The conservative damning of the public unions was not entirely wrong, but it was crucially incomplete. A powerful force is, in fact, arrayed against the demands of public unions: the desire of voters to pay low taxes. The trouble is that this desire takes the short view, demanding instant gratification. If an elected official pays his workforce more money, he has to jack up taxes. But if he can arrange to have his workforce paid more money years down the line, when he’s not the one coming up with the cash, he can enjoy the best-of-both-worlds outcome of happy employees and happy voters.
So that is what elected officials have done across the country. They’ve given their workforce reasonably modest wages, but plied them with vast pension benefits. By the time the bill comes due, the politicians who agreed to it will be retired themselves, collecting nice pensions, and perhaps being quoted in the local media opining that the new breed of elected officials doesn’t run a tight fiscal ship, the way they did back in the good old days.
6. Wall Street: Same as It Ever Was
Finance blogger, Reuters
The warning signs were there. In the decades before the financial world fell apart in 2008, what had been a great many small and diverse intermediaries merged and grew into a few global powerhouses. The new behemoths of finance were generally far too big to manage: with their trillion-dollar balance sheets and cellars full of assets that no one understood, they were a disaster waiting to happen.
These institutions were, literally, too big to fail. Lehman Brothers was one of the smallest, and its bankruptcy forced governments around the world to carry out formerly unthinkable emergency actions just to keep the global economy from completely collapsing. The cost of the bailout ran into the trillions, and unemployment rose as high as 10.1 percent; we can probably never recover fully from the crisis. The ingredients that spelled disaster were simple: bigness, interconnectedness, and profitability.
Big banks, by their nature, are much more systemically dangerous than smaller ones—just imagine the cost to the federal government if it had to cover all the deposits at, say, Bank of America. Lehman is a prime example of the dangers of interconnectedness: because every major bank did a lot of business with the firm every day, the chaos when it suddenly collapsed was impossible to contain, and rapidly spread globally in devastating and unpredictable fashion.
And great profitability, of course, is as good a proxy for risk as any. If someone tells you that he can make huge profits, year in and year out, without taking on big risks, then he’s probably Bernie Madoff.
As of now, not only have we failed to fix these three problems, but we’ve made them all worse. The big banks are bigger than ever, after having swallowed up their failed competitors. (Merrill Lynch, for example, is now a subsidiary of Bank of America; don’t believe for a minute that BofA’s senior management or board of directors has a remotely adequate understanding of the risks that Merrill is taking.)