As the big banks and investment firms (there is no longer any difference between them now) continue to ramp up and make the case to support their big bonuses to employees (Goldman Sachs will average $500K+ per employee), the jobless rate remains steady at 10%.
This is a catastrophe. Lots of frustrated bloggers have already talked about it. Aaron Ross Sorkin wrote a whole book about it. That's not what I want to talk about today, though.
The issue for me is the disconnect between the imperative to create new jobs (and save the middle class) and the efforts by big banks to keep successful would-be entreprenuers from creating new jobs to compete. The reasons given for the big bonuses are, "If we didn't give these bonuses, they'd leave." But where would these folks go? And what is happening as a result?
Without any incentive to create new jobs and new wealth, we continue to see a concentration of power, capital, and investment supporting entrenched businesses - businesses that would have failed without our taxpayer/Fed bailouts.
I'll use, as a case example, a therapy client. He's a 20-something economist/finance guy who is working for a consulting firm in the swaps and derivatives market. Basically, he's an analyst. One of the things we talk about is his own risk aversion, and how this impacts his work-life balance. He makes a solid six-figure income, drives a late-model luxury car, lives in a high-rise condo, and basically lives to work. At this point in his life, his entire focus is work. He commonly pulls all-nighters to create presentations for clients and his typical work schedule is 60-70 hours a week.
He has no lack of intelligence, drive, or ideas. We frequently talk about his creative impulses and his desire to do things like start a youth sports league, after school education programs, or any other number of businesses. But given the "opportunity cost" (a term he uses frequently in his interactions with his business clients), it makes more sense for him to do nothing than to create his own business (or make the investment to help someone else do the same). He's seen the economic downturn and was literally suffering from panic attacks during the collapse of Lehman Bros. He knows that overleveraging is the big problem that caused the financial collapse. And when I asked him why the collapse occurs, he boils it down to one word: diversification. There was not enough of it, and as a result, our entire capital market system teetered on the brink of collapse last September.
But rather than fix the underlying lack of diversification (or unwrap the delicate entangled web of investments, credit default swaps, mortgage-backed securities, and other high risk investments that caused systemic failure), Congress and the Fed have continued to centralize power with just a handful of big banks - Citi, Bank of America, Wells-Fargo, Goldman, JP Morgan, etc.
This is more than "moral hazard" - bailing out banks that helped contribute to the collapse and not creating any sort of mechanism to ensure it doesn't happen again. This is counterproductive. Our continuing concentration of capital (in the form of bonuses that keep the best and the brightest fat and happy in the big banks) keeps new businesses from cropping up. It blocks the creative energy that could help the new economy to do things like build a smart grid for electricity, develop renewable energy, etc. And while the banks continue to get more and more entrenched (i.e., not lending, trying to unwind the MDOs that got them into the mess in the first place, etc.), the government continues to serve as the lender of last resort.
But the government is running out of money (and time) as well. The Boomer generation is about to hit 65, setting off a now-ticking time bomb of Medicare outlays, 401(k) disbursements, etc. But because of the financial losses for the aging Boomers, they continue NOT to retire, continue NOT to create new jobs, continue NOT to make bold long-term investments, and continue NOT to take risks with their money. I understand that the Boomers (my parents generation ... I'm in my 30s) have worked a lifetime to save for retirement, but I also believe that we need (now more than ever) to make strategic long-term investments in order to ensure that Medicare, Social Security, and other entitlements can be funded into the future.
In a recent R2K weekly poll, one set of statistics jumped out at me. It was the age stratification of support for Republicans and Democrats. Basically, in the poll that came out last Friday, we saw strong support for Democrats among 18-29 year olds and the 45-64 age range. But the 30-45 and 65+ age ranges were very unfavorable toward Democrats and much more favorable to Republicans. This raised a deep concern for me, not only as a Democrat, but as a 30-something man. And I have a hypothesis for what's going on.
The 30-something set (my cohort) has a strong desire to make an impact in the world. We've been waiting for the Boomers to retire for years. We are paying into Social Security and Medicare but don't have much faith that it's going to be there for us in the long-term. And we're watching as insurance mandates threaten to lock us into paying for the care of the elderly, the poor, the unemployed, the disabled, and pretty much everyone else except us. And we're angry, because we don't see how the 21st century American economy is set up to work for us. We are largely frustrated at the inaction of Congress and the inability of the 60+, mostly white, mostly male Senate to act decisively and authoritatively to fix the problem created by the generation of 60+ "me first" "Greed is good" Americans who are now set to retire on our dime.
Greed is not good. Corporate socialism is not good. Special-interest-driven politics are not good. A do-nothing Congress is not good. And it's not what we voted for.
My concern is not so much with President Obama's leadership as it is with the inaction of Congress. And unless we work NOW to diversify, encourage competition, and give the younger kids a chance to lead, we are going to look back in 10 years and feel as disappointed as we've felt about the Bush years.
Worst of all, we only have about 6 months to get it right, before the election cycle kicks in and we get out of action mode and into campaign mode. And the do-nothing GOP is failing to impress me as well, even though their talk of controlling out of control spending is intriguing and attractive. I just see their lips moving and know they're lying to me.