The Wrong 1%

In what way is Occupy Wall St like the French Revolution?

Apparently the Occupy Wall St movement is about inequality and injustice; about how the 1% lives at the expense of the 99%; about the evils of corporate greed and personal excesses.

If so, Occupy Wall St would seem to be a contemporary version of the French Revolution, which was driven by very similar factors:

  • Hunger and malnutrition caused by high inflation in food prices and an inadequate transportation system;
  • An effectively bankrupt state due to the enormous cost of previous wars (sounds like US and Europe to me);
  • An inefficient and antiquated financial system unable to manage the national debt (sounds like US and Europe to me);
  • An unjust and unequal tax burden on the middle and lower classes while the nobles were exempt from taxes (sounds like US to me);
  • Resentment of the privileges given to the upper classes and powerful institutions (sounds like US and Europe to me);
  • Aspirations for social, political and economic equality; and

  • An ineffective ruler (King Louis XVI), who was often indecisive and known to back down when faced with strong opposition who successfully thwarted his attempts at enacting much needed reforms (sounds like many European countries to me).
  • Those opposed to Louis’ policies further undermined royal authority by distributing pamphlets (often reporting false or exaggerated information) that criticized the government and its officials, stirring up public opinion against the monarchy (sounds like US and Europe to me).

    But somehow I don’t think the OWS movement will have the same results as the French Revolution (ie King Louis XVI beheaded and a new French Republic formed). In fact, I believe that, by its very name, the OWS movement is attacking in the wrong direction.

    Instead of going after the politicians, OWS is choosing to occupy Wall St, to demonstrate in front of the London Stock Exchange, to generally target financial centres around the world. The stated reason is that Wall St and other financial centres represent the worst of corporate greed, and bankers are the worst of the worst– not only do they get obscene bonuses without producing anything of value, they even get golden parachutes and taxpayer bailouts when they crash and burn.

    OWS got it so completely wrong, it’s embarrassing.

    First, a look at America’s highest paid CEOs shows how wrong they are. The list is headed by CEOs of UnitedHealth, Disney and Qwest. Bankers aren’t even among the top 30! And guess what? The highest financial CEO is not from Goldman Sachs or JP Morgan. It’s Richard Handler of boutique investment firm Jefferies Group, weighing in at No 42.

    Second, OWS fails to recognise that banks were not the only institutions bailed out during the 2008 financial crisis. Did they forget the General Motors and Ford got bailed out as well, also using taxpayer money? And way before 2008, Chrysler got bailed out by the Reagan Administration in the 1980’s; Lee Iaccocca’s turnaround of that company is still a classic case study for every MBA student.

    Why didn’t OWS go to GM, Ford or Chrysler– they got taxpayer bailouts too.

    Third, OWS is so blinded by its anger over bonuses and bailouts they don’t understand why the Govt had to bail out the banks. Well, the US Govt decided not to bail out Lehman, and look what happened. Could they risk it by not bailing out AIG or Citibank? There could well have been a massive bank run on the entire financial system causing an economic catastrophe if they had let AIG or Citibank failed as Lehman did.

    Hence the Govt was acting in the interests of the economy as a whole, not in the interests of the bankers or banks. OWS forgets that.

    OWS targets the bankers whose greed caused them to engage in reckless behaviour, but they forget who was supposed to watch the bankers.

    Who allowed the banks to carry so much leverage on their balance sheets? Who allowed insurance companies to buy complex derivatives they didn’t understand? Who didn’t enforce stress test standards and capital requirements? Who didn’t control subprime loans? Who didn’t control household debt?

    Why aren’t they occupying the Fed instead of Wall St?

    It’s the job of bankers to make money, not just because they can, but because that’s what they’re employed to do. As long as they aren’t told what they’re doing is illegal, they’ll assume it’s legal and they’ll carry on doing it.

    We have speed limits, radar cameras and highway patrols on roads to make sure drivers obey the law, and we have fines and other punishments for those who break the law. We also have seat-belt requirements, baby seats requirements, height, weight and load limits, even vehicle inspection regulations. The intent of these measures is public road safety– ultimately to prevent road users from being injured or killed to the extent humanly possible.

    We trust that the controls work, ie the cops are on the ball, and the punishments are deterrent enough.

    So where were those who should have enforced the speed limits and fined and jailed the bankers? Were there even speed limits, height limits, load limits and vehicle inspections in the first place?

    While I don’t like the harsh nature of MAS inspections, it must be acknowledged that MAS holds banks to a very high prudential standard in Singapore, with capital requirements much higher than minimum Basel II requirements. MAS has also been very conservative on mortgage loans and personal credit.

    Contrast this with the US, where people with no income were given 100% (subprime) housing loans, and where capital requirements were undersized relative to risks banks and other financial institutions took on their book.

    So why isn’t OWS occupying the Fed?

    Why aren’t they occupying the White House? Or Capitol Hill?

    It’s not greed that causes financial systems to crash. It’s not greed per se that causes income inequality– and even if greed has something to do with it, like sloth, like the other seven deadly sins, greed cannot be prosecuted by law.

    Income inequality happens not just because the rich get richer per se– it’s because the system is not right, and is not distributing the wealth right.

    Income inequality happens because the tax system is not right– so much that Warren Buffett is volunteering to pay more taxes.

    Income inequality happens because the distribution is not right– too much money goes into defense and war expenses, not enough into public services, infrastructure, healthcare and education.

    Bailouts happen not because bankers are corrupt, but because those who control them are sleeping on the job.

    Drivers obey the law not because they are angels, but because the penalties for not obeying the law deter non-compliance sufficiently. This applies to bankers too.

    OWS needs to attack the right 1%. The politicians who refuse to tax the rich and who keep increasing the national debt, the regulators who slept on the job, the hot-headed war-mongers on Capitol Hill who waste the country’s resources on useless wars.

    As in the French Revolution, the change that needs to take place is in the political leadership and the system of Government– though I hope no one gets beheaded this time round.


    About politicalwritings

    Someone who sees beyond PAP and "opposition" in Singapore politics. To understand more please see the Top 10 link below.
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    6 Responses to The Wrong 1%

    1. Pingback: Daily SG: 9 Nov 2011 « The Singapore Daily

    2. An Electorate says:

      Richest man in the world is not Bill Gates. Rothschild is the 1% and the only per center a k a the FED. Their reach and apparatus are deep and wide. Too many Bankers have sold out, become enablers of a self-serving, corrupt, greedy powerful monster that no lone President (past & present) can take them. OWS is only scratching the surface, not their fault. Catch this and if you’re chinese literate, read Currency War by Song Hong Bin.

    3. stngiam says:

      “Hence the Govt was acting in the interests of the economy as a whole, not in the interests of the bankers or banks. OWS forgets that.” A bit like saying that when a parent hands over the ransom to the kidnapper holding a gun at his childs’s head, he’s doing it in the interests of the child, not of the kidnapper.

      The crucial mistake the govts made when they bailed out the banks was failing to ensure that the taxpayer funds went to recapitalizing the banks rather than being shoveled out the door as remuneration to the same people who got the system into trouble in the first place. Not to worry, though, wage stickiness will ensure that those already in the banking sector will not suffer too big a drop in wages. Financial sector wages will drop due to increasing regulation of the industry, but the pain will be felt deepest and first by new entrants into the industry rather than those already in the system.

      • Thanks for comments. I don’t agree. Money is fungible, so to say that it went out the door is misleading.

        Notwithstanding the above, the point is that western govts have to regulate banks properly, strictly and prudentially– like MAS does. Only by forcing banks and shareholders to put up more of their own skin into the game, and only by enforcing prudential limits strictly, will govts be able to prevent further bailouts in future.

        OWS needs to recognise that govts have a responsibility to society as a whole, unlike bankers– who only have responsibility to their managements and shareholders. OWS needs to bark up the right tree.

        There are no regulations on how much debt companies can take or who can be appointed CEO or chairman.

        But banks are different. Every aspect of their operation, from how much capital they have to maintain to the BCP standards they have to meet, are strictly regulated, because they are systemically important institutions.

        So banks can’t just be allowed to fail, they HAVE to be bailed out. Does OWS realise this?

        Given this moral hazard, it is incumbent on regulators to ensure that banks don’t overstep prudential boundaries that could result in bailouts. That’s why financial regulators are given so much power over banks. Does OWS realise this?

        If regulators don’t regulate banks properly, and banks take excessive risks which blow up that require bailouts, why doesn’t OWS focus on the regulators?

    4. KTK says:

      Did the writer take into account the bonuses they give themselves?

      • Yes. Did you look up the link to see how much the CEOs of Qwest, Disney and UnitedHealth were paid?

        Bonuses come when agreed earnings targets are hit. I feel that there should be some longer-term component, ie which does not vest until much later. But that doesn’t change the amounts, which are based upon earnings.

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