{"id":69353,"date":"2016-02-08T12:00:44","date_gmt":"2016-02-08T12:00:44","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=69353"},"modified":"2016-02-08T12:41:38","modified_gmt":"2016-02-08T12:41:38","slug":"wall-street-worldview-why-are-people-upset","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2016\/02\/wall-street-worldview-why-are-people-upset\/","title":{"rendered":"Wall Street Worldview: Why Are People Upset?"},"content":{"rendered":"

2 Feb 2016 – <\/em>Multi-billionaire Stephen A. Schwarzman<\/a>\u00a0says he\u2019s puzzled by the amount of discontent apparently felt by other Americans these days.<\/p>\n

\"Steve<\/a>

Steve Schwarzman, CEO and co-founder of Blackstone. (photo: Natalie White)<\/p><\/div>\n

Steve Schwarzman is a bland-looking, somewhat paunchy, not unattractive, balding man of benign demeanor who will be 69 on Valentine\u2019s Day 2016. He\u2019s worth $12 billion, give or take a few hundred million. He is a poster boy for Wall Street success and self-esteem and cluelessness. He\u2019s the co-founder, chairman, and CEO of the\u00a0Blackstone Group<\/a>, one of the world\u2019s largest financial firms, specializing in private equity, hedge funds, and mergers. He\u2019s a Republican, and his life has been going pretty well for him lately, as it has for decades.<\/p>\n

But he freely admits (or pretends to admit) that he doesn\u2019t understand why the rest of America isn\u2019t just as content as he is. On January 21,\u00a0at the World Economic Forum<\/a>\u00a0in Davos, Switzerland, Schwarzman spoke to\u00a0a gathering of his peers who run the world about his perception of the US presidential election campaign:<\/p>\n

\u201cI find the whole thing astonishing and what\u2019s remarkable is the amount of anger whether it\u2019s on the Republican side or the Democratic side\u2026. Bernie Sanders, to me, is almost more stunning than some of what\u2019s going on in the Republican side. How is that happening, why is that happening?\u201d<\/p>\n

One clue to \u201cwhy is that happening,\u201d a clue Schwarzman presumably noticed last October, was the $39 million fine<\/a>\u00a0Schwarzman\u2019s Blackstone Group advisors had to pay for bilking customers. Blackstone entered into a \u201cconsent agreement\u201d with the US Securities and Exchange Commission (SEC) finding that \u201cit breached its fiduciary duty\u201d to its customers. The consent agreement, admitting no guilt, is a tactic often used by corporate shysters to cut their losses when caught with their hands in other people\u2019s pockets. Blackstone\u2019s \u201ccooperation\u201d with the SEC<\/a>\u00a0was cited as a reason the SEC fined the company only $10 million. Or, as the SEC press release put it:<\/p>\n

\u201cBlackstone consented to the entry of the SEC\u2019s order\u2026. Without admitting or denying the findings, Blackstone agreed to cease and desist from further violations, to disgorge $26.2 million of ill-gotten gains plus prejudgment interest of $2.6 million, and to pay a $10 million civil penalty….\u00a0 The settlement reflects Blackstone\u2019s remedial acts and its voluntary and prompt cooperation with the Division of Enforcement\u2019s investigation.\u201d [Note: with revenue of $7.484 billion<\/a>, Blackstone\u2019s $10 million fine represents 10\/7484th \u2013 or .1336% \u2013 of its income.]<\/p>\n

Blackstone steals millions, pays fine, no one goes to jail \u00a0 <\/strong><\/p>\n

Steve Schwarzman is a smart guy. He went to Yale with George Bush, and like Bush he was in the Yale senior society Skull and Bones. Also like Bush, Schwarzman went to Harvard for his MBA. And then he made billions in an industry that has become\u00a0a largely deregulated financial racket<\/a>\u00a0that brought the country to its economic knees in 2008, under President Bush. So Steve Schwarzman is no dummy. But he wants you to believe he\u2019s not smart enough to figure out a system that made him a billionaire while directly and indirectly impoverishing millions. People resent that system, lots of people resent it deeply for the way it\u2019s treated them. Steve Schwarzman is \u201castonished\u201d by their anger. And he acts as if he expects people to believe in his pose of naivet\u00e9, telling a Bloomberg interviewer<\/a>:<\/p>\n

\u201cWhat is the vein that is being tapped into across parties, that has made people so unhappy?… That is something you should spend some time on.\u201d<\/p>\n

Schwarzman might have gotten a clue when his president at Blackstone Group\u00a0\u00a0(Tony James) hosted a multi-million-dollar fundraiser for Democrat Hillary Clinton at which she denounced corporate crime (wink-wink, nod-nod). Clinton omitted denunciation of Blackstone for its then-recent fine by the SEC, even though the Blackstone victims included public pension systems in California, Florida, and New Jersey (for teachers, firefighters, police, and other government workers). And if that didn\u2019t seem like enough of a source for anger, Schwarzman might have listened to fellow Blackstone billionaire Byron Wien, who was\u00a0kicking those public sector workers<\/a>\u00a0back in 2010:<\/p>\n

\u201cThe retirement benefits for state workers, really not only in New York, California and New Jersey, but throughout the country, are very generous.\u00a0Too generous<\/em>. And it is very hard to change that…. But I think we have to be more realistic. We literally can’t afford the benefits we have given our retirees in state and local governments. Andwe have to change that<\/em>.\u201d [emphasis added]<\/p>\n

So Blackstone tried stealing from those pension funds, which may not have been Wien\u2019s intent. Either way, when you set about to reduce the retirement income of people who have earned it by contract, why wouldn\u2019t you expect them to get angry? And especially why wouldn\u2019t you expect them to get angry when their pension \u201cproblems\u201d stem from the fiscal deceit of politicians you support? Billionaires attack the life savings of $19,000-a-year workers and expect to be loved? Yes, they do.<\/p>\n

Billionaires don\u2019t live in the same world most of us live in\u00a0<\/strong><\/p>\n

Five years later in 2015, Wien was as tone deaf to the situation of most Americans as his baffled Blackstone buddy Schwarzman wondering where all the anger comes from. With no trace of empathy, or irony, Wien wrote in early 2015 about the\u00a0depleted savings of \u201cmany\u201d households<\/a>:<\/p>\n

\u201cAmong those who had savings prior to 2008,\u00a057% said they\u2019d used up some or all of their savings<\/strong>\u00a0in the Great Recession and its aftermath. What\u2019s more,\u00a0only 39% of respondents reported having a \u2018rainy day\u2019 fund adequate to cover three months of expenses<\/strong>\u00a0and\u00a0only 48% of respondents said that they could not completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.<\/strong><\/em><\/p>\n

\u201cOf course, for those in the top-10% of wage earners \u2013\u00a0\u2018it\u2019s all good.\u2019<\/strong>\u201d\u00a0<\/em>[emphasis in original]<\/p>\n

One of the things you don\u2019t hear the Blackstone boys or others like them fretting much about is wealth inequality. At the Davos conference, where Schwarzman was expressing his bewilderment, Oxfam had just released a report\u00a0that 62\u00a0people<\/em>own half of the wealth in the world<\/a>: 62 people own as much as 3.6 billion people own. The scales of wealth are balanced, 62 and 3.6 billion. But Schwarzman would like you to believe that he doesn\u2019t see that as a possible source of\u00a0irritation<\/em>, never mind anger, even though the trend is startling: in 2010 it took 388 people to own half the world\u2019s wealth. Schwarzman took no note of this reality in his interview at Davos.\u00a0How bad can the world look to a guy who spends $5 million on his own 60th birthday party in February 2007 at the New York Armory on Park Avenue, featuring rock star Rod Stewart (for $1 million) and a gaggle of\u00a0guests from the Let Them Eat Cake crowd<\/a>? At the time, in all apparent insincerity, when his net worth was maybe only $7 billion, Schwarzman told the New Yorker, \u201cI don\u2019t feel like a wealthy person<\/a><\/u><\/em>.\u201d<\/p>\n

Wealthy people pay the highest tax rates, except when they don\u2019t<\/strong><\/p>\n

One reason Schwarzman may not feel like a wealthy person is because he and others like him are not taxed like wealthy people. Schwarzman, like Mitt Romney before him, has his income taxed at 15%, the second lowest rate in the tax code (poor people pay a 10% tax rate). The 15% rate is mostly\u00a0for people earning less than $38,000 a year<\/a>\u00a0(or $76,000 for a couple). Schwarzman\u2019s income runs into the tens or hundreds of millions of dollars a year, but is is taxed as if it\u2019s less than $38,000. It\u2019s not magic, and it\u2019s not a crime, it\u2019s a dishonest tax code that Congress consistently refuses<\/a>\u00a0to make fair. Surprise!<\/p>\n

The tax gimmick here is called \u201ccarried interest<\/a>\u201d and allows Schwarzman, Romney, and the rest of the private equity gang to have their income taxed as if it\u2019s \u201ccapital gains,\u201d for which the (also corruptly low<\/a>) tax rate is 15%. Because the equity fundsters get this tax break, that means in effect that\u00a0every other tax paying household<\/em>\u00a0has to pay another\u00a0$400 or more a year to subsidize billionaires<\/a>. Schwarzman is surely smart enough to understand how nurses or truckers or teachers or even most doctors and lawyers might be annoyed at\u00a0having to pay taxes at a higher rate <\/a>than a billionaire. But he doesn\u2019t seem to get it.<\/p>\n

In 2010, when there was some talk of closing the carried interest loophole, Steve Schwarzman strongly objected,\u00a0as if Wall Street was actually being invaded<\/a>: \u201cIt\u2019s a war\u2026. It\u2019s like when Hitler invaded Poland in 1939.\u201d<\/p>\n

In his other public remarks, Schwarzman doesn\u2019t seem to have much interest in war, metaphorical or real. On the record, it seems to be war only when it\u2019s against him more or less personally. He\u2019s smart enough to understand that war can make people angry, but he remains publicly oblivious to politicians who support illegal wars and call for more, to Americans who fight and die in illegal wars that also promote terrorist responses, or to the way America treats its veterans, whether wounded, homeless, or damaged in invisible ways (like the country).<\/p>\n

Three big dangers: economic crisis, international crisis, and Bernie<\/strong><\/p>\n

In a\u00a0bizarre four-minute video<\/a>\u00a0for the Wall Street Journal on January 21, Schwarzman calmly and smoothly explained what he sees as the three broad reasons for the unsteady state of the world, and especially for shaky market conditions:<\/p>\n