Pass It On Reminder ... and First Installment
Don’t miss the chance to fight big media by becoming independent media ambassadors! If you sign up for Pass It On e-mails, we will send you compelling, well-researched articles about pressing election issues — something you won’t get from the sound-bite media. You read it and pass it on to friends, family and co-workers, they do the same, and the article goes viral. Empowered with accurate information and real solutions, citizens can then demand substantive change — at the ballot box and elsewhere.
Here is just one reason why we need you. Wall Street is folding. We are currently the worst economic crisis since the Great Depression. Ralph Nader has predicted this meltdown for years. He wrote warning letters to the media and government alike, spelling out the problems and offering solutions. He was ignored. Now his predictions are reality, with bank after bank failing and the government taking on catastrophic debts to bail them out. The media, however, is treating the event like freakish accident, leaving us without any information about the sources of the disaster or the possibilities for relief. What’s more, they refuse to cover Ralph’s predictions of the crisis or his suggestions for curbing it. The consequences of this kind of bias are criminal — millions of people have already lost jobs, pensions, and homes because of it, and it won’t stop until we know where it came from and how to fix it.
So what’s the alternative?
Thousands of you receive an article like the preview piece we are sending today — a sound examination of the economic crisis offering sounds solutions. Thousands of you pass it on to thousands of people who pass it on again. Overnight, hundreds of thousands of people are empowered to make demands on their leaders, and a crack appears in the media blockade.
Don’t underestimate the power you have to change the conversation. An e-mail is a small thing, but thousands of e-mails are a revolution.
Become an independent media ambassador. Sign up for Pass It On now. (Clicking the link will take you to the votenader.org Pass It On blog. Scroll to the bottom of the blog entry to find the sign-up form.)
Onward!
Ashley Sanders
The Nader Team
The first Pass It On article appears below. It was written by Dean Baker of the Campaign for America’s Future, and was published online by Truthout.com. You can read the original article here.
Big Banks Go Bust: Time to Reform Wall Street
Monday, September 15, 2008
With the demise of Fannie Mae, Freddie Mac, IndyMac, Bear Stearns and now Lehman Brothers, we’ve been treated to the failure of more major financial firms than during any year since the Great Depression. The sight of rich bankers getting the boot might be lots of fun if it were just a spectator sport. Unfortunately, we are in the game with these clowns.
As a result of their incompetence, irresponsibility and greed, the housing bubble was allowed to grow to dangerous proportions. Its collapse threw the economy into recession, putting millions of people out of work and lowering the wages of those who still have their jobs. The plunge in house prices has destroyed much of the life savings for tens of millions of people nearing retirement.
Meanwhile, the bankers who messed up and destroyed the companies who hired them are still multimillionaires. Most of them are still in their old jobs getting multimillion-dollar pay packages. This is a sector that badly cries out for reform, and there is no better time than now to put it into place.
The first target for reform should be the outrageous salaries drawn by the top executives at financial firms. The crew that lost tens of billions at Citigroup, Merrill Lynch and the rest have received tens of millions, possibly even hundreds of millions, in compensation for their "work" over the last few years.
There is a general problem in corporate America of stockholders being unable to effectively organize to rein in top management. This problem is most serious in the financial industry.
Thankfully, the credit crisis gives us the tools we need to rein in executive pay. Currently, the major surviving investment banks (e.g. Merrill Lynch, Morgan Stanley, Goldman Sachs) are operating on life support. They are drawing money at below-market interest rates from the Federal Reserve Board’s discount window. This privilege (for which they pay nothing) can easily be worth billions of dollars a year.
These banks are also operating with an explicit guarantee from Fed Chairman Ben Bernanke to their creditors that he will honor their loans in the event that an investment bank, like Bear Stearns, goes belly up. This guarantee is enormously valuable. Investors who make loans to Merrill Lynch or Morgan Stanley don’t have to worry about the health of these companies because Bernanke has said that, if necessary, he will use public money to pay them back.
While we don’t want a chain reaction of banking collapses on Wall Street, the public should get something in exchange for Bernanke’s generosity. Specifically, he can demand a cap on executive compensation (all compensation) of $2 million a year, in exchange for getting bailed out. For any bank that is not on board, Bernanke could make an explicit promise to their creditors - if the bank goes under, you will get zero from the Fed.
This can be an effective way to restore sanity to the salaries paid on Wall Street. And, this can be a good example for setting executive pay more generally. Any time a company comes to the public for a handout, like tax breaks for oil companies or low-interest loans for auto companies, the $2 million cap on all compensation goes into effect.
This is important directly because much of the country’s wealth has been steered into these folks’ pockets, but also because the outrageous compensation packages on Wall Street distorted pay structures throughout the economy. Presidents of universities often get over $1 million a year, and even top executives at private charities can often earn near $1 million a year. These salaries seem low when compared to their counterparts in the corporate world, but they are outrageous when compared to the paychecks of typical workers.
Of course, we must go further in fixing the financial sector - most importantly by downsizing it. The financial sector accounted for more than 30 percent of corporate profits in 2004. Back in the 1950’s and 1960’s, the country’s period of most rapid growth, the financial sector accounted for less than 10 percent of corporate profit.
The financial sector performs an incredibly important function in allocating savings to those who want to invest in businesses, buy homes or borrow money for other purposes. But shuffling money is not an end in itself. The explosion of the financial sector over the last three decades has led to a proliferation of complex financial instruments, many of which are not even understood by the companies who sell them, as we have painfully discovered.
The best way to bring the sector into line is with a modest financial-transactions tax. Such taxes have long existed in other countries. For example, the United Kingdom charges a tax of 0.25 percent on the purchase or sale of share of stock. This is not a big deal to someone who holds their shares for ten years, but it could be a considerable cost for the folks who buy stocks in the morning that they sell in the afternoon.
Comparable taxes on the transfer of all financial instruments (e.g. options, futures, credit default swaps, etc.) could go a long way in reducing speculation and the volume of trading in financial markets. Such a tax could also raise an enormous amount of money - easily more than $100 billion a year. This would go a long way toward funding national health care insurance or a major green infrastructure project.
And, this tax would be hugely progressive. Middle-income shareholders might take a small hit; but it would be comparable to raising the capital gains tax rate back to 20 percent, where it was before it was cut to 15 percent in 2003. The real hit would be on the big speculators and the Wall Street boys, the folks who gave us the housing crisis. Given what the Wall Street crew has done for us, this is change that we can believe in.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media’s coverage of economic issues. You can find it at the American Prospect’s web site.
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Note: By submitting your comments you acknowledge that Nader for President 2008 has the right to reproduce, broadcast and publicize those comments or any part thereof in any manner whatsoever. Please note that due to the volume of comments we receive, not all comments will be published and it may take several hours for your comments to be reviewed, and those that are published will not be edited. But all will be carefully read, considered and appreciated.
Your comment will be visible to you (and only you) after you post it, at which point it is queued for consideration and no longer visible. Please refrain from submitting your comments multiple times.
