Dean Baker: Wall Street Follows the Path of the Steel Industry in Pittsburgh

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TUESDAY 7 OCTOBER 2008


Truthout Original

Wall Street Follows the Path of the Steel Industry in Pittsburgh
Monday 06 October 2008

by: Dean Baker, t r u t h o u t | Perspective



There is a joke circulating on the Hill these days. "What is the technical term for a Wall Street investment banker who supports free trade?" The answer, of course, is "liar."

In spite of the $700 billion bailout package, Wall Street is going the way of the steel industry in Pittsburgh. The financial industry in the United States is hugely bloated and hopelessly uncompetitive in international markets. In this way, it shares similarities to the US steel industry in the late 70s, except Wall Street is much more poorly situated.

While workers in the steel industry may have been somewhat more highly paid than their counterparts in Europe, Japan and South Korea, the differences were comparatively small. By contrast, nowhere else in the world do bankers get paid annual salaries in the tens or hundreds of millions of dollars. Until these salaries are pushed down closer to the pay scales in other financial markets, Wall Street will have a very difficult time competing.

The $700 billion bailout package slows Wall Streets day of reckoning. The Wall Street gang, with its huge campaign contributions and friends in high places, such as Treasury Secretary Henry Paulson, is better positioned to get protection than steelworkers or textile workers. But, as we all know, you can't just build walls around the country.

Perhaps, our trading partners will protest the subsidies to Wall Street, which may violate our commitments under various trade agreements, but even if they don't, the days of the Wall Street crew are numbered. Their conduct over the last 15 years has shattered their reputation both nationally and internationally.

The fact that so much junk was passed along to international investors as top-quality debt means, in the future, foreign investors will no longer trust the assets that Wall Street firms are marketing. Similarly, the fact that so many small towns and cities were ripped off on auction rate securities and other financial instruments probably means that the investment bankers will not be welcomed in large parts of the country for many years into the future. ......(more)

The complete piece is at: http://www.truthout.org/100608B