Whenever the leadership class feels nervous, you can count on some of them to offer the less-moneyed masses a bone to demonstrate they care. Warren Buffett says his idea of “shared sacrifice” is higher taxes on the super-rich. Only for him, this wouldn’t cost much.
In a New York Times op-ed last week, the Berkshire Hathaway Inc. chief executive officer said his federal-tax bill for 2010 was about $6.9 million, just 17 percent of his taxable income. The other 20 people in his office paid an average rate of 36 percent, he said. If only he had been taxed another $7 million or so, that would bring him closer to being even-steven with the rest of us, Buffett seemed to suggest. It’s a nice gesture, perhaps, although for a guy whose stake in Berkshire is valued at $37 billion, this wouldn’t be much to give up.
Want to see what true shared sacrifice looks like? Read the epilogue of Michael Perino’s book, “The Hellhound of Wall Street,” about the great Wall Street crash and the Senate Banking Committee's 1933 hearings, led by Ferdinand Pecora, the committee’s chief counsel.
Perino, a St. John’s University law professor, recounted a March 1933 newspaper column by the famed journalist Walter Lippmann, who wrote that the relentless congressional unmasking of bankers’ misdeeds was clearly in the public interest even though the revelations exacerbated the banking crisis. Thousands of banks failed during the hearings, and millions of Americans lost their money. This was before the days of government-backed deposit insurance.
“It is, of course, true that the exposure accelerated the banking crisis by adding to the popular distrust of banks,” Lippmann wrote. “But the exposure has proved to be a good thing, not merely in the general sense that wrongs should always be exposed whatever the consequences, but in the specific sense that the way has been opened to a more thorough-going reconstruction.”
“The crisis has not only made it possible for the administration to reform the banking system drastically, but it has produced, or at least brought into the open, a recognition of evils and a desire for a reform within the banking community itself.”
Today the fundamental problem for consumers, banks and governments alike is too much debt. The process of deleveraging is painful. There is no way of getting around this. Yet ever since the current financial crisis started in 2008, the U.S. government has responded by doing all it can to avoid the inevitable reckoning. European leaders have done the same.
We have tried bailouts, drawing applause from Buffett, whose company owns a 6.67 percent stake in Wells Fargo & Co. We have tried federal stimulus spending, which yielded little more than a sugar high. We have tried propping up the stock market and home prices with record-low interest rates from the Federal Reserve, hurting savers as well as retirees and anyone else living on a fixed income.
We have tried covering up banks’ losses, through loose accounting and get-out-of-jail-free cards for bankers who lie about their companies’ finances. The costs have been immense, both to long-term investor confidence and the rule of law. And none of it has worked, except in the transitory sense.
Bank stocks are crashing again, partly because investors don’t trust the balance sheets of Bank of America Corp. and Citigroup Inc., to name a couple. While we have managed to keep the financial system limping along, the government refuses to accept that for the economy to get appreciably better it probably will have to get worse first.
To the Rescue
Tomorrow in Jackson Hole, Wyoming, the world will be watching Fed Chairman Ben Bernanke to see if he will ride to the markets’ rescue with a third round of quantitative easing -- printing more money to boost asset prices. At some point, we all must recognize there’s only so much government can and should do to ease our loss of wealth, or to entice investors into risky assets whose returns may well depend on further interventions.
There used to be this quaint notion of a business cycle, where it was widely accepted that good times and bad times came and went, and that the role of government was to ensure that neither got out of hand. For too long we have operated on the premise that bad times are something to be prevented or postponed no matter the cost -- to the point where the choice now becomes framed as one between economic calamity and buying time.
The American people can handle a bad economy, even an awful one. Most don’t have a lot of money to start with. What is unbearable is the current policy of running to aid the world’s biggest, most disaster-prone financial institutions every time they get into trouble, with only afterthoughts paid to what this means for ordinary citizens.
You want shared sacrifice? Let’s start with market regulators forcing the largest banks to fess up to their pent-up losses and come clean with their books, so we can get their red ink behind us as quickly as possible and create a new baseline for sustainable growth. While reckonings are expensive, the cost of forestalling them through legerdemain is always far greater. No doubt this would cost Buffett a lot more than $7 million.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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