November 07, 2016
Alec MacGillis had an interesting profile of Tom Nides in the New Yorker. Nides is currently a top executive at Morgan Stanley who is frequently mentioned as a leading contender for Treasury Secretary or other high level position in the Clinton administration. The piece ends with this remarkable section:
“But Barney Frank, the former Democratic congressman—who, despite having co-authored Dodd-Frank, is not opposed to former Wall Street executives working in Washington—told me that, in a friendly debate that he and Nides have conducted in recent years, Nides has vigorously defended Wall Street compensation: ‘He said, “These are extremely talented people who do valuable work.’”‘”
This one deserves a bit of thought. Remember, we’re talking about the top people at major banks, like former Wells Fargo CEO John Stumpf. These people earns tens of millions of dollars a year. The folks at the hedge funds and private equity funds can earn hundreds of millions of dollars a year.
When we think about their talents, remember these are exactly the group of people that fueled the housing bubble with their fraudulent loans and bad securities. The country has paid and continues to pay an enormous price for this episode. If we look at the Congressional Budget Office’s estimates of potential GDP, its current estimate for 2016 is more than ten percent below its projection of 2016 potential GDP back in 2008, before the crash.
To get an idea of the magnitude of 10 percent of GDP, this is roughly 2.5 times the size of the Social Security tax. There are any number of people in Washington who would go absolutely nuts over the suggestion that we raise the Social Security tax by 2.0 percentage points (even if phased in over a decade). Imagine raising it by 30 percentage points. This would have the equivalent impact on people’s income as the long-term damage from the collapse of the housing bubble.
It is also worth noting that the Wall Street gang did not do even do well from the standpoint of the firms and shareholders they ostensibly work for. Two of the five major investment banks, Bear Stearns and Lehman, collapsed. The other three also would have gone under in the crisis, if not bailed out by the Fed and the Treasury. In addition, Citigroup and Bank of America, two of the four largest commercial banks, also would have faced collapse if not for massive government aid.
These Wall Street folks may be incredibly talented people in the same way that Bernie Madoff was, but if their talents benefit anyone other than themselves, they keep this fact well hidden.
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