup of this Gilded Age came to be. Given an open-end question the answers came in all over, however, two out of five pinpointed loopholes and our tax system, followed by all the usual suspects, government policies, corporate influence, greed, etc., etc., etc. Although remarkably 10% believe that a poor work ethic and reliance on government handouts created inequality; really! A gilded age is unsustainable; it’s bad for the poor and for the rich.

They’re Back – 
Run For Your Lives!

What do you think our leaders would do when confronted by the imminent collapse of a sector of our economy whose assets are equal to 56% of our GDP? Given what they did in 2008 –properly we think– we can safely assume they would prop up the institutions at risk. Are you surprised that five of the banks we rescued in 2008 now have assets equal to 56% of our GDP*? In 2006 -before the collapse- these same five banks’ combined assets equaled 47% of our GDP*.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo, five of the players whose reckless actions drove the world economy off the cliff, are lined up to do it again. Their assets grew more than 40% from 2006 through 2011*. Why? That’s no mystery, the banks know and investors know that if there’s another collapse we will bail the Zombies out again. With the taxpayers on the hook, big banks are gambling with the same risky stuff that led to the 2008 collapse –derivatives, swaps etc., the stuff the bankers refer to as “crap.”

If it goes all wrong, the bankers and their investors have the taxpayers ready to bail them out again. Where else would investors put their bucks, high returns no risk? Published reports say all three rating services along with a covey of regional Federal Reserve presidents, see a bailout for the Zombie Banks down the road. Meanwhile, your neighborhood community bank –the bank down the street on the corner– doesn’t have an investment (AKA gambling hall) division; putting them at a distinct disadvantage in finding investors and customers.

We know how to solve this problem, been there, done that. Eighty years ago when the wheels fell off our economy our nation faced the same dilemma. They busted up the big banks and made them choose the sector of the banking world in which they wanted to operate. The Glass-Steagall Act separated investment banks from the regular commercial banks that we ordinary folk deal with.

During the 1990s’ deregulation frenzy the investment banks –Goldman Sachs in particular– pressed hard to break down this wall. In 1999 they succeeded Glass-Steagall was repealed. Then they convinced the Congress to exempt them from the gambling laws and they were off to the races. Take any risk, bet on any crazy thing, as long as you could call it an investment – it is legal. Within a few years they distorted the derivative and commodity markets turning them into Zombie bank gambling halls. Here’s the catch. They know they can’t lose. They know the suckers (AKA customers) take the losses. Worse comes to worse the taxpayers will be stuck with the mess. The bankers and investors will be just fine.

We all know what happened in the decade following the repeal of Glass-Steagall. We had to bail the banks out and now they are fine; back doing the exact same things that drove us off the cliff. Meanwhile the rest of America –and the world– is working its way out the hole they left us in. They are not doing anything illegal; however, ethically it stinks. It’s time to break up the Zombie banks and put them back in their cages, investment banks on one side of the business and commercial banks on the other. If not, we’ll be bailing them out again. They are counting on it

 *Bloomberg 04.19.12

The Return of the Robber-Barons

The Return of the Robber-Barons

At the dawn of the 20th century America experienced unprecedented change. The young were moving off the farms into the cities. Steel, rail, and oil giants wrought permanent change; change that created a chasm between the wealthy few and the vast number of Americans struggling far below.

Into this moment stepped Theodore Roosevelt.  A brash young President who recognized that a nation so divided could never achieve the greatness that would allow its people to thrive. His trust-busting crusade initiated a series of legal restraints on the robber-barons culminating in the Glass–Steagall Acts of 1932 and 1933. These boundaries, along with labor laws and a variety of safety nets, allowed our free enterprise system –and our people– to thrive and grow.

The loosening of those restraints as the 20^th century faded into the 21st brought a return of the practices they were designed to control. A study of the effect of wide spread deregulation was ordered several years ago by Senators Max Baucus and Charles Grassley, then ranking members of the Senate Finance Committee. The Congressional Budget Office delivered the study just last week. Its findings paint a bleak picture: the middle class is fast shrinking while those on the bottom are sinking farther away from those on the top of the pile.

Over the last few decades the top 1% of Americans enjoyed a 275% jump in their income. The bottom 20% not so much, they gained 18%. Do the math, 275% is over 15 times greater than 18%. The report points to the move from progressive income taxes to payroll taxes, easing the tax burden on those with the 275% gain while increasing the tax rate of those who have seen a measly 18% improvement.

As the giants of industry are quick to point out, our corporate taxes are among the highest in the world. However, since most of them have successfully lobbied their way out of paying taxes at the local, state and federal level, the federal tax rate has little or no effect on the corporate titans. Our hefty corporate rate does hit small businesses – the folks who are struggling to stay afloat in the aftermath of the collapse triggered by the bankers’ reckless gambling.

Since everyone agrees that small businesses create jobs, we find ourselves taxing these job creators, while the Fortune 500 (who rang up a net job loss over the last twenty years) pay little taxes, if any. The banks we bailed out are swimming in profits generated from the same risky games that got us into this mess. Weren’t they were supposed to help small businesses who want to grow and create jobs? What happened to that?

Meanwhile the top 1% (the 275% folks) are investing overseas or gambling on commodities (like oil – boosting gas prices and adding to the woes of the poor) all the while giving luxury marketers like Tiffany’s a boost. Sales in Tiffany’s New York flagship store increased 41% in the second quarter ending in July, up 33% thus far for the year. Tiffany’s stores worldwide are booming as well, thank you.

If you missed the ethical issues in this scenario, read it again.

W.T.”Bill” McKibben is a Buffalo based author. © 2011 GLG