NYTimes today: “Big Banks Paid Billions in Bonuses Amid Wall St. Crisis”
Translation: Bankers pay themselves more when their banks are about to fail.
Regulators, such as New York Attorney General Andrew Cuomo, are shocked and dismayed that financial firms receiving the largest share of federal bailout money last year paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008.
In fact, for reasons regulators can’t seem to figure out, bank executive’s bonuses were much higher during the worst years of the crisis than they were during the boom years just before.
“At Morgan Stanley, for example, compensation last year was more than seven times as large as the bank’s profit,” according to the NYTimes. Of course, back in 2004 and 2005, during the bull market Morgan Stanley spent only two times its profits on compensation.
How could this be?
It’s called a pyramid scheme. Once the pyramid begins to crumble, the people at the top pay themselves whatever remains in the system. In fact, big bonuses to executives is a better leading indicator than insider stock sales. Once the bonuses increase from 2 times to 7 times earnings, it’s a good bet people at the firm are paying themselves money they know won’t be there for long – if ever.
If we come to understand the underlying assumptions of centralized monopoly corporatism for what they are (hint: read my book) none of this behavior remains so confusing, or even anger-producing. I understand why messages like mine may appear screechy or angry to people who can’t see me while I’m writing.
But I’m not mad or agitated. I’m not particularly angry at the people who are stealing your money right now (if you are invested in the stock market or banks). These folks are simply following the rules of the game that was set in place five centuries ago, and no longer happens to serve our interests as people, nations, or a civilization.
Banks, like any other corporation, are instruments for extracting value and wealth – not creating it. They are more like vacuum cleaners than factories. That’s what they were created for: to replace local banking and commerce with institutions that could extract wealth and value from the periphery and pay it back to the center.
The only thing surprising to me is that so many people should expect Morgan Stanley to act like anything other than the mob-front it was. Like some of those restaurants off Route One in South Jersey, the real business plan isn’t even on the menu.
What it means is that mortgage companies can often make more money when the homeowner goes into foreclosure than if the homeowner pays his bills. The longer a homeowner is delinquent, the more late fees and other penalties are accrued. Plus, there’s other fees the mortgage servicer gets if the homeowner goes belly up, once the bank sells the house.
So if a homeowner is beginning to miss payments, it is not to the mortgage lender’s benefit to help him refinance, work out a new payment schedule, or do anything else to keep the loan in place. The mortgage servicer is, as they put it in business, disincentivized to help. He will get paid the most if the borrower misses a lot of payments, and then goes into foreclosure.
This is the reason why so many people who have missed their payments aren’t able to get through to their lenders – why mortgage servicers don’t call back, or tell borrowers to hang on another couple of months. It’s not because they are so busy creating refinance packages for their customers – it’s because they’ll make much more money off our failing than our succeeding.
How could that be true? What sort of business model would be based on customer failure? The one devised – partly by accident – 400 years ago by a failing aristocracy. It set in place a class war – not between people so much as between people and the highly centralized, extractive institutions writing the rules of the economy.
These are the distorting rules we live under today. They quite predictably create situations where success is disincentivized, and bankruptcy for one party appears like a win for the other. Ultimately, we all lose.
Lately, the business headlines have been shocking and deceptive. Each day, I’m going to pick a few off the cover of the Wall Street Journal and Financial Times, and try to explain, briefly, what’s really going on.
The Goldman Sachs ultra-fast computer-transaction scandal: Big fast computers connected to the trading floor allow “connected” financial firms like Goldman Sachs to see our stock trades before they are actually executed. They can then take action based on our actions, by going back in time and buying what we want before we do, and selling to us at a higher price. By “regulating” this activity, the SEC simply perpetuates the illusion that this is a level playing field. It never was, it never will be. Retail traders are the patsies. This is just one of many methods used by a system that was not created to provide companies with investment capital, but rather the provide certain capitalists with the means to extract value from every transaction we make with each other.
Oil speculation blamed for high oil prices: Duh. We all knew this two years ago. That’s why filled tankers were sitting idly in New York Harbor during the height of last year’s energy crisis. The story here is that the speculative economy has been driving the prices of the things people really need for decades. Why admit this now? That’s the interesting part – they’re using it to explain why oil is so low now, rather than revealing that oil is low because demand has truly dried up: industry has stalled.
FDIC about to split banks into “good parts and bad parts”: The government split GM into an “old bad GM” and a “good new GM.” This left existing bondholders, shareholders, and employees owning the dreck, while favored investors got the new company. Now, in their ongoing effort to promote the interests of the biggest banking players, the government is helping them acquire more local banks by officially shifting the bad assets to existing shareholders, while letting the major banks buy the good ones. Incapable of learning the lesson that “too big to fail” means “too big,” we’re once again dismantling what is left of local banking in order to pump up the most truly failed financial institutions of our time.
I haven’t been posting a lot of the interviews and reviews of my latest activity – mostly for lack of time. Janine and I have managed to get most of them up in the appropriate sections on this site. But I want to start sharing some of the interesting ones – both positive and negative.
While some reviewers from the Financial Times to Facebook get stuck on the fact that person still living in a first world nation (me) could have the audacity to criticize the process through which colonialism and, later, corporatism exploited people and the planet (if not we, then who?), writers in those regions are much more sympathetic.
Here’s a piece from a business publication, Gulf News, inspired at first by the Colbert appearance – but later by MadMen.
This guy gets it – and he’s writing for a business publication, the Gulf News.
“So after all the bailouts and the restructuring plans, we will be asked to go out there and buy new stuff again – just as we are being asked now to buy old stuff on discount. And so the idea that politicians and business owners are actually able to call on the public to “go out there and support the economy” is a very strange notion.
This is because the economy’s role, in addition to a number of things, is to essentially reflect the interests and preferences of the general public in commerce and trade on one hand and the corresponding entrepreneurial capacity to recognise and service those interests and preferences i.e. demand and supply.”
Howard Bloom, a longtime friend, has been Twittering some of his heartfelt disagreement for the conclusions I reach about capitalism in my book, Life Inc. He sees capitalism as essential to our continuing evolution as a species and a civilization (the Western one, at any rate), and means to prove the supremacy and sanctity of this economic system to me, once and for all.
We’ll be hashing it out live, next week, on my WFMU radio show The Media Squat – Mondays at 6pm on WFMU, and WFMU.org, as well as by podcast, iTunes and whatever other spoils of capitalism are available to us.
Aug. 3rd: The Big Debate: Howard Bloom vs. Douglas Rushkoff.
Bloom and I will engage on the relative merits of capitalism, whether it’s really the way humanity can evolve, and whether it is a stage of development to be shed like a snake’s skin, or an ideology to embrace forever.
This is an extension of our long-running discussion about whether we should arrest the development of some of capitalism’s more perverse expressions – or whether we must push through by doing more. I, for one, think there’s got to be a way out of environmental disaster beyond hiring Monsanto to develop a new strain of eco-resistant rice. The way out is not always through – especially when “through” means piling more addictions onto the ones we already have. But Howard argues the other side as well as I’ve ever heard it done, and he can get even the most liberal-minded people to nod along with the notion that the only solution for McWorld vs. Jihad is the annihilation of a civilization, that mustering warrior energy might be the key to the West’s survival, and that capitalism and competition are as natural as the ivy pulling down the maple tree in my backyard.
For more information on Howard Bloom, check out his website and bio.
Also, his two books: Global Brain: The Evolution of Mass Mind from the Big Bang to the 21st Century
and The Lucifer Principle: A Scientific Expedition into the Forces of History
Microsoft and Yahoo are teaming up protect their brands and their shareholders against the unstoppable force that is Google. In doing so, both companies are demonstrating a willingness to change what they are on the most fundamental level, in order to survive. Yahoo search will now be licensed to Microsoft’s Bing. Microsoft gets access to Yahoo’s search community, and Yahoo gets to focus on display ads and its still-popular content, finance and social sites. So why are Yahoo’s shares down 11% as of mid-afternoon Wednesday, and Microsoft’s up a bit?
Because while Microsoft is actually getting something it needs, Yahoo is merely hooking up with the most alpha male company it can still find in order to survive. Microsoft will soon turn Yahoo into its prison bitch, and this won’t be pretty.
The once proud warrior of the internet space laid down its sword, knelt at the feet of Microsoft and gutted itself today. There was no honor in this death, it was one brought by the shame of losing to Google and a lack of faith in one’s ability to compete in the space they created. To be clear, Yahoo didn’t need to do this deal, Microsoft did. Ultimately Yahoo will look back at this moment as the second–and perhaps fatal–mistake in their epic history.
For more information about Douglas Rushkoff’s book, “LIFE INC. How The World Became A Corporation And How To Take It Back” check out Life Inc. and the LIFE INC. 9min movie
The LIFE INC. Dispatch = Brief weekly videos encapsulating key concepts and ready strategies from Douglas Rushkoff’s LIFE INC. for de-corporatizing our lives, abandoning the speculative economy, and rebuilding both commerce and community from the bottom up.
This is it: I’m doing The Colbert Report Wednesday, July 15, 11:30pm on Comedy Central, repeated the next day in earlier time slots. Check your local listings, or watch the segment on the show’s website.
I have to admit this is the one media appearance I’m a little nervous about. Not that Colbert is an unfriendly host. He’s really one of us, pretending to be one of “them.” The trick is to remember that he’s actually drawing out a guest’s best arguments by playing the enemy. (As one of the producers told me, “pretend you’re speaking to an eight-year-old.”)
But he plays the part well – so well, in fact, that he often wins debates even against his own left-leaning version of the Colbert character. Conversations can also quickly devolve into an argument over a single issue as Colbert mines it for comedic potential. This can make for great entertainment, but can also prevent the guest from getting out his main and most important points.
I’m making a list of talking points (that I’ll surely forget once I’m actually on) but I welcome you to share the arguments you think most need to be heard. I’ll do my best to weave them in.
