It's worse than we thought
To the Editor:
The Oscar-nominated documentary "Inside Job" played to a sold-out house at Capawock last night. The review in last week's MVT spoke to the film's disheartening conclusion that the financial industry has co‑opted the political process, the regulators, and the economists. The film speaks to frustration that nothing has changed, no one has been held accountable and the merry-go-round of the financial industry continues its obscene and unhealthy ride. I think it's worse than that.
Based on personal observation, I believe that the description of many people in the industry as ego‑driven, selfish, and arrogant is fair. The annual bonus and commission payments are also accurately portrayed — both in practice and in motivation. There are a couple of misses in the film — much bonus compensation is now paid in stock, rather than cash, and vests after three years at the price of the stock three years hence; the FBI and state attorneys general have been very active in compiling evidence of insider trading and illegal representations; much of this will be coming to trial in the next year; Mozillo of Countrywide paid $67.5m to settle an SEC civil suit (Bank of America paid $45m of it) and he agreed to be banned from serving as an officer or director of a public company in the future.
Yeah, Mozillo's fine is probably small potatoes to a guy who made about $521 million over his time with Countrywide. But the point is that the gross compensation and the unethical/immoral (in my opinion) practices in the CDO market and the economists who supported the market with "scholarly" work were not illegal. The laws and regulations have been gutted since President Reagan started dismantling government "interference." Insider trading, however, is illegal and people are now and or will be soon facing those charges. Unfortunately, perhaps, these people will not be the CEOs or the boards of the financial industry, but subordinates (those poor folks without the private elevators and $1.22m office redecorations.)
With all that, the film missed the most important point. The underlying failure to act against the excess and folly that created the CDO toxic environment is because the financial industry is the only machinery moving the merry-go-round of the American economy. The film points out that other than Silicon Valley, manufacturing and real productive engines have left the US. We make deals and financial "products" here in America. We are stuck with an economy based upon consumption. Without consumption and the bubbles that pay for consumption, there is very little left in the US to provide employment growth, tax revenues, or economic stability. No one addresses that issue with policy or programs; not Congress nor the Executive. As President Obama moves to the "center," he has appointed business people. His appointed business people are virtually all tied into the financial industry — it's the only game left in town.
Perhaps the first person warning publicly about the perils of deficits, deregulation, and tax cuts for the wealthy (the aptly named Laffer curve) was Walter Mondale. He sure didn't do very well in slowing down the merry-go-round that President Reagan's deregulation started. And no one wants to stop the ride because, frighteningly, it may be the only game left in town. The regulators and the policy makers are caught between a rock and a hard place. That is worse and far more worrisome, I think, than the bacchanal on Wall Street.