Rewarding Bad Actors By PAUL KRUGMAN Published: August 2, 2009 http://www.nytimes.com/2009/08/03/opinion/03krugman.html Americans are angry at Wall Street, and rightly so. First the financial industry plunged us into economic crisis, then it was bailed out at taxpayer expense. And now, with the economy still deeply depressed, the industry is paying itself gigantic bonuses. If you arenât outraged, you havenât been paying attention. But crashing the economy and fleecing the taxpayer arenât Wall Streetâs only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view. And theyâre still at it. Consider two recent news stories. One involves the rise of high-speed trading: some institutions, including Goldman Sachs, have been using superfast computers to get the jump on other investors, buying or selling stocks a tiny fraction of a second before anyone else can react. Profits from high-frequency trading are one reason Goldman is earning record profits and likely to pay record bonuses. On a seemingly different front, Sundayâs Times reported on the case of Andrew J. Hall, who leads an arm of Citigroup that speculates on oil and other commodities. His operation has made a lot of money recently, and according to his contract Mr. Hall is owed $100 million. What do these stories have in common? The politically salient answer, for now at least, is that in both cases weâre looking at huge payouts by firms that were major recipients of federal aid. Citi has received around $45 billion from taxpayers; Goldman has repaid the $10 billion it received in direct aid, but it has benefited enormously both from federal guarantees and from bailouts of other financial institutions. What are taxpayers supposed to think when these welfare cases cut nine-figure paychecks? But suppose we grant that both Goldman and Mr. Hall are very good at what they do, and might have earned huge profits even without all that aid. Even so, what they do is bad for America. Just to be clear: financial speculation can serve a useful purpose. Itâs good, for example, that futures markets provide an incentive to stockpile heating oil before the weather gets cold and stockpile gasoline ahead of the summer driving season. But speculation based on information not available to the public at large is a very different matter. As the U.C.L.A. economist Jack Hirshleifer showed back in 1971, such speculation often combines âprivate profitabilityâ with âsocial uselessness.â Itâs hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But itâs hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function. What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where theyâre needed. Again, itâs hard to see the social value of what he does. And thereâs a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock marketâs function, because itâs a kind of tax on investors who lack access to those superfast computers â which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a âdouble social lossâ: it uses up resources and undermines markets. Now, you might be tempted to dismiss destructive speculation as a minor issue â and 30 years ago you would have been right. Since then, however, high finance â securities and commodity trading, as opposed to run-of-the-mill banking â has become a vastly more important part of our economy, increasing its share of G.D.P. by a factor of six. And soaring incomes in the financial industry have played a large role in sharply rising income inequality. What should be done? Last week the House passed a bill setting rules for pay packages at a wide range of financial institutions. That would be a step in the right direction. But it really should be accompanied by much broader regulation of financial practices â and, I would argue, by higher tax rates on supersized incomes. Unfortunately, the House measure is opposed by the Obama administration, which still seems to operate on the principle that whatâs good for Wall Street is good for America. Neither the administration, nor our political system in general, is ready to face up to the fact that weâve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.
What really irks me is not that Wall Street is taking money that is handed to them on a silver platter--who wouldn't?--but that elected politicians simply hand over taxpayer money with virtually zero strings attached. While America's debt burden grows by the minute, Wall Street titans still have their bonuses even though they made many bad bets. Win...and reap the rewards from the person who took the other side of the trade. Lose...and simply reap the same rewards from the taxpayers. Gotta love clueless politicians!
I think I passed out for a second or maybe had a mild stroke after reading an article from a liberal economist working for the NYT criticizing the Obama administration. He's probably setting us up for the counter punch in his next article.
Why would you think politicians are clueless? They are rich, powerful and merely giving what their supporters demand. Most liberals do have minds of their own, that is why they are called liberals - free to think for themselves; not constrained or confined or conservatives.
The only difference is that liberals entrust the government to think for them where as conservatives entrust their individual beliefs to guide their thinking. Either taken to the extreme and put into public policy is dangerous to free thinking liberal and conservative men and women.
Total BULLSHIT! Liberals pander to the "have nots".. at the expense of the productive and against the health of country... in exchange for political support. That has always been their schtick! Libtards are the WORST kind of lying, thieving, self-serving sons-o-bitches! (Not that much worse than the Republicans.. just to the extent that Libtards SHOULD BE SHOT FIRST!)
I had my loudest and best laugh of the year today, when I heard on the radio, the Obama boneheads say, they will probably have to raise taxes on the Middle Class. There's your CHANGE.
If Obama breaks his pledge to NOT raise taxes on anyone making less than $250,000, no matter how smoothly he tries to spin it, he'll be a one term president just like Papa Bush. <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/OuLWgVOLbG4&hl=en&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/OuLWgVOLbG4&hl=en&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>
Oh, you mean he'll be seen as a LIAR as well as a usurper of the Constitution AND a fraud?? What will anybody DO about it? By the time 2012 rolls around, his damage on the USA will already be permanent..