I spent some time at Occupy San Francisco this weekend and talked to a lot of people. Protesters are mad about any number of things -- but a general sense of unfairness, of the rigged game, seems to be the overarching theme.
Occupy San Francisco, October 15, 2011, photo by Garvin Jabusch
And things are unfair: As far as I can see, there is not at present any power in Washington, D.C., that can trump the influence of Wall Street. And although I support the aims of OWS, it's only realistic to conclude that the banker masters of America aren't worried about the movement yet.
Think about it. Banks have gotten away with whatever they wanted: They paid rating agencies to rate toxic assets AAA so they could sell garbage as premium on one hand, then, knowing trash assets would ultimately be revealed as worthless, sold them short and bought insurance policies that paid off when they failed, making tens of billions in the process. Playing both sides like that is illegal on its face, and yet not one banker has been tried -- much less convicted or punished.
Then, citing their imminent failure and the threat of collapse of world economies should they fail, these same banks in 2008 managed to move all of their terrible assets onto the books of governments around the world, most notably to the U.S. Treasury. Banks kept the windfall, yet moved the poison onto the taxpayers.
Next, the banks engineered a situation wherein they're making billions, risk-free, on the Treasury. Explaining to the Fed that they need access to free capital in order to keep credit and liquidity flowing, the banks asked for and received a basically limitless ability to borrow money essentially interest-free from the Fed. Only, most of this capital is not making its way into business loans and other job-creating uses, it's being used to buy Treasury bonds, which of course do pay interest. By borrowing money directly from the Fed then lending it back to the Treasury for more interest, banks are on course to siphon over $400 billion from the taxpayers in 2011.
It gets still more egregious. These same banks, now saved by and operating with taxpayer dollars, next used those dollars to continue buying policymakers, only now they were using their bought legislators to make sure that no reform could ever prevent them from doing the same thing all over again.
And guess what? Now the world's weaker central banks, such as Greece and Ireland, are close to collapsing under the weight of all these nationalized toxic assets. The U.S. banks, in turn, have tons of exposure to foreign banks and may risk failure when Greece and Ireland, e.g., can no longer pay their debts. This is a real risk: 2008 all over again.
If Goldman Sachs or Morgan Stanley told the Treasury that they were insolvent tomorrow, we'd have no choice but to bail them out again. And that's because they were able, via owning Congress, to prevent even trivial reform in the wake of the last crisis. The Dodd-Frank financial services reform bill is a hollow shell. Again, right now, no one has any control in Washington that isn't trumped by the power of Wall Street.
If Washington and the central banks are powerless to slow these titan-like banks, what are protesters on the street gonna be able to do? Again, OWS, for now, is among the least of Wall Street's concerns.
Alright, so, what can be done?
After reading my previous piece on OWS, a friend posted the following to my Facebook wall:
"'There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done,' - Guess who? Teddy Roosevelt. I urge you to read (or re-read) his New Nationalism speech. He's a republican hero, of course. Today a democrat [I would reduce that to 'politician' – GJ] would be lynched for the ideas put forth there."
My friend is right both in noting that TR was a real trust buster who understood that giant institutions, in TR's time or any time, will totally own us unless we break them up, and also in his implication that we need leaders with the balls to go after Wall Street, Teddy Roosevelt-style.
So that's step one: Seek out, encourage, and vote for true reformers. From everything I've read and heard, electing Elizabeth Warren in Massachusetts would be a good start. For a primer on her recent career and efforts to make the fledgling Consumer Financial Protection Bureau actually matter, I point you to Suzanna Andrews' Vanity Fair piece "The Woman Who Knew Too Much." Warren understands that the giants need to be broken into smaller pieces, whose failures won't destroy entire economies.
Step two is to give reformers like Warren a fighting chance by reducing or ideally eliminating the role of corporate money in politics. Right now, the best public push for this is MSNBC host Dylan Ratigan's "Get the Money Out" campaign. Apart from joining efforts like this and voting for actual reformers, there's little an individual can do at present to fight the money flow from Wall Street to D.C. (On a personal note, I was interviewed by Ratigan a few years ago on CNBC at their NYSE set. To put it diplomatically, he was not especially progressive then; glad to see he's evolved.)
Next of course, and to repeat a point from my previous post, we have to reform the tax code. This, along with "get the money out" should be a priority of the OWS platform. And the claim that the top 10 percent of earners pay 70 percent of income taxes and therefore should keep their tax cuts, while true, doesn't fly. It doesn't fly because the top 10 percent own 93 percent of all financial wealth and 85 percent of all net worth in the United States; on an economically level playing field, the top 10 percent would be paying taxes on a par with their share of the nation's net wealth, not on a par with their labor income, which is small compared to their investment income. Personally, I favor a flat tax with zero loopholes for anyone, including corporations. That way, the Treasury would be able to claim all it is due with no confusion or legal shenanigans, and no one could really say it's unfair. But, everyone in every group loves their loopholes, so this one remains a dream.
Finally, keep up the visibility. If we all stand by and watch the way we did in 2008, the lords of Wall Street will never be checked. The banks may not care about OWS, but leaving the streets is no way to push forward. The 1 percent might not care, yet, but the media (except for Murdoch's Wall Street Journal) are noticing, and as statistician Nate Silver recently Tweeted: "Observation: Occupy has had more success in 'shifting the narrative' than either (i) Obama or (ii) the 'Professional Left'".
So keep it up, because a repeat of 2008 might cause enough anger to create an even greater political and social backlash. But let's not let it come to that. Because if a repeat of 2008 has equally bad consequences during an already weak economy, it could result in a repeat of 1929.
Note: For any who may wonder why investment managers are repeatedly discussing OWS in their green economy blog: We decided that insofar as the rigged system of "the 1 percent" is doing what it can to perpetuate the fossil-fuel economy at the expense of the next economy, and subsequently the Earth and civilization, we have an (arguably fiduciary) obligation to our stakeholders to address that system and its opponents.
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."