I rarely agree with Frank Rich, but this weekend he was spot on. Excerpt:
The estimated $65 billion involved in Madoff's flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street's universe. A.I.G. alone has already left us on the hook for $180 billion. It's hard for those who didn't have money with Madoff to get worked up about him when so many of the era's real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month's Vanity Fair, "In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy -- and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens."
Not just in the developing world, but in America. Look at what we saw last week alone.
To beat out the implementation of new regulations, banks are rapidly jacking up checking-account charges and credit card fees, even for those who have paid their bills on time. As Eric Dash of The Times reported on Thursday, the institutions that received the most bailout loot are often the biggest offenders.
That would include the too-big-to-fail Citigroup, which has so far received $45 billion in taxpayers' money, along with guarantees on $300 billion in toxic assets, to mitigate its reckless risk-taking during the reign of such obscenely rewarded (and now departed) executives as Charles Prince and Robert Rubin. While taxpayers will soon own some 34 percent of Citi, it is not only increasing our credit card interest rates (to nearly 30 percent in some cases) but raising its own base salaries (by 50 percent) to work around Washington's new restrictions on bonuses. New rules may come and go, but loopholes remain eternal.
We also have learned, from The Wall Street Journal on Thursday, that Goldman Sachs, another bailout recipient, is on track to pay its employees an average of $700,000 each in 2009, which, incredibly, is a bit higher than its compensation average in the pre-crash year of 2007. In a scathing and controversial new article in Rolling Stone, Matt Taibbi accuses Goldman of having earned such rewards by engineering "every major market manipulation since the Great Depression."
What's uncontroversial and indisputable is that Goldman alumni have played key roles in both the Bush and Obama administrations' responses to the current crisis -- even though Goldman has a big stake in the outcome. The dense revolving-door conflicts of interest are appalling. Goldman is howling about Taibbi's article, but the bottom line was articulated last week by the economic blogger Felix Salmon of Reuters. He wrote that he couldn't "think of a single government regulation over the past couple of decades which has remotely harmed Goldman Sachs" as opposed to the many that "have done it a world of good."
Here's a passage from that Stiglitz piece (about how America's hypocritical response to the financial crisis has discredited us in the eyes of the world) to which Rich links:
The contrast between the handling of the East Asia crisis and the American crisis is stark and has not gone unnoticed. To pull America out of the hole, we are now witnessing massive increases in spending and massive deficits, even as interest rates have been brought down to zero. Banks are being bailed out right and left. Some of the same officials in Washington who dealt with the East Asia crisis are now managing the response to the American crisis. Why, people in the Third World ask, is the United States administering different medicine to itself?Many in the developing world still smart from the hectoring they received for so many years: they should adopt American institutions, follow our policies, engage in deregulation, open up their markets to American banks so they could learn "good" banking practices, and (not coincidentally) sell their firms and banks to Americans, especially at fire-sale prices during crises. Yes, Washington said, it will be painful, but in the end you will be better for it. America sent its Treasury secretaries (from both parties) around the planet to spread the word. In the eyes of many throughout the developing world, the revolving door, which allows American financial leaders to move seamlessly from Wall Street to Washington and back to Wall Street, gave them even more credibility; these men seemed to combine the power of money and the power of politics. American financial leaders were correct in believing that what was good for America or the world was good for financial markets, but they were incorrect in thinking the converse, that what was good for Wall Street was good for America and the world.
...what was good for Wall Street was good for America and the world. Take a look at this passage from a review of a book in yesterday's Times. The book, "Methland," is a non-fiction account of how methamphetamine has devastated a Midwestern farm town. The meth didn't come from nowhere. As Walter Kirn writes in his review:
Too many scenes of sulfurous agony might chase away the most calloused, ambitious reader, so Reding recounts these nightmares sparingly, surrounding them with stretches of patient journalism tracing the convergence of social vectors that made the meth plague nearly inevitable and its eradication well-nigh impossible. He details, with blunt statistics and apt anecdotes, the vanishing of educated young males from rural Iowa, as well as the butchering of middle-class jobs at the local packing plant.The agricultural conglomerates that have gobbled up Oelwein and similar farm towns may feed the world, but they starve the folks who work for them, breeding a craving for synthetic stimulants that conveniently sap the appetite while enlarging the body's capacity for toil. These offal-streaked Dickensian mills are also magnets for desperate immigrant laborers who, in some cases, blaze the smuggling trails that run up into the Corn Belt from Mexico, home to the gang lords who own the superlabs that, increasingly, dominate the meth trade.
"Vicious cycle" is not an adequate term. As Reding painstakingly presents it, the production, distribution and consumption of methamphetamine is a self-catalyzing catastrophe of Chernobylish dimensions. The rich, with their far-off, insulated lives, get richer and more detached, while the poor get high and, finally, wasted. In the meanwhile, the traffickers fatten in their dens, expanding their arsenals and their private armies, some of whose troops are recruited from the ranks of the pale zombies their business spawns.
Here are a couple of passages from the introduction to Nick Reding's tale of Oelwein, Iowa:
As you look down after takeoff from O'Hare International Air-
port, headed west for San Francisco, California, it's only a few
minutes before the intricate complexity of Chicago's suburban
streets is overcome by the rolling swell of the prairie. The change is
visceral as the plane's shadow fl oats past houses hidden within pro-
tective moats of red cedar and evergreen shelter belts. The land
unfolds a geometric sweep of corn and switchgrass. Grain elevators
shine like tiny pieces in a diorama; next to them, venous brown-
water creeks extend their fi ngers warily onto the negative space of the
prairie. And if you look closely as the plane climbs past Mississippi
Lock and Dam Number 10, on the Iowa side of the river, you'll see
a little town called Oelwein, population 6,772. You'll see, for a few
ascendant moments, every street, every building, and every pickup
truck in brittle, detailed relief. Briefl y, you can look at this photo-
graphic image of a town, imagining the lives of the people there
with voy eur is tic plea sure. And then Oelwein (along with your curi-
osity, perhaps) is gone.Such is the reality of thousands of small communities dotting
the twenty- eight landlocked states of the American fl yover zone.
Lying beneath some of the most traveled air routes in the world,
they are part of, and yet seemingly estranged from, the rest of the
country. In many ways, it's easier to get from New York to Los An-
geles, or from Dallas to Seattle, than it is to get from anywhere in
America to Oelwein, Iowa. Yet much of what there is to know
about the United States at the beginning of the new millennium is
on display right there, gossiping at the Morning Perk café, waiting
for calls at Re/Max Realty, or seeing patients in the low brick
building occupied by the Hallberg Family Practice. In their ano-
nymity, and perhaps now more than ever, towns like Oelwein go a
long way toward telling us who we are and how we fi t into the
world. Who we are may well surprise you.[snip]
And yet, things are not entirely what they seem. On a sultry May
eve ning, with the Cedar Rapids fl ight long gone back to Chicago,
and temperatures approaching ninety degrees at dusk, pass by the
Perk and Hub City on the way into Oelwein's tiny Ninth Ward.
Look down at the collapsing sidewalk, or across the vacant lot at
a burned- out home. At the Conoco station, just a few blocks south
of Sacred Heart, a young man in a trench coat picks through the
Dumpster, shaking despite the heat. Here, amid the double- wides
of the Ninth Ward, among the packs of teenage boys riding, gang-
like, on their Huffy bicycles, the economy and culture of Oelwein
are more securely tied to a drug than to either of the two industries
that have forever sustained the town: farming and small business.
This is the part of Oelwein, and of the small- town United States,
not visible from the plane window as the fl at stretch of the country
rolls by. After sundown in the Ninth Ward, the warm, nostalgic
light that had bathed the nation beneath a late- afternoon transcon-
tinental fl ight is gone.
Against the oppressive humidity, the night's smells begin to take
shape. Mixed with the moist, organic scent of cut grass at dew
point is the ether- stink of methamphetamine cooks at work in their
kitchens. Main Street, just three blocks distant, feels as far away
as Chicago. For life in Oelwein is not, in fact, a picture-postcard
amalgamation of farms and churches and pickup trucks, Fourth of
July fi reworks and Nativity scenes, bake sales and Friday- night
football games. Nor is life simpler or better or truer here than it
is in Los Angeles or New York or Tampa or Houston. Life in the
small- town United States has, though, changed considerably in the
last three de cades. It wasn't until 2005-- when news of the metham-
phetamine epidemic began fl ooding the national media-- that peo-
ple began taking notice. Overnight, the American small town and
methamphetamine became synonymous. Main Street was no lon-
ger divided between Leo's and the Do Drop Inn, or between the
Perk and the Bakery: it was partitioned between the farmer and
the tweaker. How this came to be--and what it tells us about who
we are--is the story of this book. And this book is the story of Oel-
wein, Iowa.
Read the whole prologue here. Reding says his investigation of the way the meth epidemic has gutted a small Iowa farm town believed by many nostalgists on the coasts to embody the best of America, tells the story of rural and small-town America in a globalizing economy. It was impossible for me to read Kirn's review and not think of all the blasted small farm towns I just passed through on my way to and from Colorado. All the "Last Picture Show"-like husks of cafes and small businesses and hotels lining the road like cast-off detritus. What happened to these towns? Where did the people go? What do those who stayed behind do? In what ways am I, as a consumer, implicated in their fate?
And far more importantly: in what ways are the financial elites of the United States and their willing servants in Washington implicated?
What do we do about this? Why aren't people asking this question, and demanding an answer? Why do we put up with this? Where are the real populists in either party? Where are the leaders who will stand up to Wall Street? (You will recall that Mike Huckabee was not mocked by the GOP elites for his religious conservatism -- Sarah Palin shares that too -- but because of his relative economic populism). Where are the leaders who will stand up to the rest of us -- I mean, challenge us -- to change our ways, because we are destroying ourselves with this way of life? Where are the alternatives?
Why are we religious and social conservatives only concerned about the ways the decay of culture and morals destroy a stable way of life, and pay little or no attention to the way the economy's structure undermines that which we hold most precious?
Driving home from Colorado, we stopped at a rest station near the Colorado-New Mexico border. I read a marker about the Ludlow Massacre, in which officers of the state, enforcing the will of John D. Rockefeller and other mining magnates, murdered 20 people, mostly women and children of poor striking miners. It's too easy for all of us, especially conservatives, to forget how big business brutally exploited workers, and how trade unions were the only thing protecting the interests of those helpless men and women, who were ground to dust in the mines, and kept as virtual chattel by the mine owners, who had the wealth and the power to pursue their financial interests, heedless of the human cost.
Who are the Ludlow miners today? Reding's book would appear to say they're living and dying in towns like Oelwein, Iowa. Who will help them -- and how? Why aren't more Christians asking these questions and demanding answers? I am embarrassed by the extent to which my intellectual and cultural formation has left me ill-prepared to think about such things. Perhaps we've all been living in a fog for decades -- a fog in which the mass media, for its own reasons, valorized the get-rich-quick schemers, the mega-rich, and celebrity decadents as heroes of a culture in which getting and spending were the heights of human achievement.
And please spare me the thought that the Obama administration is on the case. As Frank Rich said in his piece:
The Obama administration's response to the economic crisis is rapidly facing its own stress tests. We will soon learn the ultimate fate and stringency of the regulatory package sent to Congress, including the consumer-protection agency the banks want to maim or kill. The stimulus's ability to put Americans back to work remains an open question. Should we have a jobless recovery or, worse, a second-wave recession like the one that blindsided F.D.R. in 1937, it will be as catastrophic for the Democrats as it will be for the country.Barney Frank seems to understand the political dynamic better than the White House. He told bankers back in February, "People really hate you, and they're starting to hate us because we're hanging out with you."
I don't know about that. I don't see people turning their anger on the oligarchical financiers and their political allies in both parties.
Yet.
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One of your best posts, Rod. I really liked this one.
It is true that rural areas have been losing population steadily for a hundred years, but it is less true (and I often agree with Geoff, but not this time) that the number of people required for agricultural production. In fact, I think it is the opposite - much of our food is actually extremely labor intensive - but much of that work is outsourced to countries with cheaper labor. We only can say we don't need an agricultural or manufacturing class if we believe that we can always go on replacing human labor with as much energy as we want, and we can always go on depending on the laboring classes of other nations. I would argue that both of those things are in question.
All of us, I think, are poorly prepared for the complexity of the questions we are facing - and I think one of the things that prepares us so poorly is the use of old enlightenment political categories to analyze things.
Sharon
so many good points made here and Rod your anger over this speaks well of you.
Sharon as usual has an excellent point about the use of the old enlightenment political categories being poor preparation to begin to deal with these issues - how nice if we could remember this in future discussions.
Individuals behave much the same as a corporation - we seek to maximize our profit - or at least minimize our expense. So instead of buying a well made here in the US dress in a local store for more money - we go buy the cheap dress made in Korea at Walmarts. We eat prepared foods made of chemicals instead of veggies a local farmer may have grown. We get arugala from farmers living like serfs in Chile. ( Another reason to support FairTrade).
What may change some of this is when oil becomes expensive. Furniture is an example - most US furniture companies send their designs to China and get the stuff made there and shipped back here- but when oil was going to 150 a barrel - it stopped being cheap and so orders starting going back to the furniture makers in the Carolinas. Expensive oil would re generate a lot of those small factories and businesses here in the US.
Re: We get arugala from farmers living like serfs in Chile.
The stuff is basically a weed and ceratinly grows like one, so why does anyone even buy it? It's one of the easiest veggies to grow. I had success with it in both Florida and Michigan. Last winter was the first time I bought arugula at the store (Whole Foods) since I was missing having it in winter, which had not been a problem in Florida. Stuff was tasteless and went bad fast.
Rich,
Excellent point and I also want to add that this is one of Rod's best posts in a while.
In fact, if you take a look around the internet for info on Oelwein and read the book excerpt, you'll see that what's been hit hardest in the last 20-30 years is actually their manufacturing base (e.g., meatpacking, railway repairs, etc.). These towns had all sorts of ways of adapting to previous shifts in the economy, but aren't adapting now.
Read about Youngstown Ohio - certainly not small town America - but instead of the endless trying to attract business, or a baseball team that cities use as a strategy to get things goijng again - they have decided to make the city smaller. They are concentrating ont heir dowtown area - which includes a smaller state University. They actually offered families who lived in neighbirhoods that have been largely abandoned $50,000 to move into the town center.
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