I watched Obama’s speech last week and frankly I was disappointed. It was a nice speech, but in my view, Obama missed the key issue that will fix our economy from a death spiral. That issue is Wall Street.
We all agree that Wall Street and the Fed are the underlying reason behind the greatest economic depression since the Great Depression. BTW. Why do people call our current crisis the worst since the Great Depression? They have been calling it that for years at this point. The Great Depression is over and it was bad. Our current crisis is not over, and so therefore, we cannot compare one against the other.
Back to Wall Street. So these guys are making record profits. They are making money hand over fist during this economic crisis. While unemployment remains high and the rest of America suffers, these guys are raking it in. Why is that? I think I know.
Last year, I called my banker and I considered getting a loan for my business. We did not need the money but I was more curious. He told me that my interest rate would be 5%. I told him that sounded high. In fact, that was the same interest rate I would have received before the economic crisis. He agreed but that was the rate. So here is the issue. Before the crisis, banks could buy from the Fed at let’s say 3%, and then they would sell that same money to me at 5%. They net 2%. Now, they can buy from the Fed at 0%, but they are still selling at 5%. They now net 5%. Their profits have more than doubled because their costs have gone down. They are making so much money that they don’t need to make any more loans, they can just milk it.
Of course, this was not the intention. When the Fed reduced the rate, they wanted to give more people access to capital. Let’s just say the entire zero percent interest thing has been a miserable failure and the only ones that have benefited have been the bankers.
But this is not the reason I am blogging today. I view the fundamental issue that we must defeat in America is the amount of control that bankers have over our lives and the impact it has on our well being. I plan to demonstrate that what is good for Wall Street is quite often in direct conflict for what is good for Main Street.
Before I begin, I have a lot of friends in the financial sector and they are all doing fabulously well. This is not a personal attack. These are my observations about the system and not the people in it.
There is no dispute that Wall Street was behind the huge housing crisis. We all know the history. They created the bubble and when it popped they were screwed and so the taxpayers bailed them out to tune of over a trillion dollars. But there is another story. During this bubble, the entire immigration issue heated up.
Here in Myrtle Beach it was particularly pronounced. Suddenly, the dominant language in Walmart and Circuit City was Spanish rather than English. I am not complaining. I speak Spanish. I am just using this as a barometer of change. Also now a days, I don’t hear that much Spanish being spoken.
Anyways, the point is that all of these companies building the houses like Lennar, etc are large publicly traded companies. They all use illegal immigrants and we know it. So does Wall Street. What happens when a company such as Lennar begins to use illegal immigrants? First, their costs go down. Also immigrant workers have less rights and there is no chance they will ever form a union. Good docile workers just like Wall Street likes them. The labor costs go down, but also payroll taxes go down. Insurance costs go down. Medical costs and so on. Once their costs go down, they have a choice. They can pass the savings on to customers or they can increase profits. Guess which one Wall Street prefers? PROFITS.
So Lennar announces improved profits, and Wall Street rewards the executives at Lennar by running up their stock price. Since all executives have stock or stock options, these guys are now filthy rich. Not because they are smart, but because they were willing to break the law.
But the problem gets worse. Other executives at other home builders see that their colleagues at Lennar are getting filthy rich and they jump on the bandwagon. Before you know it, all home builders think that the only way to build a house is using illegal immigrants. And that’s where things stand today.
As I get older, a lot of my friends are getting older as well. I actually have a very close friend that is 55 years old. He works for a hospital in California. We were having beers and he tells me that he turns 60, he is going to get 80% of his salary and full medical benefits for his pension. I was really really happy for him, but then it made me sad. I quickly began to realize that very few of my friends have pensions. Some are very financially healthy and have no worries, but to be honest, I would say that 1/2 of my friends are essentially fucked. They will never have enough money to retire and they will work until they die. I am not a sociologist but I believe that their life expectancy is not good.
Even when I talk to my friends that have pensions, they are quick to point out how lucky they are. Without exception, these pensions are being discontinued. My friends and relatives hit a certain pension window, but it is safe to say that my children will never have a pension. They either save a lot of money, or they will work until they die.
Wall Street does not like pensions. I really don’t think they can relate. They make more in 6 months than most people make their entire lives. Of course no one on Wall Street needs a pension. They make so much money that their children’s children’s children will not have to work if they don’t want to. Pensions are bad for profits and bad for stock prices.
When I worked at Gateway from 1991-1999, one of our primary functions were call centers. We handled everything on the telephone. Sales, customer service, technical support, returned parts, customer accounting and so on. Furthermore, every single one of these tens of thousands of jobs were legal Americans. In less than ten years, all of those jobs are gone. They are all in India and the Phillipines best I can tell.
If you talk to just about anyone, there is not one of us consumers that like talking to non Americans. It is not like there is some advantage to talking to an Indian person to get a refund on my credit card. It is the opposite. Sometimes their accents are not intelligible and quite often they are ill trained to boot.
If you go and look at what companies are outsourcing you will find the vast majority are publicly traded companies. By and large small businesses like my company, we still answer our phones.
Note: By the time that Gateway began outsourcing, I had already left, but I definitely voiced my concerns. My reasoning had nothing to do with cost. You want your points of contact to the customer linked to your operations. Customer service also gives valuable feedback to operations on what they are doing wrong. Outsourcing breaks that link. In fact the opposite occurs. The Indian call center wants more calls, not less. So the last thing they want is to eliminate the problem at the root. Outsourcing promotes inefficiency in the long run.
Is there any doubt in anyone’s mind that when a publicly traded company began outsourcing jobs that Wall Street rewarded them with an increased stock price?
Here is one of the scariest trends that I see in America. Wall Street loves monopolies. By monopoly, I mean a company that has enough market share so that if they want to increase their profits, all they need to do is raise their prices. This is definitely a Bush thing. Not that I agree with this, but Clinton went after Microsoft as a monopoly. Way back long before any of were born, it was a Republican named Teddy Roosevelt that decided that corporations were destroying the American way of life. He ran on a platform of busting the trusts, and he actually won and that’s what he did.
It is not clear whether the monopolies and trusts are more powerful now than then, but one thing is clear. Powerful companies today have a lot more leverage in federal government.
We can see it all around us. Just look at the airlines. They are all in the process of consolidating, eliminating routes and jobs, and increasing prices. I was shocked when I paid over $7000 for my family of four to return from Rio de Janeiro to the United States. That’s a lot of dough. I used to pay less than $500 a person less than 5 years ago. Then think about your TV and internet provider. What true options do you really have? There is no competition and over time, our internet and television bills have slowly gone up.
These price increases just pad the corporate bottom lines and then Wall Street knocks up the stock price. The increased stock prices allow upper management to retire early and filthy rich.
Let’s make a note. People want to blame this entire situation on greed. I disagree. I am not a greedy guy, but if I were in their shoes, I would do the exact same thing. It is the rationale thing to do. It is not the players. It is the system itself that is flawed.
Made In America
We see it all around us. Made in China. Nothing is made in America anymore. I think there should be a law where the flag of the country of the manufacturer should be prominently displayed on the front of the box. You shouldn’t have to pick up the box and figure out where they hid the disclosure.
If you look at all the companies that are manufacturing in China, by and large they are all publicly traded companies. They have Wall Street’s seal of approval. There is one thing that is clear. Wall Street does not care about American jobs.
It was over 100 years ago that Teddy Roosevelt was president, but we seem to be at the same point again. I disagree with the TEA party on one key fact. The only solution to this problem is for our government to stand up to Big Business and Wall Street. The sad reality is that no one in our government has the balls to stand up and the problem keeps getting worse and worse. I think myself as well as many Americans hoped that Obama would be different. It is obvious to see that Obama is more like George W Bush than Teddy Roosevelt.