Bankruptcy At The Top

One of the more difficult aspects of our crisis to digest is the manifest bankruptcy displayed by our various elites. Intellectual and moral bankruptcy that is, since as far as I can tell they have all done rather well financially.

Exhibit 1: The politicians who are now ranting and raving about what they call the unsustainable and dangerous trajectory of the US budget and debt. Sprinkled liberally within those ranks are many who supported the Bush tax cuts and the various Bush wars that, in larger measure, contribute to that trajectory. I give credit to James Kwak for digging this up this morning. He surfaced a Congressional Budget report from 2000 the main subject matter of which was the huge financial problem facing the US. Was it debt? No. It was the surpluses being generated. The US was paying down its debt at a decent rate, which was giving it ever increasing flexibility were there a crisis to occur that needed short term financing. Those surpluses eventually would disappear according to the CBO because of the well known and thoroughly analyzed demographic shifts taking place in the later years of its forecast. In particular was the very clear problem presented by increasing health care spending as the population aged.

In response to this vista of surpluses, fiscal conservatism, and long term demographic shift, the CBO urged that Congress engage in a debate about how to use those surpluses so as to ensure a safe, secure, and stress free transition, whilst safeguarding the nation’s need to preserve fiscal flexibility in case of crisis.

As we know Congress tossed this all aside.

Instead it engaged in reckless tax cuts that blew a vast hole in the budget, reduced to zero our flexibility, and failed totally to address the long term issues. It also voted to increase health care spending without raising any revenue to cover that spending – spending which, by the way, benefitted the pharmaceutical industry more than the patients. Oh, and as I have mentioned, it also voted to start or support a series of wars funded entirely by debt.

So the fiscal probity of Congress is written into the recent history books. It is an ugly picture full of hypocrisy, greed, and short term thinking. As an exercise in budget destruction it would be hard to top.

Yet many of those who voted to go down this radical and reckless path are now lecturing all about how that path is unsustainable, and how we must all sacrifice in order to undo the very errors they committed.

Are they being held accountable? No.

Are they culpable? Yes.

The dishonesty, deceit, and downright venality of these people defies description.

They are assuredly bankrupt.

Exhibit 2: The banks. Specifically Citibank. Poor Phil Angelides worked himself up into a righteous lather in this morning’s Financial Times over the absurdity of the pay package Citibank has awarded its CEO, Vikram Pandit. Nowhere is there any sign of contrition about, or learning from, the crisis. Pandit was at the helm when Citibank’s yahoo traders rendered the bank a ward of the state. Taxpayers had to prop up the bank whilst those who ruined it were left with the various fortunes they had made along the way to that ruin. That story is well known. So well known that I would have thought the bank’s Board of Directors would have heard it. Apparently they haven’t. Nowhere in Pandit’s pay package is there a sign of such sentiment. He stands to reap massive reward for extremely modest success. In other words he scarcely has to break a sweat in order to earn pay that, more correctly, ought to reflect some hard work. Worse: were things to go belly up as a result of his decision making he gets to keep all this softly earned money. There is no clawback of past bonus pay out. So if his short term policy turns out to be a longer term error the shareholders don’t get their money back. Given Citi’s history of failure – it is a perennial loss maker deserving of being broken apart so it cannot hurt itself, or the taxpayers, any longer – this is an astonishing oversight.

This is, of course, not an isolated problem. As far as the eye can see banking has returned to the path it was on before it blew us all up back in 2007/2008. I fear that poor Hyman Minsky must be turning in his grave. Or possibly he is simply chuckling at the perpetual inanity of our financial elite, obsessed as it is with its own importance, skill, and ability to allocate capital efficiently.

Why the regulators allow these thing to occur befuddles me. They must be complicit.

Exhibit 3: Which brings me to the rating agencies. Why do we listen to these clowns? I am sick of their repeated warnings about debt ratings for places like Greece or Portugal. These are the fools who raked in fortunes during the real estate bubble by turning a blind eye to the scams being run by the big banks. They used market magic based excuses to create illusions so that they could profit from the deal flow that would not have flourished without their abetting it. They were never innocent or dispassionate bystanders. They were knee deep in the same mire as the traders who gambled us towards oblivion. And yet here they are, a few years later, acting as if they were pristine, independent, and knowledgeable. Were this a joke is would be considered sick. That it is not, is even sicker.

So there we have three examples of how our elite leadership: political, financial, and regulatory, are bankrupt.

Moreover their bankruptcy is far more dangerous to our long term safety and prosperity than that of the countless homeowners being hounded out of their homes; or the vast number of people who lose everything because they cannot afford health care expenses; or the teachers being asked to give back pensions contractually owed them; or any number of other ordinary citizens whose hands were not in the till during the years of the great illusion, but who are being asked to pay for the errors committed by others.

Those others being our bankrupt leadership.

We have a problem at the top.