Long but fascinating post over at Naked Capitalism on whether banking actually contributes to the good of society. Yves isn’t talking your local bank branch - she’s talking the finance sector, the Goldmans of the world. She cites a piece by Bill Black laying it all out:
The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy…:
• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy….
• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation….
• The financial sector’s fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.
• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains…. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles….
• Because the financial sector cares almost exclusively about high accounting yields and “profits”, it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the “Payday lenders” and predatory mortgage lenders out of business).
• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.
And there’s your bailout, right there.
She ends by citing a piece from the Pew Reserach Center on how the press has covered the financial crisis - mostly from the perspective of the Obama administration and the Big Players. “So with vested interests firmly in control of spin,” Yves asks, ”is it any wonder that most people have been lulled into complacency, or at worst, sullen resignation?”
Well, no - but as we’ve said, there’s another factor here, the reality that the vast bulk of the population has absolutely no idea how these complex financial transactions/interactions work. I mean, see Black’s third point: Wall Street’s “fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad.” I told you of the e-mail I got last week from the big Glenn Beck fan who said her family had been impacted by downsizing.
Does she blame Goldman or Wall Street? Or does she blame SEIU and ACORN?
There is a reason the Glenn Becks of the world have spent so much less time on Wall Street’s shenanigans than they have on the likes of ACORN. The Obama team has sought to stay on Wall Street’s good side - either because the administration simply can’t imagine an American economy without finance front and center, or because they simply want to remain the recipients of Wall Street’s considerable largesse at election time.
But in fact, “populists” like Beck are after the very same thing.
People know that something’s gone wrong and there’s Beck pointing his finger - away from the true culprits.
In an earlier era, populists might have marched on Wall Street; today their ire is almost entirely directed at government and minor players like ACORN. If they don’t see Wall Street as entirely blameless, they certainly downplay its culpability in this great collapse.
Go over to Beck’s Web site and try to find anything, anything, about Wall Street. Well - of course Beck isn’t going to ruminate on Wall Street. Because Capitalism Rulez!
But to pretend that it’s unfair to blame the architects of the collapse for the collapse is every bit as dishonest as what those ACORN employees were caught doing on video. And far more damaging, too.
So there’s been a specific attempt to lull people into complacency by the left and the right. It’s too complex for the average guy on the street - who anyway won’t blame Wall Street because THIS IS AMERICA!!! - and so that guy on the street is susceptible to the misdirection of those in league with the powerful - even as some of them claim to be fighting the power.
