Accountability for the Crisis
This posting is by Arjun Jayadev, who teaches economics at UMass Boston and is a member of the D&S collective.
The financial meltdown arising from the sub-prime mortgage crisis and the weakening dollar has affected everyone negatively and the outlook for all is grim. Or so at least the conventional story goes. ‘Everyone’ does not include those at the center of the crisis and who were controlling the levers of a financial system which permitted the extreme levels of risk that characterized this period. And no, one doesn’t mean the policy makers at the Federal Reserve who have rightly been castigated for allowing the real estate bubble to build by keeping interest rates too low for too long. A few observers (e.g. here and here), have noted the fact that executives in the largest financial concerns on Wall Street continued to be rewarded handsomely for their actions in a year where they actively abetted the worst financial crisis in the last decade.
Some sorry accounting then, starting with Wall Street:
—Bonuses in the securities industry amounted to 33.2 billion dollars—about
0.7 billion off its record year (2006).
—The total compensation and benefits of the biggest firms(Citigroup Inc., Merrill Lynch & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc., Bear Stearns Cos., Morgan Stanley and Lehman Brothers Holdings Inc.) grew by 10% since 2006, although revenue and profits fell across all the firms as did their stock prices. Companies actually increased the proportion of revenues which went to employee compensation, ostensibly in order to keep ‘high performing employees’
—To be sure, bonuses fell for those most directly involved for the mortgage market, but for those top executives who lost their jobs, parting was simply sweet. Stanley O’ Neal, the ex-CEO of Merrill was punished with a parting package of $161 million. Not bad for a bad years work. The LA times reports that Countrywide Financial Corp. founder Angelo Mozilo, could reap $115 million in severance-related pay if his organization is taken over.
Meanwhile, on Main Street:
—Households will lose $164 billion in equity due to foreclosures;
—About 3 million homes will be foreclosed over the next three years leading to losses of about $350 billion;
—With falling home values, neighbours will experience losses in equity of about $200 billion;
Its enough to make you think that the system is unfair.