Living by a Different Set of Rules

Nobody in the world really believes that people are born equal at birth and that their lives track through a life of equal opportunity, no matter the legal system. But I am constantly and pleasantly surprised how Americans react to individual acts of injustice. Try butting in line at a taxi, grocery store or sporting event queue if you want the simplest example. But do you think for a moment that a North Korean would be outraged if a government official moved his buddies to the head of any line? The expectation of equality and opportunity is at the heart of our American democracy, but as the economic waves of misfortune have washed against us over the past few years, it is beginning to look as if that expectation may have finally been dashed on the rocks of reality, that the incumbent elites have finally managed to create an entirely different set of rules that seem to have given them a permanent edge.

I have blogged on several occasions about the economic polarization of our nation, more wealth at the top, more people at the bottom, and a whole lot fewer people in the middle. For older workers, the unemployment statistics have a more devastating meaning, even as our overall unemployment picture shows a tiny sign of improvement: “ ‘All the gains we've seen from the peak last fall to now, they've gone to people less than 55 years old,’ said Heidi Shierholz, labor economist with the Economic Policy Institute… Experts also said the unemployment rate for older workers may be artificially low. Older workers are more likely to become discouraged and stop looking, thus no longer being counted as unemployed in the government figures.”

Money.CNN.com, June 28^th. In April the AARP reported this about unemployed older workers. “Their average duration of unemployment increased to 51.1 weeks as of March, up from the 46 weeks in the February survey. For people under 55, the duration rose to 37.8 weeks from 35.2 weeks in February.” Older workers are giving up and throwing in the towel. Yet, for those entering the job market, things are even worse: “The unemployment rate for people 16 to 19 stands at 23.9%; for 20 to 24 year-olds, it’s 13.4%. The figure for 25 to 34 year-olds is 9.3%, only slightly over the average, and all other age groups have unemployment rates below 7%.” DailyFinance.com, November 4^th. But for the incumbent power elites, armed with the unlimited power to buy political advertising to foist their priorities on the American public under Citizens United, life is still good… very good.

As public schools have deteriorated, those with the money to afford well-heeled private education have been unaffected. As small businesses reel from a devastating lack of capital, both from the inaccessible equity markets and evaporated debt facilities for all but the biggest of the big, Wall Streeters are able to place billions into the coffers of America’s listed companies. Raising equity requires massively expensive compliance with securities laws, a cost that is well-beyond the capability of all but the highest reaches of society. Major fund managers have managed to turn their massive incomes into capital gains, among the lowest tax rates found in the United States, while their salaried and wage-paid employees pay earned income rates at well above the rates applied to the most senior managers. And in the world of regulatory compliance, despite statements that we are over-regulated, if you are well-connected, you can just find ways around that juggernaut. Wall Street has successfully pressed its lobbying force into watering down the kind of regulatory schema the country needs to prevent another meltdown.

Take the example of Jon Corzine (pictured above). As former head of prestigious Goldman Sachs and a former New Jersey Governor and United States Senator, his MF Global massive investment fund enjoyed some pretty unusual benefits that really shouldn’t have been allowed. “While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans… The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle… The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself…

“Just three months ago, Mr. Corzine’s firm assured regulators that the proposed rule could cripple the futures brokerage industry by hurting their profitability. In a letter, MF Global told regulators that they were trying to ‘fix something that is not broken,’ adding that the firm was not aware of any brokerage firm like itself that was unable to ‘provide to their customers upon request any segregated funds.’” New York Times, November 3^rd. Mr. Corzine’s voice carried particular weight, even though the system has been obviously broken, evidenced by everything that has happened since the collapse of Lehman Bros. in the fall of 2008, a “too big to fail” company that received exemption from the SEC from the rule that limited borrowing to 12 times the company’s hard equity. Lehman died when its debt hit 30 times equity.

When MF Global went bankrupt with a debt to equity ratio of 40 (much worse than Lehman!), mostly from overexposure to sovereign debt from countries with failing economies, folks began to ask a lot of questions, although there have been no criminal charges filed to date. But there were a few anomalies that certainly require explanation, like a whole lot of missing client money: “Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.” The Times. In the end, this “incident” is part of the long litany of special treatment accorded America’s financial elite at the expense of what’s left of average Americans. The system has failed us once again, simply because those at the top of our society just aren’t subject to the same rules applied to the rest of us.

I’m Peter Dekom, and sooner or later enough people are going to get angry enough to do something extreme… when we could otherwise fix this mess long before that becomes necessary simply by applying the rules of our democracy more uniformly to everyone.