Dean Baker: Bloodletting on Wall Street

[marmar]

via CommonDreams:



Published on Monday, June 23, 2008 by The Guardian/UK
Bloodletting on Wall Street
by Dean Baker



There were two noteworthy episodes last week in the continuing drama surrounding the housing market meltdown. First, the New York Times did the arithmetic and found that the Wall Street banks had already written down debts that amounted to almost half of their profits in their boom years from 2004 through the first half of 2007.

The other big item was that two Bear Stearns hedge fund managers were marched off to jail, charged with fraud and other related offences. According to the public accounts, these managers were extolling the virtues of their funds to customers, while at the same time in private emails to each other they were writing that the funds were about to be wiped out.

My guess is that the bloodletting is far from over. Much of the other half of the Wall Street profits will be gone by the end of the year. Also, many more Wall Street big shots will surely be doing the perp walk before the story reaches its conclusion.

This raises many questions about Wall Street and the economy. First, since so much of bank profits were illusory, the story about profits in the economy is somewhat different than we had thought. There really was no profit boom in this decade. In fact, true profit shares of GDP were almost certainly less in this cycle than in the 1990s. This means that the upward redistribution that prevented most workers from getting much benefit from productivity growth over the last decade went exclusively to high-end workers, not corporate profits.

I will have more to say in future columns about profit shares in the economy; this is a very important issue. But Wall Street’s vanishing profit syndrome tells us much about the current state of the relationship between stockholders and top executives.

Remember, the business ideology of the last quarter century was that the shareholder is king. Everything must be done to maximise shareholder value. If this means massive layoffs or shutting factories that had supported a local economy for decades, so be it.

However, we have just seen the top managers of many major Wall Street banks take their shareholders for a huge ride. These are people who got annual compensation packages that always ran into the millions of dollars and often the tens of millions of dollars. ......(more)

The complete piece is at: http://www.commondreams.org/archive/2008/06/23/9839/

[KoKo]

1. Good points here....and even though many are tired of "bad news"...it's worth the read

to see what he says...and to figure out what we can do to shield ourselves from the coming melt down. Those who will read this...have some money through 401-k or Retirement Investments, CD's or whatever. BUT, many of our DU'ers...don't have any investments, CD's or any money at all that isn't "under water."

Something needs to change and for those of us who have interest in Dean Baker's article...we aren't forgetting that there are so many who have no hope of ever reading this...and getting the "cautions" because they are homeless or getting read to be. DU is diverse. We have folks here all over the spectrum...and this doesn't mean that stock market posts don't apply to some of us in retirement, on the edge of it and those who still have a job.

What Wall St. does has an effect on all of us...from the "homeless right up the spectrum."

We are going to have to work together to stop these corporatists. Dean Baker is a good guy...sounding an alarm. We have to listen to those who aren't "Corporate Shills" to find a way to come out of the "Dark Times Coming" for ALL of us..

[PATRICK]

2. The gas "gouging"

this time is not just the oil industry but speculators and attached weakening sectors directly taxing and leeching off every single consumer on the planet, shareholders also ponying up for their masters.

They control the messaging of the fact that nealy half of the gas price and all the responsibility for poor mileage comes from the same troubled greed sector daring all to save and increase their needless wealth. If not for that their houses would literally be burning. they brave the fact that the knowledge is out there and growing because such knowledge will never be set loose or directed even as it was last time against only the unreachable foreign sheiks,Japanese, the weather, whatever.