Who Stole the American Dream? (22 page)

In 2009, the political climate demanded action. The public, mired in unemployment and home foreclosures, was in an anti-bank uproar, clamoring for change. But the bank and business lobbies defied the public mood. Their brazen strategy paid off, and President Obama, guided by former Wall Street bank regulator Tim Geithner, moved timidly. The banking sector, with its fourteen hundred lobbyists, fought off a potential historical reversal of policy with the tactics of “obstruct and delay.” The banks shrewdly calculated that mass amnesia would save them: The longer it took to craft regulatory reforms, the greater the likelihood that the drive for reform would lose momentum. The public lost track—and lost interest.

In May 2010,
a group of Democratic senators tried to pass a provision shrinking the biggest banks and limiting their size to deal with the “too big to fail” problem, but the banks and their allies in Congress killed that measure. President Obama wanted a freestanding consumer protection agency. The bankers hated the idea. They lobbied successfully to have the new agency tucked inside the Federal Reserve and then, in 2011, got Senate Republicans to block any consideration of Elizabeth Warren, the vigorous consumer advocate who was Obama’s choice to head it, forcing her to quit the administration and abandon her chance to head the new agency that she had proposed and helped to organize.

When reformers wanted to revive Glass-Steagall protections, bank advocates argued that it was too late, and they won. When it was proposed that the banks pony up a bank tax to help pay for future bank failures, the banks got the bank tax killed. When Senator
Blanche Lincoln of Arkansas proposed barring banks from marketing derivatives, she came under withering fire from business interests as well as the banks. The Obama administration, in retreat, pushed to make the derivatives trade more open and regulated, but the banks fought successfully to exempt certain derivatives, such as the credit default swaps that played a big role in the mortgage blowup. Former Fed chairman Paul Volcker advocated barring all regulated banks from proprietary trading on their own account (what came to be called “the Volcker Rule”), to keep superbanks from speculating recklessly and putting the whole system at risk again. Volcker won backing from former Citicorp CEO
John Reed, who apologized for what he now called the mistaken Citi-Travelers megamerger. Congress passed a vague version of the Volcker Rule but left its definition to regulators who were besieged by bank lobbyists.

In mid-2011, a full year after the financial regulatory law was passed, Treasury Secretary Tim Geithner accused Wall Street banks of stalling the whole process in order to water down the new rules. “
There’s an attempt to kill this through delay,” asserted Michael Greenberger, a former member of the Commodity Futures Trading Commission staff, and the delay “could be cataclysmic.” That did not trouble Wall Street. The big banks wanted to stave off regulation, even regulation to improve the safety of the financial system.

It is true that passing any major regulatory legislation over the near unanimous opposition of Republicans was a major achievement for the Obama administration. Creating the Consumer Financial Protection Bureau was a milestone. Passing the Volcker Rule against proprietary trading was a gain, though it was watered down with one loophole that allowed banks to speculate with up to 3 percent of their assets and another loophole that delayed implementing the Volcker Rule for seven years, long enough for banks to fight to expand
the loophole and perhaps to elect a bank-friendly president in 2012 or 2016 who would wipe the Volcker Rule entirely off the books. Ultimately, the concessions made to win the final crucial Senate votes largely emasculated the reform.

Volcker later voiced his dismay: Reform was inadequate, and the biggest banks were larger than before the 2008 collapse. In late 2011, he suggested that the government was still stuck with the structural problem of megabanks too large and too interconnected to be allowed to fail. His solution was bold: Reduce the risks either “by reducing their size, curtailing their interconnections, or limiting their activities.” Similarly, Paul Krugman, a Nobel laureate in economics, found
the law’s penalties and incentives not tough enough to force bankers to stop the risky trading practices that had caused the financial collapse. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said
the reform was so weak that it was destined to perpetuate the cycle of boom and bust and taxpayer rescue.

Politics—the enormous political power of the banks—was the core problem, as the conservative, pro-business London
Telegraph
pointed out. “
Such is the lobbying power of the big Wall Street institutions,” the British paper said, “that they not only caused a global economic crisis and then forced the US government to pay for a massive bail-out but then used a slice of that bail-out cash to bribe politicians with campaign donations in order to block rule changes that might prevent a repeat performance.”

For our democracy, the danger is that the balance of power has moved so far away from the middle class and into the hands of the financial and business elite that average Americans today feel they have little impact on policy, and they have largely given up on real democracy.

In the 1960s, just 28 percent of Americans said that “
the government is pretty much run by a few big interests looking out for themselves.” Today, that figure is 78 percent.
Poll after poll has recorded
that most Americans feel cut out of government and that roughly four out of five distrust lobbyists, resent their power, and want the government to curtail it.

Ordinary people dislike this unfair state of affairs, but they feel powerless to change it. Without knowing the details, they sense that all the advantages accrue to powerful insiders with the money and resources to fight the daily trench warfare over policy. The gulf between the Washington Power Game and the electorate has widened steadily as ordinary people feel cut out of the political process. They have, we all have, become increasingly passive and disengaged and, in the apt comment of Ernie Cortes, one of America’s most energetic grassroots organizers of minority voters, immobilized by our sense of our own powerlessness. The danger, Cortes said, is that Americans over the past three decades have “been
institutionally trained to be passive.”

The peril for our society and for our democracy is that we have been sliding into an economic and political oligarchy where a self-reinforcing process is at work: The wealthy and the corporate elite use their vast financial resources to buy political influence and then leverage that added political power to obtain further policies that exponentially multiply the economic returns to the financial elite at the expense of average Americans.

We instinctively shy away from this conclusion since it violates our concept of America as a land of equal opportunity and it desecrates our vision of an American Dream accessible to all. But, sadly, the record since the late 1970s shows that the concentration of wealth and the concentration of power in America are mutually reinforcing.

“
The available evidence is striking and sobering,” wrote political scientist Larry Bartels. “In Aristotle’s terms, our political system seems to be functioning not as a ‘democracy,’ but as an ‘oligarchy.’ If we insist on flattering ourselves by referring to it as a democracy, we should be clear that it is a starkly
unequal
democracy.”

PAT O’NEILL
had it all figured out. Like many average Americans who started out in the 1970s during the era of middle-class prosperity, he had worked a lifetime for the same employer. He had earned a company pension, added a 401(k) plan, and even bought employee stock options. With that nest egg, he felt he could retire secure.

As a lead mechanic for United Airlines, he put in thirty-five hard years, working at night, often in freezing winds, on the flight line at Chicago’s O’Hare International Airport and Seattle’s SeaTac Airport. His job was to keep DC-8s, DC-10s, and Boeing 737, 757, and 777 airliners flying and to keep his fellow Americans on the move. O’Neill is a plucky, friendly, go-getter Irish American. He poured himself into his job heart and soul.

“
Of course, workin’ there at O’Hare, it’s not a normal nine-to-five job,” he recalled. “Planes are fixed at night, when everybody’s home asleep. You work graveyard. I worked graveyard for twenty-two years. It was a seven-day operation. You didn’t call up an’ say, ‘Aw, I can’t make it in tonight. I’m gonna stay home.’ … I had a work ethic. I was very loyal to the company. An’, you know, we were loyal to our customers. That airplane had to leave every mornin’ six o’clock or eight o’clock or whatever.”

To O’Neill, United Airlines was like family. He knew his bosses; they knew him. They all trusted one another. He knew that United counted on him when they needed him. He counted on United when he needed them.

But just as he was getting ready to retire, in May 2003, financial havoc at United tore up his well-laid plans for retirement, and it cost thousands of average employees like O’Neill dearly. So nearly a decade later, O’Neill is still at work, his eventual retirement day receding like a desert mirage—and his predicament a symptom of the financial squeeze that middle-class Americans feel across the board.

L
IKE SO MANY OTHERS
in the airline industry—pilots, flight attendants, mechanics—Pat O’Neill had a romance with the airplane. As a boy growing up on a dairy farm in Wisconsin, he had looked up at planes flying overhead and had fallen in love. He finished high school in 1966 and took a year’s course in aircraft mechanics,
and on November 6, 1967, he went to work for United. He was nineteen.

“
It was an exciting time for me—working on airplanes,” O’Neill recalled proudly. “The one factor that really threw a curveball at us was Old Man Weather. You couldn’t bring these airplanes into a hangar, nice’n warm, and work on ’em. You had to work on ’em outside, in the elements….

“The responsibility you have as an aircraft mechanic is … really, people don’t realize it,” he said. “A mechanic could ground an airplane. Here you got an airplane that holds lots of people, and you work on it. You gotta fix ’em right the first time.”

O’Neill did his job well, got promoted, and eventually became chief of a team of flight-line mechanics. He went from a starting pay of $10,000 a year in 1967 to making $50,000 or $60,000 a year in the 1990s, depending on how much overtime he got. With longevity and a good pay scale, O’Neill was counting on the lifetime pension plan that his union, the International Association of Machinists and Aerospace Workers, had negotiated with United for anyone who wanted to retire at fifty-five after thirty years of steady work. That was O’Neill’s plan—put in thirty-five years and retire.

Pat O’Neill was pretty typical of his generation. Millions of people born in the 1940s, 1950s, and early 1960s were promised lifetime pensions by their employers after a career of work at one company. These plans got started after World War II, when strong labor unions were demanding—and getting—steady wage increases year after year.

Corporate America made a counteroffer: Take some money now, but take part of it later and we’ll put the second part into a pension. Companies liked that idea; it was cheaper for them. In the 1980s,
employers were operating 114,000 of these so-called defined benefit plans that, at their peak, covered 35 percent of America’s private sector
workforce and reached a maximum of about 34.5 million participant workers and retirees. Today, 26 million older employees still have these lifetime pension plans.