By Yves Smith
308 pages. Palgrave Macmillan. 2010.
What I know about economics is not worth knowing except: 1) Marx was the first and last radical economist. 2) 99.9 percent of economists are conservatives.
The 0.1 percent accounts for liberals like the late John Maynard Keynes and Paul Krugman, New York Times columnist today. Author Yves Smith is surprisingly a liberal even though she has spent 25 years in finance and consulting.
Greed is never good. But it is always abetted by the party in power whether it is Republicans like Presidents Ronald Reagan and George W. Bush or Democrats like Presidents Bill Clinton and Barack Obama.
They have all been or are Wall Street friendly.
“The incoming Obama team was every bit as much of a hostage to the financial industry as the Bush administration had been,” Smith writes. “This is no surprise given the large contributions Wall Street made to the Obama campaign.”
Nor was it a surprise that the Obama administration “continued large-scale handouts to the banking industry with transparency and accountablity notably absent.”
Obama’s key advisers are from the same gang that caused the financial mess to begin with. It doesn’t take a cynic to realize that administrations can change but fundamental policies don’t.
College economics textbooks are overflowing today with mathematics, statistics, theory and charts. But Smith makes it clear that that the economic reality on Wall Street is making money—bales of it.
Part of the problem is that Wall Street dealings and terms are so complex that Main Street tunes out. Few know what derivatives are and few care. That’s the way Wall Street wants it.
But the public does get justifiably outraged when 17 financial giants get $1.6 billion in excess compensation while failing banks draw billions from taxpayers in bailouts.
One Smith chapter heading says much about Wall Street: “How Deregulation Led to Predation.”
The Glass-Steagall Act of 1933 requiring tight controls on banking was repealed in 1999, leading to gross weakening of any restraints on looting and scams by banks.
“Capture of the executive branch and much of Congress by a well-heeled financial services industry means that we allow it to further its self-serving agenda,” Smith writes. “The industry has seized control of the regulatory process.”
Or, as put by Elizabeth Warren, congressional overseer of bank bailouts: “The big banks always get what they want. They have all the money, all the lobbyists.”
(Congress recently enacted rules to curb unbridled Wall Street greed. The bankers smiled. The law does nothing to rein in their power to rip off consumers.)
And then there are the horrors of supply-side economics, the notion of cutting taxes while balancing budgets to produce higher revenue. This is what President Bush I rightly called voodoo economics.
Smith, who has been posting a blog called “Naked Capitalism” since 2006, recently flogged Bush tax cuts.
“A school of political and economic argument goes something like this: every economic ill can be cured by tax cuts,” she wrote. “It’s clearly rubbish.
“The Bush tax cuts were so egregiously skewed toward the well-off that billionaire Warren Buffett objected to them. Buffett noted that his secretary paid a higher percentage of her income taxes than he did.”
The tax cuts lowered rates on income, dividends and capital gains. The law proposes eventual elimination of estate taxes.
Smith rightly decries the plutocratic land grab in Russia after the collapse of the Soviet Union. President Boris Yeltsin privatized and sold off state enterprises at bargain prices.
Smith calls Alan Greenspan, former head of the Federal Reserve, a true believer in two things: Ayn Rand, high-priestess of rampant individualism, and the virtue of unregulated markets.
Those positions were handed down from “on high” by Milton Friedman and his Chicago School of Economics. Friedmanites promulugated the false doctine that any government action in the so-called “free market” was intolerable interference. (Interference is anything that hampers Wall Street profits.)
Smith herself gets technical and even arcane with “Gaussian distributions,” “Bessel’s corrections” and “fractal geometry.” Her book is full of charts, mathematical formulas and gobbledygook.
She rightly argues that economics is not a science but then makes it sound so. Book authors seem compelled to write more than they need to. Smith is no exception.
Nevertheless, her thrusts at Wall Street are remarkable in a profession hag-ridden with conservatism.
Jake Highton teaches journalism at the University of Nevada, Reno. Contact him at firstname.lastname@example.org.