Remember the Real Villain–Wall Street

Americans of all political stripes, suffering in multiple ways from 12 months of economic collapse, are looking for somebody to blame. Yet the real culprits, the Wall Street executives who drove the economy into the ditch, have walked away largely unscathed. Indeed, a new study by the Institute for Policy Studies finds that the top twenty financial CEOs averaged $13.8 million in compensation in 2008, over a third more than other top chief executives.

Instead, it is President Obama who is taking the heat. Right-wing pundits have hammered the president as an out-of-control socialist hellbent on bankrupting the country, their attacks rising to a crescendo during the past month’s healthcare wars. During the presidential campaign, Obama brushed off the “socialist” label with ease, but after a year of repetition it seems to be getting stickier.

On September 5 the president accepted the resignation of his “green jobs” adviser, Van Jones, after Jones became the target of redbaiting. Obama’s decision not to defend Jones, a longtime champion of economic and environmental justice, has further frustrated many progressives already disappointed by the administration’s slow pace of change.

And so at a moment when financial CEOs should be the villains, it is Obama who is being booed from all sides.

In confusing times like this, it’s important to keep the story straight. Let’s remember that Obama was still a senator when Wall Street was creating the high-risk financial instruments that eventually blew up our economy. When the crash came a year ago, the government handed these “too big to fail” banks hundreds of billions of dollars. The firms promptly slashed their workforces but continued to load up their top executives with massive compensation packages.

For Americans eager to know whom to blame, we have some suggestions: Vikram Pandit, Lloyd Blankfein, Kenneth Chenault and James Dimon. Pandit is the CEO of Citigroup, where he received a compensation package worth $38 million in 2008, while slashing 75,000 workers and taking $50 billion of taxpayer bailout funds. The other three executives, CEOs of Goldman Sachs, American Express and JPMorgan Chase, respectively, all made at least $35 million in 2008 while accepting billions from taxpayers and cutting thousands of jobs.

The CEO pay scandal stands ready to repeat itself, since many of these firms handed out boatloads of new stock options early this year, at a time when their stocks were at bargain-basement rates. Now that taxpayer assistance has boosted their recovery, the top executives are poised to turn the crisis into huge windfalls. The Institute for Policy Studies obtained data on 10 of the top bailout recipients and found that about two dozen executives at these firms have enjoyed a combined increase in the value of their options of about $90 million, even though all of the firms’ stock prices are still below precrash levels.

Of course, government watchdogs also deserve a good share of the blame. While Wall Street was gambling away our economic future, these regulators were sleeping on the job. But the financial industry’s obscene pay levels are also part of our regulatory problem. In 2008 the CEOs of the twenty financial firms that received the most bailout money earned eight-five times as much money as the heads of major federal financial regulatory agencies, such as the Securities and Exchange Commission. You have to wonder how many bank examiners were slacking off while they angled for much higher-paying jobs on Wall Street.

Even as we help Americans identify the real bad guys of this story, we should help deflect the ridiculous attacks on Obama. The “socialism” label is easy to refute, since most of the administration’s policies are market-based. Even the Recovery Act, the biggest government stimulus program in US history, sends much of those dollars through private-sector contractors.

And while busting the myth of Barack “Che” Obama, we also need to help Americans understand that a strong government is critical to stimulate, regulate and steer the economy, and to create incentives that help local economies thrive.

A number of groups are working collaboratively to develop innovative proposals for change. Americans for Financial Reform has garnered the support of dozens of groups to press for a strong Consumer Financial Protection Agency and other important protections against future crises. The New Economy Working Group, to which IPS belongs, is charting a transformational agenda that would break up large banks like Citigroup and ban the casinolike financial instruments that sparked the crisis. Jobs with Justice and its grassroots allies like Right to the City are creating momentum behind a National Investment Bank.

The upcoming G-20 summit in Pittsburgh (September 24-25) will put a global spotlight on the state of the economy one year after the crash. Labor unions and other groups are planning demonstrations calling on the world’s most powerful leaders to follow through on their promises to achieve a sustainable recovery for everyone. Obama and the other heads of state certainly need to have their feet held to the fire. But let’s hope most of the hissing is aimed at the real culprits in this story–the bankers whose greed got us into this mess.

John Cavanagh is the director of the Institute for Policy Studies, a member of the New Economy Working Group, and co-author of Development Redefined: How the Market Met its Match (Paradigm, 2008).
Sarah Anderson directs the Global Economy project of the Institute for Policy Studies and is a member of the New Economy Working Group.