Tuesday, October 20, 2009

We Must Tolerate the Inequality?

Despite the fact that a trained chimp could perform as well as Goldman Sachs, given all the help (TARP; $13 billion from AIG, because it was a counter party; free access to credit from the Federal Reserve; FDIC guaranteed debt...) they've received since the collapse of our economy, not to mention, the welfare recipients have not returned the favor by issuing credit to we, the people and to small business, the engine of job creation...despite all of that, they tell us we should tolerate the inequality...that it is good for all of us.

But, should we really be grateful to Reagan? And for all of those people responsible for the financialization (the increase in the size and significance of financial markets and financial institutions) of our economy? The Reagan revolution that helped to create the greatest state of inequality in the history of our nation? Is Wall Street really, "all that"? And one has to wonder, did people at Goldman Sachs know what was coming down the pike? More than that, did they knowingly push us into this crisis, knowing they could milk it for all its worth, while we, the suckers take it on the chin?

Well, it's hard to believe otherwise as they rake in their great fortunes at our expense. But hey, they claim inequality is good for us. Let's see if they're right.

We already know that Goldman Sachs Group Inc boasted third-quarter profits of $3.19 billion a few days ago. We know that Goldman Sachs Group Inc., set aside $16.7 billion for compensation and benefits in the first nine months of 2009, which is up 46% from a year earlier. We know that Goldman Sachs is cashing in like crazy.

And now we know, at a discussion panel titled, "What is the Price of Morality in the Marketplace?" a Goldman Sachs international adviser defended what can only be called over-the-top compensation in the finance industry, as his company plans a near-record year for pay, explaining that putting all this money in the pockets of the men who brought this economy down will help boost the economy.

“We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.”
Mayor Michael Bloomberg, it seems, would agree:
“They may be an enormous amount of money for one person, but they are how our people in the city in all industries get paid, whether you drive a cab, work in a restaurant, work in a store, whether you are a municipal employee.

All of this gets filtered down through our economy. No matter what you think about the propriety of any individual person’s bonus, we want companies in the city, and we are dependent on Wall Street finance, to do well.” - Mayor Bloomberg

So, is Wall Street performance really, as Mayor Bloomberg said, beneficial to us? Or is Wall Street simply a big myth? Does it really serve the function of allocating credit in the economy?

* Not according to the graph (left), which shows the percentage of capital expenditures by U.S. non-financial companies that was raised in U.S. financial markets from 1952 to 2006.

In other words, while it's true the dollar volume of financial trading has increased by an enormous amount - over three trillion dollars traded in U.S. financial markets each day - almost none of it is directed to toward creating real wealth.

The second graph (Private Investment in Capital Equipment as a Percent of GDP), shows that non-financial companies (NFC) do not use the stock market to raise funds for capital improvement programs.usury, speculation

"Figure 5.3 shows net funds raised through equity issuance, this time as a percent of capital expenditures ...It is evident that the stock market has not historically been a major source of NFC funds. On a quarterly basis, its contribution never exceeds 18 percent of capital expenditures. On average its contribution has been below 10 percent, even in the 1952-1980 period before (the increase in stock buybacks. However, there is a dramatic change in the relationship between the stock market and the NFCs starting in the early 1980s. Except for brief periods, in the post-1980 era the net equity issuance of the NFCs has been negative and often large. The NFCs have indeed been buying back their own stocks. The stock market has turned into an institution through which NFCs channel funds to financial markets, not the other way around."

The bottom line is that Wall Street and the financial elites, over the last three decades, have convinced us that we are here to serve money, that money is "god". However the opposite is true, money is here to serve us, to serve humanity. Money is nothing without us. In fact, considering money is created with one keystroke, it is nothing with us. We, the people, including atheists, if they believe in and use our monetary system, worship what amounts to nothing. We've been had.

* The Economic Populist


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