No Bad Deed Goes Unrewarded

Remember the debate a decade ago about privatizing Social Security?  During the Bush Administration there were REPEATED pushes to transform Social Security into an individual account system in which every working American could decide for themselves how to invest the money that was withheld from their check.  Wall Street was positively drooling over the massive influx of capital for them to take fees on.  One University of Chicago economist estimated the windfall to the brokerage houses at over $900 BILLION.   And that leaves aside their tendency to scam their own customers by advising them to buy securities that the houses themselves are dumping.

More important in some senses was the fact that lots of regular people were looking enviously at the stock market.  The Dow rose from about 10,900 when George Bush was sworn in to 14,600 in the fall of 2007.  Everyday working people wondered why only the rich were benefiting from this boom.  They wanted some, too.  As Rockefeller says to the Hell Hound in my short story "Who Could Have Foreseen It?":  "I sometimes think that the most painful thing in the world is watching other people make money that you think should be yours.”  One of the characteristic features of a market bubble is investing by people who have no experience in the market.  It is a sign that a crash is imminent.  And, of course, the arrival of these credulous newcomers is also an invitation to theft.  But even crafty traders fall victim to enthusiasms.  They convince themselves that there is no downside.  As Fritz exclaims in that same story, "The demand has no ceiling!  The price will never go down.”

Now the Social Security privatization debate had another feature, which was the drumbeat of calamity, the constant repetition of the warning that the system was "broken" (there's that phrase again) and that there would be no money left in ten years.  How interesting that we have stopped hearing all these dire predictions!  But a bigger reason why we stopped hearing about private accounts was what happened in the stock market AFTER October 2007.

As most people still remember, the market lost TWO-THIRDS of its value in 18 months.  Suddenly those private accounts looked a lot less enticing.  Many people who had tied up their supplementary retirement accounts in stocks lost those accounts completely. 

I often wonder, though, how long it will be before everybody forgets about the risks.  Working people may not have their jobs back.  Their income may have fallen.  But the Dow has gained 256% since it bottomed out five years ago.  People have short memories and I am certain that soon everybody will conclude -- again -- that we have entered a period of "permanent prosperity."

We do get occasional reminders of the costs of normalizing risky financial behavior.  The Chicago Tribune has been running a series about how the Chicago school system was induced to fund itself with a shady scheme that is now costing the children and parents $100,000,000.  That is not a typo. ONE HUNDRED MILLION DOLLARS.

The CEO of Chicago schools ten years ago was our current US Secretary of Education, Arne Duncan, a person with NOT ONE MINUTE of teaching experience.  He brought in David Vitale as his Chief Administrative Officer.  Vitale's own teaching experience consisted of chairing the Chicago Board of Trade and running Bank One Corporation's Commercial Banking, Real Estate, Private Banking, Investment Management and Corporate Investments.  (Sarcasm. Poe's Law.)

It was Vitale who came up with the convoluted scheme which I will not detail.  Check out the Tribune's pieces http://www.chicagotribune.com/news/watchdog/cpsbonds/ct-chicago-public-schools-bond-deals-met-20141107-story.html#page=1  Suffice it to say that Vitale was rewarded by being named President of the Chicago Board of Education.  And Arne Duncan is still Secretary of Education.  This, too, is part of the culture of impunity.