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From The Huffington Post
America, it seems, can't wait to get back to business -- risky business -- as usual. No matter how atrocious business has been.
Newsweek's latest cover story declares that The Great Recession is over. A Merrill Lynch report concurs, saying, "The recession is over...We are bullish on global equities." Goldman Sachs is placing riskier bets on the market than it did before the financial meltdown (and setting aside huge amounts of money to pay its executives).
The problem is, this victory dance is being done on top of the same shaky financial system that nearly toppled over, sending us all plummeting into the economic abyss. And while the market is over 9,100 (with another 10 percent gain predicted by the end of the year) and Goldman, Citi, and Bank of America are reporting multi-billion dollar profits, unemployment is heading to 10 percent, foreclosures continue at a rate of 10,000 a day, credit card defaults are hitting record highs, and states all across the country are cutting vital services to the bone.
We've seen this headlong rush to move on before. And it should be making us very afraid.
In 2003, I wrote a book called Pigs at the Trough detailing the corporate greed and malfeasance that brought us the financial scandals at Enron, WorldCom, Tyco, Global Crossing, and many others. Rereading it in the midst of the current crisis, I was stunned to see the direct line connecting the outrages of 2003 to the predicament we are facing today, and how they set the stage -- and opened the door -- for the much larger, more sophisticated, and much more dangerous excesses that drove the housing and financial collapse of the past year.
So when I was asked by my publisher to release an updated and expanded version of Pigs, I was delighted to do so. It comes out today.
Of course, when I originally wrote Pigs, I didn't know that in just six years America would find itself in the midst of a slew of fresh corporate outrages that would lead to a worldwide economic meltdown. But I can't say that I was surprised. The reason is simple: the system that allowed the scandals at Enron, Tyco, Global Crossing, et al. was never really reformed.
Yes, there were window-dressing changes, and Band-Aid legislation. But the guiding philosophy -- that the free market would regulate itself, and that Wall Street always knew best -- remained in place. Indeed, it was given a much freer rein.
So it's been déjà vu all over again. With one big difference that makes this current crisis so painful: the scale of it all. In 2003, the corporate crooks were largely playing with shareholders' money. The new batch of Pigs is playing with taxpayer money -- trillions of it. And if we don't reform the system, given the exponential worsening of things between 2003 and now, the next financial collapse will surely be more than we can withstand.
What we are experiencing is not so much Back to the Future as it is Forward to the Past. Enron's Ken Lay, meet Merrill Lynch's John Thain. WorldCom's Bernie Ebbers, meet AIG's Joe Cassano.
And how's this for an ironic connection: Bernie Madoff will serve his sentence in the same North Carolina prison where John Rigas and his son Tim have been since 2007. As you may recall, John, the founder of Adelphia Communications, and Tim, the company's Chief Financial Officer, were two of the many villains of the previous financial debacle -- and among the Pigs I profiled in my book. Politics makes for strange bedfellows and crime can make for strangely appropriate ones.
It's as if nothing has been learned since the last go-round. It's just that the numbers have gotten much larger -- and the risks to our well-being much greater.
Two days before Enron went bust, the company gave senior employees $55 million in bonuses while simultaneously coming out against any financial assistance for the 4,500 workers who had just been fired. There was outrage and recrimination. But we quickly moved on. And a little over seven years later found ourselves once again outraged, this time by AIG's plan to pay $165 million in bonuses to the same people who had driven the company to brink of collapse and the need for a $180 billion government bailout.
Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude of its accounting fraud, the company's inner circle began an extravagant, all-expenses-paid vacation in Maui. There was outrage and recrimination. But we quickly moved on. And six years later were outraged by the $443,000 luxury spa retreat executives of AIG took just days after the government unveiled the first $85 billion of the taxpayer-funded bailout package for the insurance giant.
And the media share a big part of the responsibility. Back in 2003, just as the likes of Ken Lay, Jeff Skilling, Bernie Ebbers, Dennis Kozlowski, and John Rigas were being called on the carpet, the financial press was anointing a new set of corporate kings. Among them, future SEC target Angelo Mozilo, the former chairman and CEO of subprime mortgage dealer Countrywide. That year, Fortune lauded Countrywide for having "the best stock market performance of any financial services company in the Fortune 500" in over two decades.
As Connie Bruck reports in the New Yorker, in 2005 Countrywide was named one of Fortune's "Most Admired Companies" and Barron's anointed Mozilo one of the best CEOs in the world. The next year, American Banker gave him its lifetime-achievement award. The year after that, the subprime mess began to hit the fan.
And instead of holding the Horsemen of the Financial Apocalypse who are still in charge accountable, those in the financial media are ready to move on, searching for the next superstar cover boys.
With so many both on Wall Street and in the media tripping over themselves to return to the pre-meltdown status quo, it's easy to get blinded by the premature exuberance and hop on the green shoots bandwagon. But we must resist and demand fundamental reform. We cannot allow Wall Street and its lobbyists -- as I warn in Pigs at the Trough -- "to embrace reform while working diligently behind the scenes to undermine it."
If we are going to truly rebuild our free market capitalist system, we have to break the cycle of shock, followed by outrage, followed by a few high-profile show trials, followed by the punishment of a few culprits, followed by some meaningless reforms... and then we all move on. Until it starts again.
The question is, does the political will to create and implement new rules for Wall Street exist, or will the result be a series of tough-sounding-but-ultimately-toothless reform measures that allow the cancer of greed and corruption that has infected our political and financial systems to spread and become even more destructive?
Does our body politic have the strength to save itself?
From The New York Times
WASHINGTON — With bipartisan health care negotiations teetering, Democrats are talking reluctantly — and very, very quietly — about exploiting a procedural loophole they planted in this year’s budget to skirt Republican filibusters against a health care overhaul.
The Democrats are talking reluctantly because using the tactic, which is officially known as reconciliation, would present a variety of serious procedural and substantive obstacles that could result in a piece-meal health bill. And they are whispering because the mere mention of reconciliation touches partisan nerves and could be viewed as a threat by the three Republicans still engaged in the sensitive health talks, causing them to collapse.
Yet with the discussions so far failing to produce an agreement and no guarantee of one after the summer recess, Democrats are gaming out whether as a last resort they could use the process to secure a health care victory if they have to go it alone. The answer: It wouldn’t be pretty and it wouldn’t be preferable, but it could be doable.
“This is tough stuff,” said Senator Kent Conrad, the North Dakota Democrat who is chairman of the Budget Committee, “but, yes, it is more than theoretically possible.”
Mr. Conrad, who is one of the Democrats bargaining with Republicans, has been advising for months that crafting a health care plan under byzantine reconciliation rules is a bad idea.
From his perspective, a major impediment is the fact that the plans ultimately devised by the Senate Finance and Health, Education, Labor and Pensions committees would have to produce $2 billion in savings over five years and not add to the deficit after that.
Considering the up-front costs of trying to bring all Americans under a health insurance umbrella, and the fact that some of the structural health care changes lawmakers are considering might not produce immediate savings, the deficit rules could severely limit the scope of a bill.
“You would have a very difficult time getting universal coverage in reconciliation,” Mr. Conrad said.
And that is just the beginning. Under the 1974 Congressional Budget Act, reconciliation bills were given special Senate protection and allowed to pass by simple majority votes, after limited debate, to give senators the ability to make the kinds of tough decisions required to cut the deficit.
At the same time, Senator Robert C. Byrd, the West Virginia Democrat and longtime protector of the prerogatives of the Senate, came up with a complex set of rules intended to impede those who would dare to use reconciliation to rewrite federal policy rather than produce budget savings.
Under the Byrd rule, provisions where the fiscal consequences are “merely incidental” to the true intent of the legislative provisions can be stricken from the bill unless 60 senators vote to waive the rule. Reconciliation measures are traditionally scoured for such provisions, in what is known around the Senate as giving the bill a “Byrd bath.”
Because Republicans would probably be so incensed that Democrats were trying to force through a sweeping health plan by simple majority vote, they would no doubt challenge many elements of the bill and could strip them out.
“Most of the big public policy stuff, which is really important, would not survive the Byrd rule,” said Senator Judd Gregg of New Hampshire, the senior Republican on the Budget Committee and someone who could be counted on to use his expertise to make reconciliation as difficult as possible for Democrats.
But there is a potential way around the Byrd rule as well. Democrats are envisioning an unusual two-track approach. Under this strategy, some of the most contentious elements of health reform — new taxes and fees as well as savings from Medicare, Medicaid and other federal programs — would be packaged in one bill that could be passed by a simple majority.
A second measure would include the policy changes and program expansions and be treated like an ordinary bill, subject to filibuster and possible amendment. But the thinking is that this legislative sidecar would have enough popular programs to attract the 60 votes needed to overcome a filibuster. Voila — a health care bill.
Of course, there are still potential pitfalls, including this one: If some senators are angry the first bill squeaked through with 51 or so votes, it follows that they might not want to cooperate in providing any help in passing the second one whether they liked it or not.
Democrats and other budget experts exploring the process acknowledge it would require advanced legislative acrobatics. But they believe it could and should be done if there is no other alternative.
“If the only way to get it done is in reconciliation and you could get a bill worth doing, than that is fine,” said James Horney, director of federal fiscal policy at the liberal Center on Budget and Policy Priorities.
Democrats left the door open for just such an approach. And with an Oct. 15 deadline for acting drawing closer, reconciliation is moving back into play.
“I’ve said from the beginning,” said William Hoagland, a former budget expert for Senate Republicans now with a health insurer, “this was their insurance policy for health reform.”
