I suspect that few Liberals appreciate that the Democrats have become the political party of choice for Wall Street. Michael Barone makes the point that the Dodd bill purporting to regulate the financial industry confers "too big to fail" status on a whole host of large Wall Street firms. He notes that the large firms on Wall Street are quite happy with the Democratic efforts on their behalf:
Granting large firms "too big to fail" status is dangerous on two counts. It can be hugely expensive to taxpayers. The bailouts of Fannie Mae and Freddie Mac have cost more than $120 billion so far.
In addition, "too big to fail" status means that, as Wallison and Skeel write, "large financial firms will be seen as protected by the government and, with lower funding costs, will squeeze out their Main Street competitors."
Little wonder that Goldman Sachs likes the idea. It will be able to borrow at lower cost than small competitors and will be assured that its large counterparties will qualify for government bailouts. Big firms tend to favor regulation because it insulates them from competition and protects them against loss.
Republicans owe no political debt to the big Wall Street firms. In the 2008 campaign cycle, according to the Center for Responsive Politics' opensecrets.org website, Goldman Sachs personnel contributed $4.5 million to Democrats and just $1.5 million to Republicans.
Add in three other big Wall Street firms -- Morgan Stanley, JPMorgan Chase and Citigroup -- and the total take was $12.7 million to Democrats and $6.7 million to Republicans. The image of Wall Streeters as solid Republicans is as dead as J. P. Morgan himself.
John Robb, meanwhile, offers a remarkable graph which should be disturbing to anyone who cares about this country:
Here's a chart (below) that depicts the growth of the financial oligarchy. Of particular note is how quickly the financial oligarchy has looted its way back to previous highs in profitability. How? It has used control fraud to hike taxes on the real economy. As with most forms of control fraud, our loss will far, far exceed their gain.
What makes this looting possible? Costless debt (from central banks), a free pass on usury, subsidies (bailouts), government collusion (no arrests, investigations, or meaningful new regulation after the crisis), mark to make believe valuation (a mechanism that allows banks to avoid realizing losses on worthless assets), government purchases of bad assets, and government guarantees (on all of the new bad "assets" of too big to fail banks).
How to read this chart from Deutsche Bank: It shows comparative growth (and not absolute valuations). Everything is baselined at 1970.
Meanwhile in the real economy, more "unexpected" bad news:
No one can claim that major storms are now contributing to spikes in unemployment, as the administration did in February. Just two weeks after claiming a major victory from jobless figures assisted mainly by government hiring, initial jobless claims spiked upward sharply again. Is this an opportunity for wire services to use their favorite adverb?
The number has been going mainly up over the last two months, and hasn’t been descending at all since 2009. In fact, this report is slightly worse than in January, when the level rose to 482,000 … “unexpectedly.”
However the bald fact is that our economy appears now completely dependent on growth in government transfer payments. [Emphasis mine-SW] The unpleasant corollary is that taxes are already rising at the state and local levels to support government spending, and will have to rise at the federal level in 2011 to support this spending.
If employment and total wages can't begin to pick up soon, the waning effect of the stimulus, erosion in unemployment benefits, the continued state and local fiscal crisis, the end of the Census stimulus, and the effect of higher production costs will inflict another slow round of economic sapping. The bottom line is that I don't think there can be much more left in the profit margin paring for consumer needs, so at some point the pricing has to rise. But it can't rise, which would imply that production spending will fall net, which would be bad indeed.
I have been discounting the kind of astonishing stuff I am seeing in grocery pricing as somewhat induced by the threat of higher Walmart competition. But still, Walmart is doing what it is doing for a reason, and that reason is that it is hoping to boost volume.
I don't like to comment on economics because it is far from my area of expertise, but I do think there are two important points that can be gleaned from these stories:
1) None of this seems sustainable in the long term.
2) These stories reflect a society under a great deal of stress.
A population can tolerate reasonable levels of belt tightening when the sacrifices are relatively evenly distributed. The "recovery" being much touted in the media and by our political leadership is not only not evenly distributed by is being accompanied by signs that the stresses on most people will be increasing enormously in the next months to years. If our political class is more inept than usual (always a safe bet) we could be facing the kinds of Societal Regression under stress that devolve to civil unrest. Our President and the Congressional Leadership seem to be oblivious to the dangers, and their past behavior suggests they are more likely to respond with scapegoating and demonizing of the opposition (both forms of splitting), rather than more mature, rational responses to the unsustainable perturbations they have done so much to facilitate. We need Congressional and Executive wisdom now more than in a very long time. My concern is that such wisdom has been most conspicuous by its absence in Washington.