Makers and Takers: The Rise of Finance and the Fall of American Business - Hardcover

Foroohar, Rana

Hardcover

ISBN 10: 0553447238 ISBN 13: 9780553447231

Verlag: Currency, 2016

Inhaltsangabe

Is Wall Street bad for Main Street America?

"A well-told exploration of why our current economy is leaving too many behind." —The New York Times

In looking at the forces that shaped the 2016 presidential election, one thing is clear: much of the population believes that our economic system is rigged to enrich the privileged elites at the expense of hard-working Americans. This is a belief held equally on both sides of political spectrum, and it seems only to be gaining momentum.
 
A key reason, says Financial Times columnist Rana Foroohar, is the fact that Wall Street is no longer supporting Main Street businesses that create the jobs for the middle and working class. She draws on in-depth reporting and interviews at the highest rungs of business and government to show how the “financialization of America”—the phenomenon by which finance and its way of thinking have come to dominate every corner of business—is threatening the American Dream.
 
Now updated with new material explaining how our corrupted financial sys­tem propelled Donald Trump to power, Makers and Takers explores the confluence of forces that has led American businesses to favor balance-sheet engineering over the actual kind, greed over growth, and short-term profits over putting people to work. From the cozy relationship between Wall Street and Washington, to a tax code designed to benefit wealthy individuals and corporations, to forty years of bad policy decisions, she shows why so many Americans have lost trust in the sys­tem, and why it matters urgently to us all.
 
Through colorful stories of both “Takers,” those stifling job creation while lining their own pockets, and “Makers,” businesses serving the real economy, Foroohar shows how we can reverse these trends for a better path forward.

Über diesen Titel

Über die Autorin bzw. den Autor

Rana Foroohar was recently named global business columnist and Associate Editor for the Financial Times. She is also CNN’s global economic analyst. 

Prior to joining the FT and CNN, Foroohar was for six years the assistant managing editor in charge of business and economics at TIME, as well as the magazine’s economic columnist. She also spent 13 years at Newsweek, as an economic and foreign affairs editor and a foreign correspondent covering Europe and the Middle East. During that time, she was awarded the German Marshall Fund’s Peter Weitz Prize for transatlantic reporting. She has also received awards and fellowships from institutions such as the Johns Hopkins School of International Affairs and the East West Center.  She is a life member of the Council on Foreign Relations.
 
Foroohar graduated in 1992 from Barnard College, Columbia University.  She lives in Brooklyn with her husband, the writer John Sedgwick, and her two children, Darya and Alex.

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Chapter 1

The Rise of Finance

If there is a Godfather of modern finance, it must be Sanford “Sandy” Weill, the former CEO of one of the world’s largest financial institutions, Citigroup. A kid from Bensonhurst, Brooklyn, who grew up to become the world’s most powerful banker, he started his career with $30,000 and rose through Wall Street ranks to lead the megabank that came to epitomize the Too Big to Fail era.

The creation of Citigroup--a merger between Weill’s own Travelers Group (an insurance and investment firm) and Citicorp back in 1998--was a seismic moment in the story of financialization that created the planet’s biggest-ever financial conglomerate. Not only that, but it was also the nail in the coffin of Glass-Steagall, the Depression-era banking legislation that had kept consumers relatively safe from exploitation by financial interests since the 1930s. Weill called the merger “the greatest deal in the history of the financial services industry” and “the crowning of my career.”1 It was a transaction that would allow the newly formed company to offer pretty much every financial service ever invented, from credit cards to corporate IPO underwriting, high-speed trading to mortgages, investment advice to the sale of any complex security you could imagine, in 160-plus countries, twenty-four hours a day. As with the British Empire in a former era, the sun never set on Citigroup.

So it was quite a moment when, in mid-2012, the emperor had an ideological abdication. Weill, who stepped down as Citi CEO in 2003 and has recently undergone something of an existential crisis over his role in the worst financial crash in eighty years, went on CNBC and declared that pretty much everything he’d believed about the bank, and about finance, was wrong. In fact, he said, if he were to do it over again, Citigroup itself would probably never have come to be. What’s more, the business model that financial institutions have fought to preserve through billions spent on funding campaigns and lobbying Congress had saddled American depositors and taxpayers with unacceptable risks. “What we should probably do is go and split up investment banking from [commercial] banking,” Weill said. “Have banks be deposit takers. Have banks make commercial loans and real estate loans. Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be Too Big to Fail.”2

As conversions go, Weill’s was positively biblical. It came four years after a long chain of disastrous decisions by Citigroup and the rest of the Too Big to Fail banks had landed them at the epicenter of the financial crisis, with hundreds of billions of dollars of exploding securities on their books and worried customers on the verge of mass panic that threatened to throw the country into another Great Depression. The crisis ultimately required $1.59 trillion in government bailouts (and another $12 trillion worth of federal guarantees and loans) and even with that, it shaved more off the American economy than any other downturn since the 1930s.3

But that wasn’t all.

As the dust settled on the crisis and the American recovery continued to be lackluster, particularly in relation to recoveries past, some policy makers, academics, and rank-and-file consumers began to suspect that something was wrong at a deeper level--namely, that although the financial industry had been set up to support business and to provide the liquidity that firms and individuals needed to prosper, it no longer seemed to serve that function. As Stephen Roach, the former chief economist of Morgan Stanley, put it to me in an interview right after the fall of Lehman Brothers, “finance has simply moved too far from its moorings in the real economy.”4

Indeed, as the banks got bailed out and swiftly recovered, things in the real economy grew worse. Bank profits reached record heights, yet loans to businesses and consumers shrank. Corporate earnings were high, yet few companies wanted to invest their cash in Main Street. Instead, managers beholden to the markets disgorged it mainly to rich investors and Wall Street.5 Meanwhile, America’s largest financial institutions remained as focused as ever on securities trading, the “casino” part of the banking business, since there was no reason not to be. Regulators had yet--and still have yet--to prohibit bankers from eschewing this more profitable type of business in favor of boring, old-fashioned lending. The very riskiest portion of the markets, derivatives trading, actually grew following the crisis. Globally, it was 20 percent bigger in late 2013 than in late 2007 (and US regulators are trying to police it with budgets that haven’t increased much since then).6

And that’s just what we can see. Shadow banking, the portion of the financial industry that remains largely unregulated (and includes hedge funds, money market funds, and financial arms of big companies like GE), has grown like kudzu: swelling by more than $1.3 trillion per year since 2011 and reaching $36 trillion today.7 Through it all, low interest rates set by the Federal Reserve, which were supposed to help individuals, ended up making the rich richer by inflating the stock market rather than improving the ability of real people to refinance their homes. (Most of the housing recovery has been led by investors, as will be covered in chapter 7.)

A Post-Traumatic Nation

Of course, plenty of people will ask why, if finance is having such a dampening effect on the economy, America is in recovery. Certainly there are several factors--like a weaker oil price, and the subsequent pickup in consumer demand--that are finally, eight years on from the crisis, driving US growth. But I would argue that these are short-term cyclical trends that can--and will--change. Indeed, consumer confidence and spending continue to be volatile in the wake of the crash. As Starbucks CEO Howard Schultz put it to me in 2015, even in the midst of economic recovery American consumers remain “fragile,” almost as if they have suffered a kind of trauma. Schultz and many other executives believe that skittishness has become a generational imprint, meaning that today’s generation of American consumers, who are still counted on to fuel the world’s growth engine, may be so traumatized they can’t perform that traditional role anymore.

Meanwhile, the deep structural dysfunction in our economy, emanating from the financial system, remains in place. The size of the sector itself is still close to record highs (as measured by its share of overall employment), though that may wax and wane as the impact of digital technology on job growth becomes more pronounced. But what’s quite clear is that the reorientation of our economy toward finance and the dominance of financial thinking in daily management of nonfinancial firms have warped the way both business and society work. The sway of the markets over the real economy has skewed the playing field and created growing inequality and capture of resources at the top of the socioeconomic pyramid. It has also led to dramatic inefficiencies in resource allocation that may be a cause, rather than a symptom, of slower economic growth.8

These aren’t new observations, but rather old warnings that have been pushed aside or forgotten. The great liberal economist John Maynard Keynes, for one, worried that market capitalism might be able to function quite well without actually employing many people, particularly if money went to speculation rather than productive investment. (He called on the government to boost long-term investment through special incentives.) Other thinkers, like Hyman Minsky, Harry Magdoff, and Paul Sweezy, took that idea...

Details zur Ausgabe

• Verlag: Currency
• Erscheinungsdatum: 2016
• Sprache: Englisch
• ISBN 10: 0553447238
• ISBN 13: 9780553447231
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 400
• Kontakt zum Hersteller: CROWN; https://www.penguinrandomhouse.com/books/; ; Avda. Diagonal 640 planta 4 A; Barcelona; Barcelona; 8017; Spanien