Kiss Your Middle Cl...ass Good-Bye!

By Les Leopold
May 22, 2010

Published by Alternet.org.

Wake up Congress! The financial reform bill you just passed won’t protect us from economic chaos. Why? Because it fails to burst the mother of all bubbles—Wall Street itself.

Our outsized financial sector is a clear and present danger to all of us. This gigantic bubble, which bankers and politicians have been pumping up for the past 30 years, now casts a dark shadow over our economy and our political system. It has distorted our distribution of wealth, making a few people obscenely rich while shrinking what’s left of the middle class.
The financial industry bubble started expanding during the 1970s with the push for deregulation. It grew even faster in the 1980s after Reagan and Congress dramatically cut taxes on the super-rich. The wealthy had to do something with their excess money, so they turned to financial gambling. Wall Street grew and grew, rising from about 7 percent of all corporate profits after WWII to more than 30 percent today. Financial executives got exceedingly rich. As Simon Johnson and James Kwak point out in 13 Bankers, “From 1948 until 1979, average compensation in the banking sector was essentially the same as in the private sector overall; then it shot upward…until in 2007 the average bank employee earned twice as much as the average private sector worker.”

As I noted in my book The Looting of America, the ratio of compensation of the top 100 CEOs to the average worker shot up from 45 to 1 in 1970 to a whopping 1,723 in 2006. Did the execs—and the financial execs in particular—get that much smarter than the rest of us?

In a way they did. They got smarter at siphoning off the wealth from our economy while adding little to it. They learned how to leverage gigantic financial bonuses for themselves. And when their financial house of cards collapsed in 2008, they figured out how to get Congress to hand over more than $8 trillion in cash, asset guarantees and cheap federal loan facilities, a vast taxpayer-financed bailout. And so, just two years later, the Wall Street bubble is once again inflating—and gobbling up our nation’s wealth.

This week’s chilling Los Angeles Times article on our anemic recovery (”Consumer spending trend is a shaky foundation for economic recovery“) reveals the contours of our bubble economy:

Much of the new spending has come not from America’s broad middle class but from a small slice of affluent people at the top….

What’s more, some analysts calculate that another big chunk of the recent spending spurt has come from an even shakier source—delinquent homeowners who have more cash in their pockets because they’ve stopped making mortgage payments now that their houses are worth less than the loan amounts.

So apparently our economy is being rescued by 1) some of the same “affluent” people who caused the crash in the first place—and then benefited from a bailout financed by middle-class taxpayers; and 2) victims of the housing crash, who are now walking away from their homes with a few dollars in their pockets.

This week we learned that home foreclosures have reached a record high. Maybe we should break out the champagne, since our economy is apparently depending on these folks.

The Wall Street bubble and our pathetic recovery are the result of having forgotten everything we learned during the Great Depression. If we want a strong middle class society, we’ve got to impose steep income taxes on the super-rich and tightly constrain the financial sector. We’re not doing either of these things, and so we’re looking at a future of economic chaos.

It’s obvious why most Congress members choose to ignore the biggest bubble of all. Too many politicians rely on financial industry contributions to win office. Too many want jobs on Wall Street once they leave office. Most just don’t have the guts to take on the financial elites.

So how do we puncture the bubble and save our economy? In theory it’s not very hard. But in practice it will take a mass movement that aims at the right targets.


http://www.pdamerica.org/

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people in my own neiggborhood lose their homes.