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The 3Ws of American Society- Winning, Wall Street and Working Class

The American society is the melting pot of different cultures, backgrounds and ideas united by a common philosophy of individual freedom and civil liberties. It is like a giant cosmopolitan entity where lives converge to pursue an elusive American dream. The term “American Dream” has acquired an almost cultish tone with varied interpretations over a period of time. The underlying idea is about “Winning” by overcoming impossible odds through sheer hard work and unwavering commitment, because America provides equal opportunities to all, regardless of life’s circumstances.

The great Vince Lombardi once said, “Winning isn’t everything, it’s the only thing.” This quote aptly describes the state of American society which has commodified success and abandoned values and principles of its founding fathers. This piece of wisdom is often used by successful people in America from different walks of life, be it politics, business, art or sports in order to motivate their followers to accomplish the magnificent feats in their respective lives. The mighty Hollywood has produced multiple films on the lives of Wall Street traders such as Gordon Gekko (Wall Street, 1987), Jordan Belford (The Wolf of Wall Street, 2013) where these gentlemen were celebrated and glorified and their unethical ways to win were justified in pursuit of success.

But little did they know that the so-called “American dream” is crashing and burning real-time under the weight of its own hubris. The very idea is now being questioned and challenged for its modern-day relevance as the super-rich continue to get richer, while the rest struggle to hold onto their jobs and savings to live for the next day. As the shaky foundations on which this lie was built is laid bare before everyone, the nation is divided into two class of people – the millionaires and the billionaire class (Top 1%), basking in unimaginable luxuries while the working class (99%) is subjected to an arduous grind which is daunting and never-ending.

The key observation that the economic experts have noted is that regardless of the degree and magnitude of the crisis, the rich individuals or mega corporations almost never suffer in the same proportion as the working class that always bears the maximum brunt of it. This clearly suggests that the structural rigidities of the US economic and political system prevent the policymakers from ever charting even course for the rich and the working class of the country. This phenomenon is best understood by analyzing the impact of 2008’s Global Financial Crisis and 2020’s Covid-19 Global Pandemic on the fortunes of Wall Street and the state of America’s working class.

The 2008 global financial crisis was the worst economic disaster since the Great Depression of 1929. It sent the world economy into a tailspin as US housing market collapsed due to excessive securitization of housing loans aka mortgage-backed securities (MBS); unemployment rate shot up above 10% at the peak of the crisis and stock market plummeted, wiping out investors’ wealth worth nearly $8 trillion between late 2007 and 2009. One of the world’s largest investment banks, Lehman Brothers, was forced into filing for bankruptcy leaving over $600 Billion in debt and 25,000 employees losing their livelihoods, this led to a massive domino effect on Wall Street.

The US government thrust into action and unveiled a series of policy measures to stabilize the financial markets and protect the interests of stakeholders. As part of the “Troubled Asset Relief Program” or (TARP) and other programs, it announced a bail-out package over $700 Billion to shore up credit markets, buy toxic assets of “too big to fail” banks and rescue the auto-sector reeling under huge losses. Further, the American Recovery and Reinvestment Act was passed which allocated funds for tax cuts, stimulus payments and public works. In addition to this, the US Federal Reserve decided to pump liquidity into the financial system by buying vast quantities of bonds to the tune of trillions of dollars via quantitative easing. The effects of such an enormous economic crisis continued to be felt by the US and the world in subsequent years.

In the aftermath of the 2008 economic recession, the global consensus was that trading practices like excessive securitization via risky financial instruments or over-leveraging of corporate balance sheets or bundling & reselling of sub-prime mortgages etc. are responsible for the economic meltdown. Hence, stronger regulations must be brought in to prevent destabilization and fraud. But the Dodd-Frank bill passed in the US House of Representatives and the Senate proved to be woefully inadequate in addressing the larger systemic issues of finance. For instance, the credit rating agencies that awarded Triple-A ratings on toxic mortgages are paid by banks, a clear example of the conflict of interest.

The major Wall Street banks which were bailed out at the time of crisis continue to take a higher amount of risk, still paying hefty bonuses to financial executives and are now bigger than ever (12 largest banks control 70% of all bank assets) despite the series of regulatory measures introduced to limit their size and risk-taking ability. Take, for example, JP Morgan Chase which has over $3 trillion in assets compared to $1.5 trillion in 2007. The bank received a bailout of $416 billion from US taxpayers, fined $13 billion for mortgage fraud and avoided billions of dollars in taxes through offshore tax scams, and the top tier executives at Chase continue to pocket massive bonuses.

On the other hand, over 5 million working-class American families lost their houses due to mortgage foreclosures while the rest witnessed their home values plummet and savings in retirement accounts vaporized. The people and institutions responsible for the 2008 economic crash didn’t pay a bigger price for their wrongful conduct as they were let off with fines & penalties, instead of being prosecuted for their financial crimes.

Well, if you don’t hold the government institutions accountable when they blatantly put the interests of the few above everyone else, they are bound to repeat the same behaviour. If the 2008 economic crisis response taught us anything, it’s that the US financial system is under the stranglehold of big business where shareholders’ and investors’ interests are far more important than ordinary folks. As Erin Gruwell said, “Silence ensures that history repeats itself”, and this couldn’t be more true if we look at the US economic response to Coronavirus.

The Covid-19 pandemic hit America particularly hard as over 5 million people contracted the virus (which is highest in the world), tens of millions of working-class people lost their jobs and thousands of small businesses closed down. The US Unemployment rate reached an all-time high of 14.7% in April 2020. The US policymakers and legislators claimed that there will be a V-shaped recovery once the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES) fully comes into effect. Well, the only institution that has witnessed a V-shaped recovery in their fortunes is the Wall Street or investor class at the cost of the working class. On one hand, the stock market indices like S&P 500 and NASDAQ Composite reached their all-time highs, on the other hand, the permanent job losses on the main street are soaring as companies shift from temporary lay-offs to permanent job cuts.

Under the CARES Act, 2020, $500 Billion were allocated as part of Corona bail-out, of which $75 Billion went to the airline industry while the rest $425 Billion is allowed to be leveraged 10 times i.e $4.25 trillion through Federal Reserve leveraged lending facility to capitalize large businesses through an unprecedented purchase of corporate and municipal bonds. The money can further be used for huge executive compensation packages, mega-corporate mergers or purchase of distressed assets which will lead to the creation of monopolies in key sectors of the economy.

On the other hand, the PPP (Paycheck Protection Program) is already exhausted pushing small businesses on the brink of extinction, the workers are being fired with impunity as there is no clause forcing companies receiving government support to retain their employees. At present, the one-time stimulus payment ($1200) is not renewed, federal unemployment allowance ($600) discontinued, loan moratoriums ended, no further aid to state and local governments, foreclosure & eviction restrictions lifted, while both the Houses of Congress went on a recess as working-class people left to fend for themselves in these troubling times. May God bless America (because there is nobody else).

By Dr. Anuj Aggarwal
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