As E. J. Dionne Jr. reminds us (yet again!), it's all about the money

by Ken

I've told you before about my friend Jim Dawson's Back Row Reviews website ("The Movie Guide That Knows Where It Sits"), the only place I know to turn for movie reviews of any usefulness whatsoever. Of course even better are those occasional e-mails in which Jim passes along a hot tip of a picture genuinely worth seeing. With depressing frequency, though, they turn out to be accompanied by a warning that the picture in question is going to be depressing.

Great! That's just what I need! To slap down my $13 (I think that's what I paid for the last movie I saw) to be depressed! Thanks a heap, motion-picture industry.

I bring this up by way of explanation for why I probably won't get around to reading those books of Thom Hartmann's, Unequal Protection: How Corporations Became "People" -- and How You Can Fight Back (2004) and Threshold: The Crisis of Western Culture (2009), which Howie has been so enthusiastic about. I don't have the slightest doubt that they're every bit as good as Howie says they are, but I find this whole subject of the near-complete takeover of our electoral system by Big Money ineffably depressing, since I can't help thinking deep down that there isn't a bloody thing we can do about it.

I think we all know that even though we've got some rich people on our side, including people like George Soros who put their money where their mouths are (don't ask me who I mean by "people like George Soros"; I'm just sure there must be somebody), we can never begin to compete with the the Right's dual sources of nearly infinite cash reserves:

* super-rich Righties who give stupdendous amounts out of sheer ideological crackpottery, and

* super-rich Righties who give stupendous sums as an investment on which they expect equally generous financial return.

Of course the categories are by no means mutually exclusive. It's altogether possible to be an ideological zealot who makes that zealotry pay in the most tangible way. Like, say, the billionaire Koch brothers. In the end this is probably why I didn't add anything to what Howie wrote about the billionaire Koch brothers, fascinated though I was by Jane Mayer's gripping New Yorker exploration ("Covert Operations") of their financial reach, through such institutions as the lobbying organization Americans for Prosperity and the Mercatus Center think tank. It's just too depressing.

So I'm relieved that Howie is less squeamish, and am generally happy to cede this beat to him. And I'm not surprised either that the Washington Post's seemingly unflappable E. J. Dionne Jr. is able to keep returning to the subject of the Money Fortress and bash his head against it some more, as he did again yesterday in a column called "Shadowy players in a new class war."

"The 2010 election is turning into a class war," he began. "The wealthy and the powerful started it."

Here I am, having just written about the traditional much-loved right-wing trick of screaming "Class warfare" as a way of diverting discussion from the very real class warfare the Right loves to wage -- again, as a matter of both cuckoo ideology and hard-nosed financial self-interest.

It's a subject that's usually taboo in the infotainment news media, and is generally rigorously shunned by in-the-know Villagers except to point out that the occasional scraggly Democrat is once again attempting to wage --

"Class warfare!"

I was startled to find the Post's arch-Village financial columnist Steven Pearlstein devoting an entire column to "The costs of rising economic inequality," writing crazy stuff -- for a standard-issue Villager -- like:

Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others. Without a sense of shared prosperity, there can be no prosperity. And given the realities of global capitalism, with its booms and busts and winner-take-all dynamic, that will require more government involvement in the economy, not less.

Of course E. J. Dionne is about as far as you can get from a standard-issue Villager. And the 2010 electoral class war, he writes, is "a strange development."

President Obama, after all, has been working overtime to save capitalism. Wall Street is doing just fine, and the rich are getting richer again. The financial reform bill passed by Congress was moderate, not radical.

Nonetheless, corporations and affluent individuals are pouring tens of millions of dollars into attack ads aimed almost exclusively at Democrats. One of the biggest political players, the U.S. Chamber of Commerce, accepts money from foreign sources.

The chamber piously insists that none of the cash from abroad is going into its ad campaigns. But without full disclosure, there's no way of knowing if that's true or simply an accounting trick. [Here E.J. is characteristically being too kind. How often is it necessary to point out that cash is totally fungible? Every dollar devoted to one use frees up a dollar to devote to a different one, so it's lying bullshit for the chamber to claim that so-and-so's bucks didn't go to such-and-such.] And the chamber is just one of many groups engaged in an election-year spending spree.

This extraordinary state of affairs was facilitated by the U.S. Supreme Court's scandalous Citizens United decision, which swept away decades of restrictions on corporate spending to influence elections. The Republicans' success in blocking legislation that would at least have required the big spenders to disclose the sources of their money means voters have to operate in the dark.

Ah yes, Citizens United. Eventually any discussion of how money buys elections has to come around to Citizens United. Rather incredibly, I know bona fide progessives, with hands-on experience of the campaign finance world, who argued from various vantage points that the decision wouldn't have as damaging effect as the worst worry worts were worrying, and for a long while it was pointed out that the donors who had these new doors opened to them seemed to be treading gently. I don't know anybody who says either of those things now, and I think what we're seeing so far is still mere prelude, sort of a tune-up for the presidential sweepstakes in 2012.

The "logic" behind Citizens United is that third-party spending can't possibly be corrupting. The five-justice majority declared that "this Court now concludes that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption. That speakers may have influence over or access to elected officials does not mean that those officials are corrupt. And the appearance of influence or access will not cause the electorate to lose faith in this democracy."

You can decide what's more stunning about this statement, its naivete or its arrogance. [Emphasis added. Sorry, I couldn't resist. Isn't that fantastic?]

If one side in the debate can overwhelm the political system with clandestine cash, which is what's happening, is there any doubt that the side in question will buy itself a lot of influence? If that's not corruption, what exactly is it?

And how can five justices, who purport not to be political, sweep aside what elected officials themselves long ago concluded on the subject and claim to know what will or will not "cause the electorate to lose faith in this democracy"? Could anything undermine trust in the system more than secret contributions to shadowy groups spending the money on nasty ads? The good news is that the class war is bringing a certain clarity to politics. It is also another piece of evidence for the radicalism of the current brand of conservatism. This, in turn, is forcing Democrats to defend a proposition they have been committed to since the days of Franklin Roosevelt but are often too timid to proclaim: that government has a legitimate and necessary role in making economic rules to protect individuals from abuse. [Sorry, once again I couldn't help myself.]

And E. J. comes up with an "entertaining and educational" for instance: "watch[ing] Republican Senate candidates in Connecticut, West Virginia, Alaska and Kentucky grapple with the impact of their bad-mouthing minimum-wage laws."

Conservative academics have warred against the minimum wage ever since FDR declared the Fair Labor Standards Act of 1938 perhaps "the most far-reaching program, the most far-sighted program for the benefit of workers that has ever been adopted here or in any other country."

These critics have never gained traction because most people think it's simple justice that those who work for a living be treated with a modicum of respect. Many voters who express skepticism about government in the abstract nonetheless favor laws that give a fighting chance to individuals with weaker bargaining positions in the marketplace.

The minimum-wage battle underscores the difference between 2010-style conservatism and the conservatism of Dwight Eisenhower or even Ronald Reagan. The 2010 right actually imagines a return to the times prior to the New Deal and Teddy Roosevelt's Square Deal, the heady days before there were laws on wages and hours, environmental concerns and undue economic concentration.

Our deceptively slick, Clark Kent-ishly bespectacled columnist understands that the Class War of 2010 isn't just something the country doesn't need now, but is something that's "irrational in any case."

Practically no one, least of all Obama, is questioning the basics of the market system or proposing anything more than somewhat tighter economic regulations -- after the biggest financial collapse since the Great Depression -- and rather modest tax increases on the wealthy.

But even these steps are apparently too much for those financing all the television ads, which should lead voters to ask themselves: Who is paying for this? What do they really want? And who gave them the right to buy an election? [Oops, one last time.]

"Who gave them the right to buy an election?" Indeed. It's tempting to answer: John Roberts, Antonin Scalia, Clarence Thomas, Anthony Kennedy, and Sammy Alito. But in reality they just piled it on, made it easier, more efficient, harder to fight.

As with the other freedoms protected by the First Amendment, one of the cornerstones of the American republic, the theory is that the best answer to free speech is more free speech. But the whole system goes kaput once money is adjudged officially indistinguishable from speech.

I'm sure Justices Roberts, Scalia, Thomas, and Alito wouldn't have it any other way. Aand Justice Kennedy, as he so often is, seems happy enough to go along.

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WaPo corporatist Steven Pearlstein is asking to be pilloried by fellow Villagers for "class warfare"

"Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others. Without a sense of shared prosperity, there can be no prosperity. And given the realities of global capitalism, with its booms and busts and winner-take-all dynamic, that will require more government involvement in the economy, not less."

-- Washington Post financial columnist Steven Pearlstein, in Wednesday's "The costs of rising economic inequality"

by Ken

Maybe I'm doing him an injustice, but whenever I read Steven Pearlstein, he seems a safely predictable Village-corporatist stooge. Which is why Wednesday's column came as a shock.

He got off to kind of a shaky start: "Although much of the Republicans' 'Pledge to America' is given over to a discussion of economic issues, there is one topic that is never mentioned: the dramatic rise in income inequality." True enough, but immediately you have to wonder whether he's been paying attention to the last several decades' political discourse, all the more so when he continues, "As with global warming, Republicans seem to have decided that the best way to deal with this fundamental challenge is to deny it exists."

"Seem?" Republicans "seem" to have decided that the best way to deal with these fundamental challenges is to deny they exist? What would they have to do to persuade Mr. P that they're actually denying, as a matter of core principle, that such problems exist?

(1) With regard to global warming, how explicit do right-wingers have to be in their insistence that global warming doesn't exist, or at least isn't manmade, or hasn't been shown to pose any problem (and may even bring benefits like better beach weather and longer crop-growing seasons) for them to cross Mr. P's "seem to deny" threshhold? To put it another way, has anyone discovered any length to which the Republican climate-change deniers will not go to deny the reality?

(2) And with regard to economic inequality, has Mr. P truly noticed that anytime anyone so much as hints that it might be some sort of issue, the Right-Wing Noise Machine can be counted on to screech in unison:

"Class warfare!"

This is meant to end any discussion, and it almost invariably does, at least in the infotainment news media. In our beloved capital Village on the Potomac, there is truly no such thing as income inequality. Unless, of course, you're referring to the kind that really matters: the frustrating gap that keeps the merely rich out of the ranks of the super-rich. (There's also the gap that separates the super-rich from the obscenely rich, but that's even less discussed.)

Okay, so Steve is a little shaky about the politics of the subject. On the facts of income inequality, well, he's got some dandy ones.

If you asked Americans how much of the nation's pretax income goes to the top 10 percent of households, it is unlikely they would come anywhere close to 50 percent, which is where it was just before the bubble burst in 2007. That's according to groundbreaking research by economists Thomas Piketty, of the Paris School of Economics, and Emmanuel Saez, of the University of California at Berkeley, who last week won one of this year's MacArthur Foundation "genius" grants.

It wasn't always that way. From World War II until 1976, considered by many as the "golden years" for the U.S. economy, the top 10 percent of the population took home less than a third of the income generated by the private economy. But since then, according to Saez and Piketty, virtually all of the benefits of economic growth have gone to households that, in today's terms, earn more than $110,000 a year.

"By 2007," Mr. P points out, "the top 1 percent of households took home 23 percent of the national income after a 15-year run in which they captured more than half -- yes, you read that right, more than half -- of the country's economic growth."

He cites a number of "suspects," and offers the unsurprising conclusion that they're all to blame:

* Globalization ("in the form of increased flows of people, goods and capital across borders")

* Technological change ("which has skewed the demand for labor in favor of workers with higher education without a corresponding increase in the supply of such workers")

* "What economists call 'institutional' changes" -- "the decline of unions, industry deregulation and the increased power of financial markets over corporate behavior" ("Over time, more industries have developed the kind of superstar pay structures that were long associated with Hollywood and professional sports")

* And his "favorite culprit," "changing social norms" -- "around the issue of how much inequality is socially acceptable"

Mr. P sets out a good case for why this all matters:

There are moral and political reasons for caring about this dramatic skewing of income, which in the real world leads to a similar skewing of opportunity, social standing and political power. But there is also an important economic reason: Too much inequality, just like too little, appears to reduce global competitiveness and long-term growth, at least in developed countries like ours.

We know from recent experience, for example, that financial bubbles reduce equality by siphoning off a disproportionate share of national income to Wall Street's highly-paid bankers and traders. What may be less obvious, but not less important, is that the causality also works the other way: Too much inequality can lead to financial bubbles.

The liberal version of this argument comes from former Labor secretary Robert Reich in his new book, "Aftershock." Because so much of the nation's income is siphoned off to the super-rich, Reich says, a struggling middle class trying to maintain its standard of living had no choice but to take on more and more debt. I have some problem with the argument that the middle class had no choice, but it's certainly true that the middle class and the economy as a whole would be in better shape today if households weren't burdened with so much debt.

The more conservative version of this argument comes from University of Chicago economist Raghuram Rajan. In his new book, "Fault Lines," Rajan argues that in order to respond to the stagnant incomes of their constituents, politicians took a number of steps to keep the "American Dream" within reach, including subsidization of home mortgages and college loans. He might have added that politicians also were quick to cut taxes for the middle class even when it meant running up the national debt to pay for popular entitlement programs and government services.

Remember, Raghuram Rajan's argument is the more conservative one! And this from a card-carrying Chicago-school economist -- Chicago-school godfather Milton Friedman must be rolling in his grave.

SIDEBAR: WHAT WOULD UNCLE MILTIE
HAVE TO SAY ABOUT RAGHURAM?

But then, as The New Yorker's John Cassidy noted in his fascinating post-meltdown post mortem on the Chicago-school economists, which I wrote about in January (unfortunately, only an abstract was made available free online), Rajan was already a known heretic among his Chicago brethren in the run-up to the meltdown.

At a conference organized by the Fed in 2005, he said that deregulation, trading in complex financial products, and the proliferation of bonuses for traders had greatly increased the risk of a blowup. Senior Fed officials and other prominent economists dismissed his concerns. Lawrence Summers said that Rajan's critical tone supported "a wide variety of misguided policy impulses."

As I wrote in January, Rajan, who was chief economist of the International Monetary Fund from 2003 to 2006, calls what happened "a systemic breakdown" and insists that "we need to look more broadly at why it happened." In the book he was working on at the time, he argues "that the initial causes of the breakdown were stagnant wages and rising inequality," which created "an urgent demand for credit" among middle-class households "lagging behind the cost of living."

"Are you hearing this?" I wrote back then. "Once upon a time Uncle Miltie would have had you run out of Chicago for mouthing left-wing claptrap like this."

To return to Mr. Pearlstein, he points to "trillions of dollars being spent and invested" in "spectacularly unproductive" ways.

In recent decades, the rich have used their winnings to bid up the prices of artwork and fancy cars, the tuition at prestigious private schools and universities, the services of celebrity hairdressers and interior decorators, and real estate in fashionable enclaves from Park City to Park Avenue. And what wasn't misspent was largely misinvested in hedge funds and private equity vehicles that played a pivotal role in inflating a series of speculative financial bubbles, from the junk bond bubble of the '80s to the tech and telecom bubble of the '90s to the credit bubble of the past decade.

And he has an interesting argument concerning "the biggest problem with runaway inequality":

It undermines the unity of purpose necessary for any firm, or any nation, to thrive. People don't work hard, take risks and make sacrifices if they think the rewards will all flow to others. Conservative Republicans use this argument all the time in trying to justify lower tax rates for wealthy earners and investors, but they chose to ignore it when it comes to the incomes of everyone else. [Emphasis added.]

He insists there's a correlation between "polarization of income distribution in the United States" and "polarization of the political process":

Just as income inequality has eroded any sense that we are all in this together, it has also eroded the political consensus necessary for effective government. There can be no better proof of that proposition than the current election cycle, in which the last of the moderates are being driven from the political process and the most likely prospect is for years of ideological warfare and political gridlock.

I don't know where he gets the idea that moderates have been of much use in thinking about income inequality. If anything, you'd think the issue might be of more interest to all those folks in the famous middle now that the oligarchy of their financial betters has made them modest victims rather than, as before, beneficiaries of economic maldistribution. Still, it's hard to quarrel with his conclusion, which is the paragraph I've quoted at the top of this post. Here it is again:

Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others. Without a sense of shared prosperity, there can be no prosperity. And given the realities of global capitalism, with its booms and busts and winner-take-all dynamic, that will require more government involvement in the economy, not less.

From a down-the-middle Villager like Mr. P, this sounds positively Marxist. You have to wonder how he will dare to show his face at Village cocktail parties.

His best hope is probably that the discussable (and, in policy terms, actionable) level of income inequality is likely to remain, at least for the foreseeable future, approximately where it was before he wrote this piece. Which is to say, out of bounds, on the ground of --

"Class warfare!"

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21st-Century Banking, III: All we need is can-do-type execs interested in doing a seriousjob for a serious paycheck -- yup, that's all!

Jack Donaghy (Alec Baldwin) in church? Jack commemorates the Martyrdom of St. Valentine with the lovely Elisa (Salma Hayek) -- before she insists he take confession.

JACK DONAGHY [in the confessional booth, to the young PRIEST]: I have faith, in things I can see, and buy, and deregulate. Capitalism is my religion. Now you want to have an intellectual argument? Okay, but I should warn you, I went to Princeton.

PRIEST: I went to Harvard Divinity School.

JACK [chuckling]: You Crimson guys never miss a chance, do you? You want a confession? Let's get this done, so I can go eat. [PRIEST looks on in bewilderment bordering on panic.] I am divorced. I take the Lord's name in vain often, and with great relish. I hit my mother with a car -- possibly by accident.
[Time gap.]
JACK: I almost let him choke to death right there on the football field. [PRIEST is shocked.] I looked the other way when my wig-based parent company turned a bunch of children orange. I once claimed "I am God" -- during a deposition.
[Time gap.]
JACK: And I may have sodomized our former vice president while under the influence of some weapons-grade narcotics. Ahhh! It feels good to say that out loud. Actually, that one was weighing on me.

PRIEST: Wow! I, uh . . . I don't know what to say.

JACK: I don't want you to say anything. I already made that clear.

PRIEST: Then what brought you here tonight?

JACK: What brought me here? What brings anyone anywhere? Why do men build bridges? Why are there jets? I was trying to have sex tonight. Have you ever made love to a woman, father?

PRIEST [desperate]: Come on, man!

JACK: Imagine cradling your face into the curve of a velvety-soft neck, your hands cupping the warm heft of the greatest pair of --

PRIEST [bolting from the confessional]: I need backup! Harvard did not prepare me for this!

-- from Thursday's episode of 30 Rock

"Hope for the best! Expect the worst!
The rich are blessed. The poor are cursed."

-- from Mel Brooks's The Twelve Chairs

by Ken

We come finally, in our little series on Modern Banking, to the issue of executive compensation, which obviously applies to the whole economy and not just the banking segment.

Yesterday, in addition to seeing (in the "Power of Populism" segment from Rachel Maddow's Wednesday show) fake contrition exuded by the eight megabank CEOs hauled before the House Financial Services Committee on Wednesday, we were introduced (courtesy of Washington Post business columnist Steven Pearlstein's Wednesday column) to a local North Carolina bank CEO, Kim Price of Citizens South, who was smart enough to keep his institution mostly out of the subprime-mortgage craziness, and devised a plan for using federal bailout money to actually promote lending -- all of this for a pay package, all told, under a half-mil.

We noted the inclusion in the conference version of the economic stimulus package passed by both houses of Congress of Sen. Chris Dodd's amendment seeking to impose some enforceable limits on the payment of bonuses to top-ranking execs of banks accepting federal bailout money.
Naturally, today most of the discussion focuses not on whether this is a good idea, or really doable, but how those execs will get around it. (Deck on the story in today's Washington Post: "More Rigorous Limits Trigger Concerns Over What Banks Might Do To Be Free of Them.")

And if you didn't watch the Maddow show clip, I encourage you to do so now. I just looked at again, the whole thing, and was not only caught up in Rachel's sharp and impassioned commentary on the upswell of populist sentiment around the country ("little people" all over are tired of being shafted while fat cats line their silk pockets), but impressed once again by the degree of nuance she's able to introduce to the discussion, including wondering whether the course we're on is going to get us toward the goal. (Answer: She doesn't know.)

Of course the argument from the business community regarding executive compensation is that they have to offer these preposterous compensation packages to secure the services of the best executive talent, and then to hold onto their prize catches. (And of course, when the geniuses are finally sent packing, they're sent wafting gently to earth in the comfort of the golden parachutes the companies were forced to give them.)

As should be clear by now, this is bullshit. Those people weren't creating anything, least of all wealth; all they made was deals, scams, cons. They aren't "executive talent"; they're a breed of parasitic, egomaniacal, sociopathic thieves. As many commentators, we have been inflicted, over the last couple of decades, with the Cult of the CEO, these make-believe geniuses who have gotten away with something more or less equivalent to murder over that time. Of course CEOs who serve their companies well should be well compensated, but these levels of compensation are orders of magnitude in excess of reasonable compensation, even for good performance, which, incredibly, was increasingly not demanded or apparently even expected of them. We all know the horror stories.

And the price for the aggrandizement of these diseased egos has been systematic exploitation of and outright theft from the working stiffs who made those companies function. At a tenth what these leeches are being paid, they would be grotesquely overcompensated, at the expense of both their workers and the economy. Henry Ford may have been a bigot and a son of a bitch, but he understood that his workers were also his customers, and that giving them their fair share of his profits not only increased those profits but primed the economy. These parasites, who seem unable to see anything beyond their insane greed, don't understand that by bleeding every dollar they can out of the economy, they have gradually left themselves no one to do business with.

That is, if they had any business to do.

Even dull-witted prosecutors should be able to find enough criminal activity to secure these goons several lifetimes' worth of incarceration. Their companies should be scouring their contracts to prove malfeasance sufficient to justify the return of every dollar they extorted, with contributions from the people inside the companies who abetted the fleecing.

Or, perhaps more subtly and more appropriately, their compensation might be recalculated to minimum wage for a 35-hour work week for the term of their employment. And yes, I mean a strictly limited 35 hours, notwithstanding that these people were so dedicated that they worked, oh, 500-hour weeks.

Unfortunately, I have to make do without a quote I would have like to introduce from a New Yorker "Notes and Comment" piece by E. B. White, I guess from the early '50s. Somehow my cheesy old Perennial paperback edition of The Second Tree From the Corner (and also One Man's Meat) has mysteriously gone AWOL. I'm not pointing any fingers, just suggesting that anyone who knows anything about the vanished paperbacks would do well to spill his/her guts now rather than later. (Okay, so I've been watching too much Law and Order.)

The piece was an account of what I recall was a New York City-wide bomb-alert drill, in which, eerily, the entire city came to a standstill. I recall the report of a visitor unaware of the proceedings happening onto a no-longer-bustling city street and commenting, "What's this, something new?" And I remember in particular White's report of calculations of economic loss from that "lost" hour.

In The New Yorker's own offices, the business people were lamenting that by bad luck they had the company's lawyers present (and presumably billing). And they had a dollar figure to put on that loss.

But that calculation of loss, White suggested, depended on the quality of the advice the lawyers were giving. If by chance it was poor advice, he pointed out, then missing out on an hour's worth of it actually put the magazine ahead.

What ever happened to American ingenuity and the real American spirit of "can do"? Have the ambition, will, and knowhow to build companies that contribute real value to their customers, their workers, and the country as a whole been bred out of us?

I don't think so. I think we've just succumbed to misguided business goals, bad values, and really atrocious leadership models. I don't know how we turn that around, but I do know that there's a difference between the way Kim Price conceives of his job as a bank CEO and the way the megabank CEOs seem to. We need to learn how to value the one and kick the others' sorry asses out the door.

And somehow we need to figure out how to do the same thing with companies that become proverbially "too big to fail." I know this is appallingly naive of me, but it has to be possible. Let American ingenuity plug the gap with companies that actually do the job that the behemoths have failed at.

I mentioned yesterday the great innovation my friend Terry encountered at her bank, J. P. Morgan Chase, where customers are apparently now officially called guests. Guests. I would love to know how much the person who came up with that genius idea is paid.

I don't know what it's like in your town, but here in New York City, over the last decade or two the number of storefront banks has exploded. For a time there it seemed as if every property that became available was being swooped up by one of those banks.

It mystified a lot of us, who remembered the immediately preceding fetish among the banking elite, which was to segregate customers (not yet guests, of course) by economic status, the way casino operators pamper their high rollers, which in the extreme included trying to deny insufficiently important customrs access to tellers. Now, apparently, those banks couldn't open new locations fast enough.

But was there really any business justification for any of this? No bank offered to show me their books, but I had to figure their overhead was soaring. True, at the same time, the people inside all those banks were devising ever more ingenious ways to provide fewer services and to charge fees for what services remained. Was that really good business? For some of us there's some small ironic pleasure in the banks' discoveries that a lot of their high rollers were either dupes or crooks.

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21st-Century Banking, II: The bad and the ugly banksters are whipsawed by Barney Frank's committee, while a NC banker represents the good

On Wednesday's Rachel Maddow Show, Rachel showed highlights from the day's House Financial Services Committee hearings, talked with passion about "The Power of Populism," and did a new interview with committee chairman Barney Frank, all in less than 11 minutes -- with not a moment wasted.

"Here's a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?"

-- Washington Post business columnist Steven Pearlstein, in his Wednesday column, "Big Lessons in Finance From a Little Bank You've Never Heard Of"

by Ken

If you didn't see the above segment from Wednesday's Rachel Maddow Show, and if you haven't already watched the clip, I can't imagine a better way to spend the next 10:40.

* We see highlights of some of the eight bankster CEOs hauled before the day's House Financial Services Committee hearings that day (which Howie wrote about Thursday, with a clip of Florida Rep. Alan Grayson's grilling of CitiGroup's Vikram Pandit) faked humility and contrition, including the memorable exchange when chairman Frank asked one of the bozos which part of his job he wouldn't do if he didn't get a bonus.

* We get a pointed and impassioned piece from Rachel on "The Power of Populism." Just yesterday Howie wrote about the encouraging emergence of the new House Populist Caucus, and Rachel suggests its the surging tide of populism, which crosses many politico-ideological boundaries (though not, apparently, the moat surrounding the armed fortress in which Today's Republican Party, whose battle cry is "All No, All the Time," is holed up), that accounts for the pleasure so many of us are taking in seeing the evil banksters humbled.

* And we get a live interview with chariman Frank, in which he answers Rachel's question as to whether we'd be better off if the people who ran the major banks during the housing bubble had been "better people" by suggesting we'd be better off if they'd been "better bankers." It seems clear that chairman Frank, one of the House-Senate conferees on the economic stimulus bill, had a lot to do with the inclusion in the conference version since passed by both houses to put some sort of meaningful limits on the compensation of the top executives of the federally bailed-out banksters. [But note: See the clarification in the UPDATE below.]

Wednesday was a doubly unfortunate for the banksters. That days's Washington Post contained a column by business columnist Steven Pearlstein devoted to the story of one Little Banker Who Could. Kim Price, the president of Citizens South Bank, a local banking company in North Carolina, who had the smarts to keep his bank out of the subprime mortgage business, and thus in vastly better financial shape than all those bigtime institutions that couldn't issue or buy up enough of that crap paper, and now has found a creative, genuinely economically stimulative way of making use of TARP funds he was too shrewd a businessman to pass up.

I discovered when I googled the Pearlstein column today that it has spread like wildfire. Kim Price may now be the most talked-about banker in the country, and for entirely good reasons. This is exactly the sort of heart-warming story, a tribute to the true "can do" spirit we like to think of as particularly American, we're desperate to hear to counterbalance the greedy of the inept and grossly overpaid egomaniacal banksters who did their best to reduce the economy to tatters.

This is Steven Pearlstein's story, and he tells it well:

Big Lessons in Finance From a Little Bank You've Never Heard Of

By Steven Pearlstein
Wednesday, February 11, 2009; D01

Wall Street is not pleased.

Hunkered-down executives and hyperactive traders were more than a little disappointed with what they heard from our straight-shooting new Treasury secretary as he unveiled his plans for Bank Bailout 2.0.

Not enough clarity, they complained. Still no light at the end of the tunnel, bemoaned others. Like spoiled, petulant children, they demonstrated their dissatisfaction by driving stock prices down another 5 percent.

By now, I hope you've learned enough not to be taken in by the self-serving floor patter. These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders.

For the Wall Street wise guys, bailout politics is just another game to be played, another market to be manipulated, another set of risks to be arbitraged.

Later today, nine Titans of Finance will testify before the unwieldy House Financial Services Committee about the fine mess they have got us into and how the first $350 billion in bank bailout money was used. The chief executives have probably wised up enough to know to leave the Gulfstream back home and fly in commercial with the hoi polloi. But don't hold your breath waiting for an expression of contrition or gratitude, let alone any clarity on their own plans for using the government's bailout money.

In that regard, the committee probably would have learned more if they'd left the big boys to wallow in their gilded bunkers and invited Kim Price up from Gastonia, N.C.

Price is the president of Citizens South, a 104-year-old community bank with about $800 million in assets, 15 offices and 150 employees that operates in the shadow and under the radar of the big national banks -- Bank of America and Wachovia -- headquartered across the river in Charlotte.

Citizens is among the stronger and more conservative banks in the Charlotte market. Despite setting aside $3.2 million last year for expected loan losses, the bank managed to post a profit of $3.1 million, down from $5.7 million the year before. Citizens never got into subprime lending or 100 percent loans, and for its caution lost a lot of business during the go-go years. Now, however, its reward is that its nonperforming loans are less than half of 1 percent of all its loans.

Like many healthy banks, Citizens late last year figured it was in for a tough couple of years with the national recession and the continued turmoil in financial services, which anchors the regional economy. So it applied and won $20.5 million in bailout funds from the Treasury Department on the usual terms requiring a 5 percent annual dividend payment to the government. A few weeks ago, while reading a newspaper article, Price came up with an ingenious plan for how to use it.

The article was about the reluctance of people to buy a house in the current market, and what kinds of incentives had been used successfully by builders and bankers to get them to close a deal. Two stood out: lower rates and the waiving of closing costs. And that got Price to thinking: What if Citizens were to use its federal bailout money to offer below-market mortgage rates with no closing costs to consumers who would buy a house, or a house lot, from builders and developers who had borrowed money from Citizens?

Price asked some of his loan officers to check with the builders and developers, who not surprisingly were excited enough about the project to be willing to chip in some money to help cover a portion of the forgone closing costs. So last week, Citizens launched its marketing campaign for the $20.5 million program, in collaboration with its builder-developer customers, offering 30-year loans with an initial teaser rate of 3.5 percent for the first two years, rising to a fixed 5.5 percent rate (the current market rate) for the balance of the loan.

"As we see it, it's a win-win-win situation all round," Price explained to me. The builders and developers win by having a tool to help move their unsold inventory. The consumer wins by getting a cut-rate loan. And Citizens wins because it lowers the risk that it will have to write off even more of its commercial loans while taking a modest step to help stimulate the local economy. And, of course, the public relations bump isn't bad either.

What's striking, however, is the attitude Price expresses in talking of the new program. He's enough of a profit-making businessman to know that when the government is offering 5 percent equity money, he'd be a damn fool not to take it, even if his bank is already well capitalized. And yet he's sensitive enough about obligation that he feels comes with taking taxpayer money that he was anxious to use it in a visible way to benefit his community and his customers, as well as his shareholders.

In truth, Citizens won't literally be using its federal bailout money to make these mortgage loans. In fact, no bank would -- using money that costs 5 percent to make 5.5 percent loans won't get you very far in the banking business. But what each dollar of government capital does for Citizens, or any other bank, is give it the ability to go out and borrow another $9 from depositors or the Federal Home Loan Bank at a rate of 2.5 percent or less.

By the way, Kim Price would have had no trouble meeting the Obama administration's new $500,000 salary cap for executives at banks taking bailout money. His total pay package last year was $456,146, including a base salary of $250,000; a bonus of $64,800; $63,920 worth of Citizens stock; and $33,415 in other perks, including country club membership and a company car (driver not included).

And get this: Somehow the directors of Citizens South managed to attract and retain a chief executive who turned in respectable profits during good times and bad, and yet was able to pay him only 10 times the salary of the average employee. Pretty neat, huh?

So here's a question the House Financial Services Committee might put to the Titans of Finance: How is it that Kim Price, a community banker with an undergraduate degree from Appalachian State University, a tiny executive staff and a pay package that you would consider insulting, somehow managed to come up with a more creative use for his government bailout money than any of you?

I have just a bit more to add on this subject of "executive compensation." That will come in the final part of this series. For now, let me just note that in search of a photo of Kim Price, I visited the Citizens South Bank website. Not only did I not find a photo, I didn't find any mention of Mr. Price's name! I suspect that this is a marked contrast with the websites of the eight banks represented at Wednesday's House Financial Services hearings.


UPDATE: CREDIT FOR CHRIS DODD RE. THOSE LIMITS
ON EXEC BONUSES IN THE FINAL STIMULUS PACKAGE

Let me take this opportunity to clarify that the amendment to the stimulus bill which limits bonuses for top executives of companies taking federal bailout money was Senate Banking, Housing, and Urban Affairs Committee Chairman Chris Dodd's, and were included in the final bill over strong objection from the administration as well as the Wall Street gang.

Here is Senator Dodd's statement:

I’m delighted that my amendment to impose tough new limits on huge bonuses for executives working in firms that receive taxpayer funds will be included in the final economic recovery bill. The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy. American taxpayers deserve better. With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.

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