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The Great Depression, Then And Now

Reprinted with permission from TomDispatch

Many economists believe that a recession is already underway. So do millions of Americans struggling with bills and job losses. While the ghosts of the 2008 financial crisis that sent inequality soaring to new heights in this country are still with us, it's become abundantly clear that the economic disaster brought on by the Covid-19 pandemic has already left the initial shock of that crisis in the dust. While the world has certainly experienced its share of staggering jolts in the past, this cycle of events is likely to prove unparalleled.
The swiftness with which the coronavirus has stolen lives and crippled the economy has been both devastating and unprecedented in living memory. Whatever happens from this moment on, a new and defining chapter in the history of the world is being written right now and we are that history.

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Another Huge Helping Of Corporate Welfare For Wall Street

Reprinted with permission from TomDispatch.

To say that these are unprecedented times would be the understatement of the century. Even as the United States became the latest target of Hurricane COVID-19, in "hot spots" around the globe a continuing frenzy of health concerns represented yet another drop down the economic rabbit hole.

Stay-at-home orders have engulfed the planet, encompassing a majority of Americans, all of India, the United Kingdom, and much of Europe. A second round of cases may be starting to surface in China. Meanwhile, small- and medium-sized businesses, not to speak of giant corporate entities, are already facing severe financial pain.

I was in New York City on 9/11 and for the weeks that followed. At first, there was a sense of overriding panic about the possibility of more attacks, while the air was still thick with smoke. A startling number of lives were lost and we all did feel that we had indeed been changed forever.

Nonetheless, the shock was momentary. Small businesses, even in the neighborhood of the Twin Towers, reopened quickly enough while, in the midst of psychic chaos, President George W. Bush urged Americans to continue to fly, shop, and even go to Disney World.

Think of the coronavirus, then, as a different kind of 9/11. After all, the airlines are all but grounded, restaurants and so many other shops closed, Disney World shut tight, and the death toll is already well past that of 9/11 and multiplying fast. The concept of "social distancing" has become omnipresent, while hospitals are overwhelmed and medical professionals stretched thin. Pandemic containment efforts have put the global economy on hold. This time, we will be changed forever.

Figures on job cuts and business closures could soon eclipse those from the aftermath of the financial collapse of 2008. The U.S. jobless rate could hit 30% in the second quarter of 2020, according to Federal Reserve Bank of St. Louis President James Bullard, which would mean that we're talking levels of unemployment not seen since the Great Depression of the 1930s. Many small companies will be unable to reopen. Others could default on their debts and enter bankruptcy.

After all, about half of all small businesses in this country had less than a month's worth of cash set aside as the coronavirus hit and they employ almost half of the private workforce. In truth, mom-and-pop stores, not the giant corporate entities, are the engine of the economy. The restaurant industry alone could lose 7.4 million jobs, while tourism and retail sectors will experience significant turmoil for months, if not years, to come.

In the first week of coronavirus economic shock, a record 3.3 million Americans filed claims for unemployment. That figure was nearly three times the peak of the 2008 recession and it doubled to 6.6 million a week later, with future numbers expected to rise staggeringly higher.

As sobering as those numbers were, Treasury Secretary Steve "Foreclosure King" Mnuchin branded them "not relevant." Tone-deafness aside, the reality is that it will take months, once the impact of the coronavirus subsides, for many people to return to work. There will be jobs and possibly even sub-sectors of the economy that won't rematerialize.

This cataclysm prompted Congress to pass the largest fiscal relief package in its history. As necessary as it was, that massive spending bill was also a reminder that the urge to offer corporations mega-welfare not available to ordinary citizens remains a distinctly all-American phenomenon.

Reflections From the Financial Crisis of 2008

The catalyst for this crisis is obviously in a different league than in 2008, since a viral pandemic is hardly nature's equivalent of a subprime meltdown. But with an economic system already on the brink of crashing, one thing will prove similar: instability for a vulnerable majority is likely to be matched by nearly unlimited access to money for financial elites who, with stupendous subsidies, will thrive no matter who else goes down.

Once the virus recedes, stock and debt bubbles inflated over the past 12 years are likely to begin to grow again, fueled as then by central bank policies and federal favoritism. In other words, we've seen this movie before, but call the sequel: Contagion Meets Wall Street.

Unlike in 2020, in the early days of the 2008 financial crisis, economic fallout spread far more slowly. Between mid-September of that year when Lehman Brothers went bankrupt and October 3rd, when the Troubled Asset Relief Program, including a $700 billion Wall Street and corporate bailout package, was passed by Congress, banks were freaked out by the enormity of their own bad bets.

Yet no one then should have been surprised, as I and others had been reporting that the amount of leverage, or debt, in the financial system was a genuine danger, especially given all those toxic subprime mortgage assets the banks had created and then bet on. After Bear Stearns went bankrupt in March 2008 because it had borrowed far too much from other big banks to squander on toxic mortgage assets, I assured listeners on Democracy Now! that this was just the beginning — and so it proved to be. Taxpayers would end up guaranteeing JPMorgan Chase's buyout of Bear Stearns's business and yet more bailouts would follow — and not just from the government.

Leaders of the Federal Reserve would similarly provide trillions of dollars in loans, cheap money, and bond-buying programs to the financial system. And this would dwarf the government stimulus packages under both George W. Bush and Barack Obama that were meant for ordinary people.

As I wrote in It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions, instead of the Fed buying those trillions of dollars of toxic assets from banks that could no longer sell them anywhere else, it would have been cheaper to directly cover subprime mortgage payments for a set period of time. In that way, people might have kept their homes and the economic fallout would have been largely contained. Thanks to Washington's predisposition to offer corporate welfare, that didn't happen — and it's not happening now either.

None of this is that complicated: when a system is steeped in so much debt that companies can't make even low-rate debt payments and have insufficient savings for emergencies, they can crash — fast. All of this was largely forgotten, however, as a combination of Wall Street maneuvering, record-breaking corporate buybacks, and ultra-low interest rates in the years since the financial crisis lifted stock markets globally.

Below the surface, however, an epic debt bubble was once again growing, fostered in part by record corporate debt levels. In 2009, as the economy was just beginning to show the first signs of emerging from the Great Recession, the average American company owed $2 of debt for every $1 it earned. Fast forward to today and that ratio is about $3 to $1. For some companies, it's as high as $15 to $1. For Boeing, the second largest recipient of federal funding in this country, it's $37 to $1.

What that meant was simple enough: anything that disrupted the system was going to be exponentially devastating. Enter the coronavirus, which is now creating a perfect storm on Wall Street that's guaranteed to ripple through Main Street.

The Fed, the Casino, and Trillions on the Line

In total, the CARES Act that Congress passed offers about $2.2 trillion in government relief. As President Trump noted while signing the bill into law, however, total government coronavirus aid could, in the end, reach $6.2 trillion. That's a staggering sum. Unfortunately, you won't be surprised to learn that, given both the Trump administration and the Fed, the story hardly ends there.

More than $4 trillion of that estimate is predicated on using $454 billion of CARES Act money to back Federal Reserve-based corporate loans. The Fed has the magical power to leverage, or multiply, money it receives from the Treasury up to 10 times over. In the end, according to the president, that could mean $4.5 trillion in support for big banks and corporate entities versus something like $1.4 trillion for regular Americans, small businesses, hospitals, and local and state governments. That 3.5 to 1 ratio signals that, as in 2008, the Treasury and the Fed are focused on big banks and large corporations, not everyday Americans.

In addition to slashing interest rates to zero, the Fed announced a slew of initiatives to pump money ("liquidity") into the system. In total, its life-support programs are aimed primarily at banks, large companies, and markets, with some spillage into small businesses and municipalities.

Its arsenal consists of $1.5 trillion in short-term loans to banks and an alphabet soup of other perks and programs. On March 15, for instance, the Fed announced that it would restart its quantitative easing, or QE, program. In this way, the U.S. central bank creates money electronically that it can use to buy bonds from banks. In an effort to keep Wall Street buzzing, its initial QE revamp will enable it to buy up to $500 billion in Treasury bonds and $200 billion in mortgage-backed securities — and that was just a beginning.

Two days later, the Fed created a Commercial Paper Funding Facility through which it will provide yet more short-term loans for banks and corporations, while also dusting off its Term Asset-Backed Securities Loan Facility (TALF) to allow it to buy securities backed by student loans, auto loans, and credit-card loans. TALF will receive $10 billion in initial funding from the Treasury Department's Emergency Stabilization Fund (ESF).

And there's more. The Fed has selected asset-management goliath BlackRock to manage its buying programs (for a fee, of course), including its commercial mortgage and two corporate bond-buying ones (each of which is to get $10 billion in seed money from the Treasury Department's ESF). BlackRock will also be able to purchase corporate bonds through various Exchange Traded Funds, of which that company just happens to be the biggest provider.

Surpassing measures used in the 2008 crisis, on March 23rd, the Fed said it would continue buying Treasury securities and mortgage-backed securities "in the amounts needed to support smooth market functioning." In other words, unlimited quantitative easing. As its chairman, Jerome Powell, told the Today Show, "When it comes to this lending, we're not going to run out of ammunition, that doesn't happen." In other words, the Fed will be dishing out money like it's going out of style — but not to real people.

By March 25, the Fed's balance sheet had already surged to $5.25 trillion, larger than at its height — $4.5 trillion — in the aftermath of the global financial crisis and it won't stop there. In other words, the 2008 playbook is unfolding again, just more quickly and on an even larger scale, distributing a disproportionate amount of money to the top tiers of the business world and using government funds to make that money stretch even further.

A Relief Package for Whom?

By now, in our unique pandemic moment, something seems all too familiar. As in 2008, the most beneficial policies and funding will be heading for Wall Street banks and behemoth corporations. Far less will be going directly to American workers through tangible grants, cheaper loans, or any form of debt forgiveness. Even the six months of student-loan payment relief (only for federal loans, not private ones) just pushes those payments down the road.

The historic $2.2 trillion coronavirus relief package is heavily corporate-focused. For starters, a quarter of it, $500 billion, goes to large corporations. At least $454 billion of that will back funding for up to $4.5 trillion in corporate loans from the Fed and the remainder will be for direct Treasury loans to big companies. Who gets what will be largely Treasury Secretary Mnuchin's choice. And mind you, we may never know the details since President Trump is committed to making this selection process as non-transparent as possible.

There's an additional $50 billion that's to be dedicated to the airline industry, $25 billion of which will be in direct grants to airlines that don't place employees on involuntary furlough or discontinue flight service at airports through September. Right after the bill passed, the airline industry announced that more workforce cuts are ahead (once it gets the money).

Another $17 billion is meant for "businesses critical to maintaining national security," one of which could eventually be White House darling Boeing. There's also a corporate tax credit worth about $290 billon to corporations that keep people on their payrolls and can prove losses of 50% of their pre-coronavirus revenue.

More than $370 billion of that congressional relief package will go into Small Business Administration loans meant to cover existing loans and operating and payroll costs as well. Yet receiving such loans will involve a byzantine process for desperate small outfits. Meanwhile, the big banks will get a cut for administering them.

About $150 billion is pegged for the healthcare industry, including $100 billion in grants to hospitals working on the frontlines of the coronavirus crisis and other funds to jumpstart the production of desperately needed (and long overdue) medical products for doctors, nurses, and pandemic patients. Another $27 billion is being allocated for vaccines and stockpiles of medical supplies.

An extra $150 billion will go to cities and states to prop up budgets already over-stretched and in trouble. Those on unemployment benefits will get an increase of $600 per week for four months in a $260 billion unemployment expansion.

Ultimately, however, the relief promised will not cover the basic needs of the majority of bereft Americans. With Main Street's economy sinking right now, it won't arrive fast enough either. In addition, the highly publicized part of Congress's relief package that promises up to $1,200 per person, $2,400 per family, and $500 per child, will be barely enough to cover a month of rent and utilities, let alone other essentials, for the typical working family when it finally arrives. Since disbursement will be based on information the Internal Revenue Service has on each individual and family, if you haven't filed tax returns in the last year or so or if you filed them by mail, funds could be slower to arrive — and don't forget that the IRS is facing coronavirus-based workforce challenges of its own.

The Best Offense Is a Good Defense

The global economic freeze caused by the coronavirus has crushed more people in a shorter span of time than any crisis in memory. Working people will need far more relief than in the last meltdown to keep not just themselves but the very foundations of the global economy going.

The only true avenue for such support is national governments. Central banks remain the dealers of choice for addicted big corporations, private banks, and markets. In other words, given congressional (and Trumpian) sponsored bailouts and practically unlimited access to money from the Fed, Wall Street will, in the end, be fine.

If ground-up solutions to help ordinary Americans and small businesses aren't adopted in a far grander way, one thing is predictable: once this crisis has been "managed," we'll be set up for a larger one in an even more disparate world. When the clouds from the coronavirus storm dissipate, those bailouts and all the corporate deregulation now underway will have created bank and corporate debt bubbles that are even larger than before.

The real economic lesson to be drawn from this crisis should be (but won't be) that the best offense is a good defense. Exiting this self-induced recession or depression into anything but a less equal world would require genuine infrastructure investment and planning. That would mean focusing post-relief efforts on producing better hospitals, public transportation networks, research and development, schools, and far more adequate homeless shelters.

In other words, actions offering greater protection to the majority of the population would restart the economy in a truly sustainable fashion, while bringing back both jobs and confidence. But that, in turn, would involve a bold and courageous political response providing genuine and proportionate stimulus for people. Unfortunately, given Washington's 1% tilt and Donald Trump's CEO empathy, that is at present inconceivable.

Nomi Prins, a former Wall Street executive, is a TomDispatch regular. Her latest book is Collusion: How Central Bankers Rigged the World. She is also the author of All the Presidents' Bankers: The Hidden Alliances That Drive American Power and five other books. Special thanks go to researcher Craig Wilson for his superb work on this piece.

Copyright 2020 Nomi Prins

The Global Economy Catches The Coronavirus

Reprinted with permission from TomDispatch.

Whether you’re invested in the stock market or not, you’ve likely noticed that it’s been on a roller coaster lately. The White House and most of the D.C. Beltway crowd tend to equate the performance of the stock market with that of the broader economy. To President Trump’s extreme chagrin, $3.18 trillion in stock market value vaporized during the last week of February. Stock markets around the world also fell dramatically. When all was said and done, $6 trillion had been at least temporarily erased from them. It was the worst week for the markets since the financial crisis of 2008 and it would only get worse from there.

In the wake of that, the Federal Reserve kicked into gear. By the first week of March, after high-level coordination among the Group of Seven (G-7) countries and their financial elites, the Fed acted as it largely had since the financial crisis, but with more intensity, giving the markets a brief shot in the arm.

In a move that Wall Street and the White House had clamored for, the Fed cut the level of interest rates by half a percentage point. The markets reacted by doing exactly the opposite of what the Fed hoped and, after having briefly soared, the Dow then tanked nearly 1,000 points that day. The next day, it rose 1,173 points (also partially attributed to Wall Street’s embrace of Joe Biden’s Super Tuesday results), only to plunge again soon after.  Then, this Monday, within a few minutes of opening, the markets dropped more than 7 percent, triggering a halt in trading.

Dizzy yet? Okay. Let’s take a step back.

Wall Street doesn’t like uncertainty. Worries about the outbreak of, and economic fallout from, the coronavirus have stoked fears globally, only compounded by the start of an oil-price war. Big Finance doesn’t deal well when its money is on the line. What’s referred to as a liquidity shortage (or lack of free-flowing money) is Wall Street’s deepest fear. That’s what happened during the financial crisis of 2008. Under those circumstances, banks stop lending — both to each other, to corporations, and to real people — and look to external forces like its “lender of last resort,” the Federal Reserve, and to the government to bail them out. 

That’s why what’s transpired with the coronavirus is so illuminating. It’s not like the financial crisis, but central bank reactions are similar. There is a known chain of events that underscores the transmission of diseases: close contact, shared food, a stray cough or sneeze. What’s unknown with a novel virus is how long and far and deep that transmission will go into any society, how it might still mutate, and how disastrous — as in the case of the Spanish Flu of 1918 — the consequences could be.

On our globalized planet, the constant movement of people across borders has made the world smaller and more connected than ever. This means that it’s made diseases ever more communicable and its ability to throw a monkey wrench into a globalized economic system and financial markets so much greater. People of various ages from varied cultures, religions, and economic statuses have the ability to intermingle in transit, whether at an airport, in a grocery store, or on a subway platform.

Several passengers with the coronavirus, initially confined to a cruise ship off the coast of Japan, for instance, led to fatalities and contagion elsewhere and were among the many catalysts in the spread of that disease and of associated economic problems to a distinctly globalized and previously profitable travel industry. The coronavirus threat soon impacted that industry’s workers, food and drink suppliers, entertainers, crews, cleaners, and all associated family members. As a result, with other cruise ships experiencing similar problems and airlines in crisis, the travel industry was crippled, while the demand for the goods and services associated with it shrank. It even undoubtedly cost the Trump Organization, in part a travel and resort business, a penny or two.

Now, bear with me for a brief, deep dive into economics. Consider the commonly used economic term “supply chain.” It’s just a chain of people or businesses that interact with each other where money, goods, and services are exchanged along the way. The more interactions that take place around the world, the more global it obviously is. That’s why trade wars, though initiated by leaders (and their giant egos), impact the economic lives of so many from the top down.

In a world that’s seen a dramatic rise in isolationist politicians and policies, the coronavirus reminds us that we still share a planet where not everything is controllable by brute force or posturing. Medical, climate, and financial crises can spread ever more rapidly in this distinctly globalized world of ours for a variety of reasons. That’s why the old adage an ounce of prevention is worth a pound of cure still holds.

The reality is that an economy based on a kind of inequality once unknown to Americans is at a crossroads and the coronavirus seems to have infected it. So even with the cards stacked in their favor, the unseemly wealthy and the denizens of Wall Street can’t prevent real people from taking the brunt of the blowback. Nor will the Fed, whatever its rate cuts, nor Donald Trump, whatever his tweets, be able to prevent the majority of Americans from taking a significant hit in what’s sure to be a global economic storm. Maybe they can temporarily assuage stock market concerns, but there are no guarantees.

Even if the extreme inequality of the present moment has its obvious precedents, the volatility that’s now whipsawing across the world is only likely to continue to widen that great divide, possibly to the breaking point.

This Time, Inequality Is Different

The prescription for the last major financial crisis went something like this: The biggest Wall Street banks faced a subprime loan abyss of their own making, but one that would come to hurt everyone else. They had crafted trillions of dollars’ worth of toxic assets based on the assumption — bizarre in retrospect — that there would be more incoming subprime loan payments than there had been subprime loans to begin with. When the subprime mortgage crisis began and payments became delinquent or morphed into defaults, the toxic assets of those banks went belly-up. Having used other people’s money to gamble on risk and having created complex assets to make their bets, they lost money themselves big time, but it was others who truly paid the price.

Some of those big banks, like two of my former employers Bear Stearns and Lehman Brothers, had borrowed too much from other big banks. When they couldn’t repay the money they had borrowed to bet on those toxic assets, they went bankrupt.

The surviving big lenders and politically well-connected banks like JPMorgan Chase and Goldman Sachs played it differently. They extracted an epic level of support from the Obama administration (read: us taxpayers) and the Federal Reserve and so survived before, of course, going on to thrive. Other major central banks followed the Fed’s lead in lowering rates, while purchasing assets from troubled banks in return for cash.

By December 2008, federal funds rates (the interest rates by which banks lend money to each other based on what they have on reserve at the Fed) had been pushed down to zero and they’ve remained at historically low levels ever since. According to a 2011 Government Accountability Office report, the Fed extended $16 trillion in loans in the wake of the financial crisis, most of which went to the financial industry. Over time, it also created more than $4.5 trillion to purchase Treasury and mortgage bonds from Wall Street firms, most of which it now houses on its own books.

During the financial crisis of those years, the world’s major central banks, mostly in G-7 countries like Germany and Japan, created what was supposed to be an “emergency” policy, which soon enough became a new normal that’s lasted 12 years. They kept the average cost of money flowing to those endangered banks, their largest corporate clients, and the markets at near zero percent or even, in some instances, at negative rates. This policy subsidized or socialized losses and eventually sent stock markets to all-time highs.

The prevailing narrative then (and now) was that this “cheap money” would incentivize banks to lend and that companies would use those loans to invest in the future and in their workers, a grand experiment, it was claimed, to spur economic growth for real people. Think of it as a classic case of a trickle-down economic theory on steroids.

What happened in practice was a staggering increase in global inequality. In effect, the major central banks became centralized ATM machines for the world’s banking system and financial markets. The amount of debt created by their respective governments — because the rates and cost of borrowing that debt were so low — skyrocketed. The value of financial assets like stocks, as well as government and corporate bonds, ballooned, creating what even major business news channels would characterize as a “bubble.

Central bank leaders and politicians embraced the idea that the ongoing “emergency” creation of cheap money was for the good of the economy. And every time the markets got skittish, central banks turned to the same money-creating well to help them.

Like Dr. Frankenstein, the experiment became the monster. The byproduct of making lots of money available to a sliver of society was, of course, that it flowed to the top, only exacerbating the already significant inequality on this planet. That’s why there’s something the same and yet so different about today’s inequality. 

In Wall Street-speak, today’s level of inequality globally is the “trend.” After all, over the past three decades, the gap between the haves and have-nots has hit historic highs, especially in the United States. According to Daan Struyven, senior economist at Goldman Sachs (another of my former employers), “The wealthiest 0.1 percent and 1 percent of households [in the U.S.] now own respectively about 17 percent and 50 percent of total household equities, up significantly from 13 percent and 39 percent in the late 1980s.” And just over half of Americans “own” stocks in some fashion, if you include those with 401(k) plans, shares in an equity mutual fund, or an IRA. So when the market pops up, inequality doesn’t shrink. It only grows.

Yet, on the other hand, there’s something dramatically different about this particular period of inequality. In quant speak, that’s the genuine outlier. During this post-2008 crisis period, much of that low-interest-rate money unleashed by the central banks and its benefits have gone disproportionally to the top 1 percent.

The Fed, the Money, and the Inequality

In countries where central banks intervened the most, the increase in the total value of stock markets outpaced economic growth. Yet Fed Chairman Jerome Powell claimed that “there is nothing about this economy that is out of kilter or imbalanced.”

In fact, the speculation and investing in these years flies in the face of that explanation. If it’s cheap and easy to access money and someone wants to grow that money, investing has long been considered the go-to option. The stock market is an avenue where money can push up the value of share prices by the force of its mere presence. In the world of big finance and markets, however, what goes up can plummet down even faster.

The natural question then becomes: How did a soaring stock market, propelled by cheap money, create yet more inequality? As a start, of course, the increase in stock market values has gone predominantly to the relative few who are significantly invested in those markets. That’s because, in terms of wealth, the top 10 percent of Americans own 84 percent of the stock market, up from an already staggering 77 percent in 2001. In addition, as Fortune Magazine put it recently, “The top 1 percent continues to increase their stranglehold on wealth in this country, while the middle and lower class are losing ground.”

We’re talking, of course, about the wealthiest people and companies in society, including corporate executives who get paid in shares and stock options and are often capable of pushing up the price of their own shares by deploying money to buy them back. If stock markets are floating on that cheap money, what happens if (or rather when) it goes away? What happens when serious trouble builds requiring something other than the ability of central banks to combat it with more cheap money? The answer could be a massive, even historic, stock market crash.

Finally, if cheap money can inflate financial assets more than the real economy and the wealthy possess more of it than most people, won’t that simply increase inequality to yet greater heights? The answer is: yes. “So in some sense the source of higher inequality is Fed policies, which pushed stock prices and home prices higher,“ as Deutsche Bank’s chief economist Torsten Sløk noted.

The Election and Inequality

If we learned anything from the 2016 election (and from where the 2020 election is headed so far), it’s that Americans, whether on the left or right, don’t like having the deck stacked against them. President Trump struck a populist, anti-establishment chord in his voters in 2016 (despite being a billionaire), including among workers who had once voted Democratic yet were feeling ever more economically insecure when it came to their future and that of their children.

President Trump has taken aim at Fed Chairman Powell both for raising rates in 2018 and for not lowering them enough in response to the recent coronavirus dive. In tweets, he implied that Powell was the enemy of all that’s good (for Trump) by being unwilling to bend fully to White House pressure on monetary policy. In the wake of Powell’s recent lowering of those rates, the president tweeted, “As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive.”

Trump’s policies — notably the trade war with China that has hurt American farmers and manufacturers — have placed workers in an ever more economically vulnerable position. At the same time, the administration’s tax cuts for major U.S. corporations (and billionaires) haven’t done the poor or working class any favors either.

But Trump knows that cheap money, if it flows anywhere quickly, will flow to a stock market that he’s repeatedly touted as being up big under his administration. And until a couple of weeks ago, the Dow had indeed rallied by as much as 61 percent since the 2016 election. In comparison, the average annual growth in gross domestic product has been stuck around 2.5 percent per year.

If the coronavirus has shown us anything, it’s that unforeseen factors can crush the market and, by extension, the economy and American workers. This will incite the Fed and central banks elsewhere to intervene under the guise of helping the economy. March’s emergency rate-cut was the first since the financial crisis of 2008. It was also a clear sign that the Fed is deeply concerned about the dangers a potential global pandemic can inflict on a thoroughly globalized economy and its banking systems.

If recent years have taught us anything, it’s that the official responses to crises will ultimately help Wall Street and the markets, while leaving real people behind again. It’s a vicious cycle that will only stoke inequality further until, of course, whether thanks to the coronavirus or some unknown future development, it all comes tumbling down.

Only creating a more level playing field and a new, sustainable, more equal path forward could alter this fate — and count on one thing: that won’t come from central bank interventions or from the Trump administration. You would need the sort of systemic overhaul that would result in real policies that could stimulate economies from the ground up. For the present, wash your hands, don’t touch your face, and hold your breath.

Nomi Prins, a former Wall Street executive, is a TomDispatch regular. Her latest book is Collusion: How Central Bankers Rigged the World (Nation Books). She is also the author of All the Presidents’ Bankers: The Hidden Alliances That Drive American Power and five other books. Special thanks go to researcher Craig Wilson for his superb work on this piece.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Books, John Feffer’s new dystopian novel (the second in the Splinterlands series) Frostlands, Beverly Gologorsky’s novel Every Body Has a Story, and Tom Engelhardt’s A Nation Unmade by War, as well as Alfred McCoy’s In the Shadows of the American Century: The Rise and Decline of U.S. Global Power and John Dower’s The Violent American Century: War and Terror Since World War II.

Copyright 2020 Nomi Prins

Book Review: ‘Too Big to Jail: How Prosecutors Compromise With Corporations’

During the past few years, a plethora of headlines have proclaimed one “record fine” after another against the major banks at the heart of the 2008 financial crisis. After each settlement, Attorney General Eric Holder took a victory lap to show that, in America at least, no corporate misdeed would go unpunished.

But each of those compromises — from Citigroup’s $7 billion to JPM Chase’s $13 billion to Bank of America’s $16.65 billion settlements — left the public feeling increasingly shafted, not victorious. The question became not only whether certain offenders are too big to fail, but also whether they are too big, too complex, too powerful, and too expensively “lawyered up” to jail.

In Too Big to Jail, University of Virginia law professor Brandon L. Garrett explores this question with the sharp mind and attention to detail that exemplify his profession’s most positive attributes. Examining the intricacies of key federal cases and corporate bargains since the turn of the 21st century, Garrett considers Enron enabler and now nearly defunct accounting firm Arthur Andersen, international bribery convict Siemens, tax-shelter manufacturer KPMG, recidivist environmental and safety offender BP, drug-money-laundering colluder HSBC, tax-evader strategists Credit Suisse and BNP, and the Big Six U.S. banks at the heart of the recent financial crisis. Garrett paints a picture more disturbing than mere skepticism about the kid-gloves treatment these corporate villains have received. He portrays a justice system more likely to overlook a mega-billion-dollar crime (in return for tepid promises of reform) than a minor drug offense by a teenager.

Garrett characterizes corporate settlements as a game played between Goliath-sized corporations and David-sized prosecutors. The results aren’t Biblical. Rather, they are all-too-modern victories for the Goliaths. Fines are light when companies must pay them at all. When required as part of a settlement, even modest reforms are mostly ineffective or impossible to measure. Corporations can’t go to jail for their crimes, but lately, neither do their CEOs, who use techniques like the “ostrich” to bury their heads in the proverbial sand and are thus “blinded” to the misconduct of their employees. Notable exceptions to the successful ostrich defense include WorldCom’s former CEO Bernie Ebbers, who chose a trial over a settlement; Enron CEO Ken Lay and CFO Jeff Skilling; and Tyco’s Dennis Kozlowski. All of these men were convicted and sentenced in the early 2000s, though Lay died before serving prison time.

Garrett’s comprehensive and evidence-driven analysis probes widely held assumptions that federal prosecutors methodically coddle corporations and their executives with agreements that are not major deterrents against future crime. Often, he writes, they settle with these corporations because it’s better than nothing. However, to him, if there’s enough evidence to bring the cases to begin with, harsher penalties should be the result. In the past decade, as the number of cases against publicly traded companies has mounted, prosecutors have gone from extracting adequate punishment — recall the savings-and-loan crisis, when hundreds went to jail — to reforming companies as part of sweetheart deals. In the wake of this shift, Garrett questions whether prosecutors should or even can reform corporations, and how, given the rampant lack of corporate transparency, this effort could be practically tested. He concludes that if future settlements include reforms, they should be monitored much more effectively.

Another way prosecutors are increasingly letting companies slide is through deferred prosecution deals. If a company reforms itself by firing the relevant employees or implementing enhanced reporting or compliance mechanisms, it can soften its punishment or avoid a criminal conviction entirely. Another escape mechanism is the non-prosecution agreement, which is as slippery as it sounds. As Garrett says, such agreements “are far too important to avoid judicial review entirely.” Companies can also settle for fines, but even when they include restitution to victims, as in the case of the $1.7 billion JPM Chase forfeiture payment in the settlement surrounding Bernie Madoff’s Ponzi scheme, restitution doesn’t begin to equal the magnitude of the victims’ losses.

Garrett holds a soft spot for prosecutors and opts to address the larger issue of systemic weaknesses. His solutions include requiring prosecutors to pursue convictions except where collateral damage — for example, to innocent employees and shareholders — would be too severe. He would require judges to supervise deferred prosecution agreements, as too often they are not a part of the scrutinizing equation, though this may burden already overworked judges who may be unfamiliar with complex derivatives or pipeline safety measures. He suggests more detailed structural reforms when they are warranted; too often, settlements require none, or ill-conceived ones. He wants fines high enough to serve as deterrents, and harsher sentencing guidelines for repeat corporate offenders. Lastly, he believes the public and shareholders should know more about corporate crime. Prosecution agreements, detailed accountings of how fines are calculated, and progress reports describing compliance should be publicly available.

Garrett considers federal regulators as also contributing to the systemic problems and related recidivism arising from weak penalties. In July 2010, for instance, the SEC settled with Goldman Sachs on a $550 million fine for fraud charges related to one of its collateralized debt obligations. It also required Goldman Sachs to “reform its business practices” without eliciting any admission of wrongdoing. Six months later, Goldman completed an internal review of its policies and found only limited changes were necessary. The announcement preceded a series of lawsuits and settlements with five different regulators and a state attorney general. The charges included breaking securities laws, defrauding pension fund investors, and foreclosure abuses. Those settlements cost Goldman Sachs more than $4 billion, a fraction of the firm’s assets.

Garrett concludes that the problem of inadequate settlements usually comes down to size and might. The firms that receive the lightest federal treatment have grown so big — often because regulators approve their mergers — that holding them accountable for their crimes opens significant issues of collateral damage. And according to the federal government, because Wall Street banks are perceived to be so economically or systemically important to the country — a mantra propagated by Wall Street and accepted by the Washington elite — it is therefore risky to prosecute these firms too fervently.

This fear-steeped narrative is a critical piece of the legal compromise puzzle. How could the Department of Justice punish the very firms the government is subsidizing and protecting? This bias routinely benefits corporations at the expense of their victims. The CEOs go on to bigger bonuses or golden parachutes while the firms rack up new violations with impunity.

Garrett’s masterful book is as important as it is timely. Though he occasionally delves into legal history and jargon, he does so to deliver a more complete picture of indulgent settlements. Part of the rationale for weak settlements stems from various interpretations of the definitions of corporations and their constitutional rights, which he explains in detail. He balances this exposition with the specific elements of recent settlements, which usually leave the biggest corporations strong enough to commit new crimes. In the case of Siemens, the sole company that comes off as “reformed,” Garrett also discusses the positive role that corporate monitors can play to ensure compliance, though they often receive multi-million-dollar contracts in the process.

Garrett’s tone remains level throughout the book, as he lets the substantial facts and his legal analysis speak for themselves. As a result, his proposals for reform — stricter prosecution agreements, stronger and ongoing judicial review of compliance requirements, and greater corporate transparency — come off as evenhanded and eminently logical. Readers are left to experience their own emotions (mine tended toward anger) at the overly collaborative settlement process and whether there’s any hope for its redemption. I remain skeptical, especially after reading Garrett’s book.

We must be grateful to Garrett for compiling the most extensive database of corporate settlement information available today — the federal government’s own compilation is but a subset of Garrett’s — and for shining a light not only on the manner in which corporations skirt the law, but also on what must be done to curb them. Too Big to Jail is a cogent, exhaustively researched plea for saner and more equitable legal oversight. Garrett ends by noting that corporate crimes can overwhelm the limited resources of the justice system, but also that corporate prosecutions are themselves too big to fail.

Nomi Prins is the author of All the Presidents’ Bankers: The Hidden Alliances that Drive American Power. Her other books include It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions (2009) and Other People’s Money: The Corporate Mugging of America (2004). She was a managing director at Goldman Sachs, a senior managing director at Bear Stearns, a strategist at Lehman Brothers, and an analyst at the Chase Manhattan Bank. She is currently a senior fellow at Demos, the public policy think tank.