Podcast: Play in new window | Download
Sea Change Co-Host Francesca Rheannon speaks with Les Leopold about his new book, THE LOOTING OF AMERICA: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity — and What We Can Do About It. And this week’s Sea Change ViewPoint comes from Arvind Ganesan of Human Rights Watch, who brings us a commentary on a new HRW report on how oil wealth fuels corruption and human rights abuses in Equatorial Guinea.
On July 16 the New York Times reported, “A new order is emerging on Wall Street after the worst crisis since the Great Depression.” The article pointed to soaring profits by Goldman Sachs and JPMorgan Chase. A few days later, Bank of America exceeded earnings expectations. Altogether, Bank of America, JPMorgan Chase and Citigroup, the three biggest US lenders by assets, reported a total of $10.2 billion in profits for the second quarter. Wall Street ate it up, with the Dow Jones now up more than 2000 points from its February low and the S&P 500 up 40 percent.
But something else is also going up — and that’s the unemployment rate, now at its highest level in a generation, with 25 million out of work. What’s going down is real wages — unless you’re a CEO. The banks, for example, are taking a hefty slice out of their huge profits for big payouts to their staff.
Is there a connection between big profits on Wall Street and continued suffering on Main Street? Les Leopold explores that question in his new book, THE LOOTING OF AMERICA: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It. He argues that the meltdown was caused by an income distribution that’s wildly skewed. The ratio between the top CEO salaries and the bottom rung of workers wages went from 40:1 in 1970 to almost 1800:1 in 2006. That resulted in an excess of capital from the top hungrily seeking outsized profits from speculation (what Leopold calls instruments of financial mass destruction) instead of investing in the real economy. He says it’s something like fantasy baseball. And when the season players — the banks — went on strike, the whole house of cards came tumbling down.
The interview starts with Leopold defining the term “moral hazard,” and then shifts back to 1994 Senate testimony by James Bothwell of the Government Accountability Office on protecting investors from “unscrupulous brokers.” Leopold hearkens back a bit further, to the late ’70s and early ’80s, when free market religion took hold with the promise of trickle-down economics raising all boats. As the recent financial meltdown demonstrates, this promise never bore fruit, but instead led to increasing wealth disparity.
Leopold also defines and explains derivatives and other esoteric investment mechanisms that underpinned the meltdown. The interview ends with Leopold describing the importance of unions in stabilizing the economy.
Listen to the complete 40-minute interview on Writer’s Voice, the other show that Francesca Rheannon hosts and produces.
If you found this post interesting, you might want to explore these topics also:
derivatives, Les Leopold
I’m the Web dude for Sea Change. Here’s my comment about the guest Les Leopold:
Either Leopold doesn’t entirely understand the financial meltdown, or more likely he has dumbed down his explanation to the point that it doesn’t make sense.
he says that financial institutions combined these risky loans (securitized) and sold them as financial instruments … with the help of credit rating agencies who gave them (mostly) great ratings …. which is true as far as it goes. BUT why did the rating agencies give great ratings? And was it as simple as that: good ratings and people bought the instruments? NO. it wasn’t that simple. these products were insured by AIG (mostly) … I’ve heard that 90%+ of these products worldwide were insured by AIG
and yes, I know that the rating agencies had an interest in giving these financial products good ratings, but that’s too simple of an answer …. it’s that and the fact that the products were insured by a company that had a great reputation until that point (AIG).
without that insurance NOBODY touches these things … insurance is the key, which Leopold never mentions. these financial wizards are reckless, but they’re not idiots. they want to know that they’re going to get paid, thus the insurance. Look at the history … in the beginning (I believe the law was changed 1996 to allow for these types
of securitized assets), nobody would buy these financial products … then AIG sees a way to make money by insuring these things (insurance called credit default swaps). THEN the securities start selling, after they are insured.
Thus, we have AIG, who is still paying off insurance to these financial companies (well, actually, the taxpayers are paying off the insurance policies).
[...] Leopold tells us about The Looting of America, which is also the title of his new [...]
Just learned about Sea Change (Audubon Mag). This post is very late however….I am having trouble with the term Economic downturn….I prefer the term “Grand Theft”
Todd, great to hear about your discovery of Sea Change through Audubon Magazine — welcome to the Sea Change community.
I agree wholeheartedly with your terminology!
For more on this, check out our coverage of economic issues.
We look forward to hearing more from you.
Best,
Bill
Co-Host/Producer, Sea Change Radio