The Next American Revolution: Main Street vs. Wall Street by: Mark McQueen February 03, 2009 Mark McQueen Mark McQueen Add to Your WatchlistAbout this author:
The stories are well known:
* American Automaker executives flying to Washington in private jets to beg for government handouts. * Two hundred thousand dollar California spa bills at AIG (AIG), even after the U.S. taxpayers had to bail that insurance company out of certain bankruptcy. * Eliot Spitzer and his difficult three diamond session. * Citigroup (C) taking delivery of its new $50 million Falcon after receiving more than $40 billion of preferred share capital from the U.S. Treasury to keep the world’s Financial Supermarket from the annals of Receivership.
The impetus for the French Revolution can’t be summarized in a blog post, but there were two core elements that strike me as perfect parallels for the ongoing lack of judgment among some elites south of the border. I’ve always thought that average Americans shared many of the ideals of The Enlightenment, particularly equality and freedom of the individual.
Now that American taxpayers are bailing out many of the elites of their society, the parallels to pre-Revolution France begin to appear. Louis XVI took power during a financial crisis. France was nearing bankruptcy and the costs of the government exceeded tax revenues. Some of the most blessed in society didn’t pay tax.
After several years of deficits, the U.S. government has been forced to dig even deeper to ensure that Citigroup, Morgan Stanley (MS), GE Capital, General Motors (GM), etc., stay solvent just long enough for the economy to recover. In the meantime, President Obama is in the unhappy position of having to respond to the spectacle of Wall Streeters taking in $18.4 billion of bonuses even as the TARP funds continue to flow.
And this is where the prospect of a virtual revolution kicks in. If you work at a technology company that is in dire straights and hits the wall, your severance and benefits are an unsecured liability, you might get zippo from your employer. At Merrill Lynch (MER), for example, insolvency was only staved off by the intervention of the U.S. Treasury. But that didn’t prevent John Thain from recommending (and paying) $4 billion in bonuses just prior to the closing of the Bank of America (BAC) acquisition. And that patent unfairness will be the genesis of this modern day revolution.
It isn’t that average citizens reject the idea that risk-takers should be rewarded. Americans have none of that “Tall Poppy” syndrome that we see here in Canada. But this situation is different. Even failed risk-takers are being rewarded: that’s something that will not go over well in coffee shops across the 50 States. The idea that “we need to pay people to retain them” is just poppycock in this situation. The company is insolvent — you don’t have anything to pay them with. And, since the rest of Wall Street also took TARP funds, they probably can’t hire these teams away from you, either. The notion of pay-for-retention is a hollow argument.
There won’t be torches and pitchforks in this revolution; it will be the tax system and compensation caps that are brought to bear instead. But elected officials will have to make a choice: Pick the side of Wall Street or Main Street.
The choice will be an easy one to make.