tag:blogger.com,1999:blog-75120556928204335182024-03-05T05:25:19.267-08:00Main Street ReflectionsPolitical, economic, and related commentary from the middle class.Unknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7512055692820433518.post-54166197263197788732011-11-20T15:18:00.000-08:002011-11-22T14:10:19.127-08:00Obama’s Big Bank Paradox & The Rise of Corporatism In The USBig financial companies are a problem. More accurately, big financial company executives are a problem.<br />
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<img alt="Big Banks" src="http://www.sacramentorealestateviews.com/wp-content/uploads/2011/09/big-banks.jpg" style="float: right; margin: 10px;" /><a href="http://mainstreetreflections.blogspot.com/2011/11/bank-transfer-day-something-useful-from.html">A previous article</a> brought to light some details re: how executives at big financial firms often manage to parachute out with millions in their pocket even though the companies they're leaving are in severe distress. Jon Corzine wrecked MF Global and left with $12 million. Freddie Mac CEO, Charles "Ed" Haldeman Jr., will leave his post with at least a $3.9 million parachute while FRMC needs another $6 billion in taxpayer money just to survive. We've seen numerous other examples of big financial institutions mismanage to the point of insolvency while top execs go home with big payouts finance with taxpayer and investor money. It's just wrong.<br />
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So when President Obama rails against "fat cat bankers on Wall Street", he's tapping into a far-reaching dissatisfaction and anger against the some of the most wealthy individuals in the country who have become richer while their companies have approached failure or failed altogether. Many people can relate to this. Even I can relate to this even though I'm a staunch free market, small government voter.<br />
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Yet, three points need to be noted:<br />
<ol style="margin-top: 0;"><li style="left: -20; position: relative;">President Obama works diligently to extend this dissatisfaction with "fat cat bankers on Wall Street" to anyone with any notable wealth, the idea being that because these woefully misbehaving bankers are wealthy and undeserving, all wealthy people are, by extension, also undeserving. While liberals have insisted for decades that it's wrong to label an entire class of people based on a few bad actors, they gladly do so when it's a class of people they don't support. We'll have a separate article one day soon that looks into from where today's wealthy have come.</li>
<li style="left: -20; position: relative;">While Obama openly disdains "fat cats", bankers' ability to parachute out of failing entities with big payouts hasn't been stopped or even slowed. The two cases mentioned above are glaring examples. Earlier this week, it was announced the Federal Housing Authority has a fifty percent chance of needing a federal bailout before the end of 2012. Any bets we'll see a few high ranking FHA executives jump ship with big payouts beforehand or shortly thereafter? This isn't just Obama's or even the democrats' faults. Republicans will fight any effort to constrain any private sector compensation. In any other case, I'd agree with them. In the financial services area, however, no other option exists to keep executives from getting rich while sacrificing investors and/or taxpayers.</li>
<li style="left: -20; position: relative;">He'll never admit it, but the truth of the matter is that Obama needs big banks, and desperately.</li>
</ol>If they're so evil, how can Obama need them? With billionaire liberal donors, he certainly doesn't need their campaign money!<br />
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He needs them because big banks are part of the Obama vision for the consolidated, centralized management of the country.<br />
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<img border="0" src="http://3.bp.blogspot.com/--cXZNw-Ue3A/TswdKLlmVVI/AAAAAAAAAD0/zQ8hV6aOXsM/s1600/mussolinwebi.png" style="float:right;margin:0 0 8px 8px;" />This will shock people to hear, but Obama is not a socialist. Under socialism, a country's means of production are commonly owned, primarily by the government. Obama has been labeled a socialist since forcing through the largely unpopular health care law which vastly increased government control of the health care sector of our economy. For Obama to truly be a socialist, he'd need to do the same with most large industries including banking, manufacturing, oil, etc. Obama knows he could never achieve such takeovers unless he first engineered a crisis of the worst magnitude (stay tuned!).<br />
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No, he's not a socialist. Obama knows that's much too big of a step for our country. He is, however, what's known as a corporatist. Corporatism is an economic system primarily run by big entities. Big government, big business, big unions, big health care and, of course, big banks. By keeping the country's economic engine focused through a small number of very large entities, all of which are tied to big government, Obama sets up a system that he and his liberal friends can directly influence and indirectly manipulate.<br />
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This is why he needed the health care law so desperately. This is why democrats were willing to cut almost any deal to get the law passed. They knew they had a once in a lifetime chance with a fully democratic government to forge a cornerstone of their corporatist, centralized government. Unlike the banking or other industries, health care was highly decentralized and uncontrollable. The only option was to make the government the centerpiece.<br />
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<img border="0" src="http://4.bp.blogspot.com/-OWkW0ox5M7M/TsuoGxuRWtI/AAAAAAAAADs/7Kx9p_JXT00/s1600/corporatism-empire.jpg" style="float: right; margin: 0 0 8px 8px;" />The corporatist philosophy also explains why Obama has little interest in doing anything for small or medium-sized businesses. Historically, when an American president has spoken about getting people back to work, it was implicit that this meant working for businesses. Obama has redefined this, however, to primarily mean getting more people working for the government. After all, why increase the ranks of small and medium-sized businesses he can't directly control when all those people can work under his direct government control? Non-large businesses are also not commonly unionized. No union. No control. Big union. Big government influence. Big control.<br />
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So why, if banks are so patently critical to the Obama corporatist vision, does he bad mouth them like he does. Two reasons:<br />
<ol><li style="left: -20; position: relative;">It's fashionable and quite effective. Bank executives deserve to be lambasted. They were a big contributor to the 2008 crisis and still took millions home. As witnessed over the past month, they're still doing it.</li>
<li style="left: -20; position: relative;">Admitting any kind of partnership with big banks would go over with his base about as well as if he told them Bush was actually a fair president.</li>
</ol>Hence, we have the Obama big bank paradox. He needs them in the fold to craft his master vision of a country controlled by a big central government through "partnerships" with big private companies and unions. On the other hand, big bank executives, for the most part, are no more interested in being a puzzle in Barack's puzzle than they are in protecting the interests of investors or taxpayers. They want to maximize they're own paychecks, regardless of what makes that happen. They'll even happily go sit in front of a congressional committees on television and get grilled and mocked for days, knowing they're taking home the big check when it's over.<br />
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How does Obama get beyond this roadblock to his vision? The only path I can see is to get his own guys at the helm of these big banks. People that are more than willing to get rich while quietly playing ball with the government's economic remolding. But this isn't Europe. Most financial "wizards" are staunch capitalists. Will Obama succeed in established this cornerstone? No one can really say. He won't in this term. Given another, maybe.<br />
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But this entire scenario gives us another big reason to move and keep our money out of the big financial institutions. As discussed in another article, the big bank execs have demonstrated repeatedly they will gladly lose our money as long as they can bring home the pot of gold when they step down. They know the chances of legal recriminations are small so their risk is minimal.<br />
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However, we not only empower these crooked financial market pirates by keeping our money in their banks, we also provide the foundation for a fundamental shift away from capitalism by doing so. The corporatists of our country, namely President Obama and company, envision a United States ruled by large entities, much like the setup in Germany and France, where small business is irrelevant and government-related employment is king.<br />
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I personally have no interest in the corporatist model. It's wrong for the US.<br />
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In contrast to a market economy, which prospers through competition, a corporatist economy works through collective bargaining among large entities to try to achieve social justice. Instead of people working hard to innovate and create in their own self interest, decisions about our economic choices are made at a macro level. <br />
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Social justice is a misleading term that means everybody gets the same, regardless of ability or effort, which itself is a paradox. Justice is when you get rewarded based on the effort and creativity you put into something. Social justice just homogenizes everyone for the purpose of creating "equality" and assumes all humans are essentially the same, which we're not. When the best you can get is the same as everyone else, innovation and the desire to improve on one's lot in life fade. This is what Obama and company want. This, to me, is hell.<br />
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I don't know if clarifying this will make anyone more or less likely to stop using big banks. If punishing badly behaving financial executives that would sell us out in a heartbeat isn't enough impetus to stop using big banks, perhaps realizing that, by making big banks big, we're funding the collapse of capitalism will.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-7512055692820433518.post-78261669876121392312011-11-07T17:48:00.000-08:002011-11-20T15:19:31.888-08:00Anger Against Big Banks - Something Useful From OWSI'm not an OWS guy by any measure. From what I've seen, the vast majority of attendees at OWS rallies are people that live to march for anything. I used to see these people in college on a regular basis, just waiting for some, even semi-controversial, topic for which to launch a crusade. They were thrilled to be marching for something, anything. The conclusion I reached back then was that these people really had little else in their lives on which to focus. The rallies gave them some measure of temporary purpose they were never going to get from a career, family, or other life component.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPg-S6VAnDGyqDXrFAGDh_nnMmEoPfrWcVs17Sxcv_r8p-pBsc8hrSPmz0OpE3JvfWQvt9G6HA6HwjbksVs9JSlpOylNzeLy8cbLanYmg31xo5KeDqSJVJhyphenhyphen0Dl8oqaRNQ8Kv7Ht2aTS8/s1600/mar907c.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPg-S6VAnDGyqDXrFAGDh_nnMmEoPfrWcVs17Sxcv_r8p-pBsc8hrSPmz0OpE3JvfWQvt9G6HA6HwjbksVs9JSlpOylNzeLy8cbLanYmg31xo5KeDqSJVJhyphenhyphen0Dl8oqaRNQ8Kv7Ht2aTS8/s320/mar907c.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Not Because You're Rich, Because Your a Thief</td></tr>
</tbody></table>But one theme coming out of the OWS "phenomenon" with merit is the visible anger against senior managers of large, poorly managed financial institutions, especially those that took taxpayer bailout money and even more especially those that mismanaged millions, if not billions, of other peoples' dollars. The corporate excesses of recent years is well documented but that era is anything but bygone. Last week, for example, we learned financial services company MF Global Holdings Ltd. filed for bankruptcy. The company did not take bailout money but can't account for over $600 million of clients' funds. CEO Jon Corzine, former governor of New Jersey that also led that state to the brink of bankruptcy, parachuted out with a cool $12 million.<br />
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Government-controlled mortgage giant Freddie Mac last week was forced to request another $6 billion in taxpayer aid after posting a $4.4 billion loss from July to September of this year. Outgoing CEO, Ed Haldeman, will receive at least a $3.9 million parachute for his two year tenure with the insolvent and nationalized housing entity. Under his leadership, FRMC has taken $14.5 billion in taxpayer-funded government support, not including the newly requested $6 billion, the largest since early 2010. Hence, during Haldeman's tenure, <b>Freddie Mac's bailout addiction has taken $20.5 billion in taxpayer capital just to keep behemoth breathing</b>! And for this stellar performance, the man at the head of the government-owned snake gets to walk away with $4 million?<br />
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How can this be? Financial companies fail miserably and yet their leaders earn multimillion dollar bonuses. While the company and clients go broke, the executives run away much richer, often with taxpayer money.<br />
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So, OWS fringe, I get it. Something tangible has, in fact, come out of your mostly mindless, wandering, self-pitying, destructive drivel.<br />
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What can be done about corporate abuse? Two primary options:<br />
<ul style="margin: 0;"><li style="left: -20px; position: relative;"><b>Increase the government's ability to control executive pay within publicly-held financial institutions. </b>Gotta tell ya...I can't believe I'm going to say this because I'm a free market guy but corporate governance has failed so miserably in the past fifteen years, there's really no choice. A formula needs to be derived at the federal level to control executive compensation for publicly held financial companies. As much as I hate government control of anything, financially-related corporate executives have proven time and time again that they cannot be trusted to act in anyone's best interest but their own and Boards of Directors are a joke. It's one big buddy convention without constraint. This topic is big enough to be its own discussion and will be treated as such.</li>
<li style="left: -20px; position: relative;"><b>Reduce the importance of major financial institutions.</b> We, consumers, give the big financial houses their power by keeping our funds with them and using their financial instruments. Quite honestly, we're to blame for over-empowering these entities with our money.</li>
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This second point, empowering big financial entities with our money, is something we, as consumers, need to try to change. These huge businesses couldn't care less about us. Like other big businesses, they're out for profits, which is the foundation of capitalism and, quite honestly, a good thing when pursued honestly and ethically. However, large banks have proven themselves to be irreversible corrupt. They create and sell new, risky investment vehicles with no regard for the investors. They treat their executive staffs to lavish travel packages, bloated bonuses, and monster golden parachutes they often deploy only after they've destroyed shareholder and customer equity.<br />
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How can we affect this? By moving our money out of the big banks and into smaller local banks for credit unions. We won't be able to shut down any one bank, but we could send a major signal that we're fed up. <br />
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What's the trade-off? The most noticeable pain points in going with a smaller institution are often accessibility to ATMs without paying a fee and/or branch locations. When choosing a new bank/credit union, first verify their financial viability at <a href="http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx?t=cb" target="_blank">http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx?t=cb</a> and then look into ATM and branch locations that work for you. Never select any financial institution without first understanding its financial strength, related fees, etc.<br />
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Some will argue that pulling deposits from big banks will actually help them because banks have been taking in more in cash deposits than they can loan out and are required to carry FDIC insurance on the difference. This may be true, but pulling deposits will also cut into margins, lowering profitability and, if significant enough, reducing big banks' ability to negatively impact our lives. If those banks become less profitable, they become less interesting investments and share prices drop. Will this lead to smaller executive bonuses and parachutes? Not likely on its own, which is why we need the financial sector government oversight, but yet I digress.<br />
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What guarantee is there that some local bank or credit union will be better? None. There is no complete isolation from financial risk or misappropriation. But we do know it's the large banks that consistently provide the big parachutes, overdone benefits, and ridiculous, unearned bonuses while shareholder equity heads south and fees skyrocket. Again, check out any institution in which you put your money. Make an informed decision. Many people don't. This inherent trust and lack of accountability as as bank client is part of what's over-empowered and made them fat and careless.<br />
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The bottom line? Should we really reward companies that have a proven track record of screwing us over? If I have problems at a retailer, I shop somewhere else. Massive push back on an ATM card fee resulted in its reduction and, in some cases, its removal at many large banks. Individual consumers can make a difference when working en masse. If ever there was a time to do so, it's now. We can't just let the big banks keep cheating us using our own money. <br />
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In the spirit of full disclosure, I've closed accounts at a large bank in the past two weeks and will close others before the end of the year. I do, indeed, employ that which I hope others do. I'm not telling you what to do with your life, just explaining options. If you'd rather reward people that would sell you out in a nanosecond, so be it, but don't complain if you don't try to change it.<br />
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<ul style="margin: 0pt;"></ul>Unknownnoreply@blogger.com1