If there is one thing that is evident this election cycle (and, more broadly, throughout the ongoing financial meltdown that has been going on for years now), it\u2019s that the wealthy play by a very different set of rules from the rest of us. Sometimes, the things they do are technically illegal, but end up not being prosecuted or simply brushed under the rug. Some of them are perfectly legal and simply represent the very different set of tools that the wealthy are able to take advantage of. Regardless of legality, though, the increasing chasm between the 1% and the 99% threatens to create permanent economy instability and a complete collapse of public trust in banking and government, neither of which are good for the economy or democracy. It\u2019s not much of an exaggeration to say that this election provides a very clear choice between redoubling the creation of a different set of rules for the wealthy, and (maybe) dialing it back a little bit.<\/p>\n
<\/p>\n
Let\u2019s start with the LIBOR scandal. LIBOR<\/a>, or the London Interbank Offered Rate, is a set of interest rates that banks would pay if they were to borrow money from other banks. It is calculated for various borrowing periods in different currencies, and many, many consumer loans are pegged to the LIBOR rate, at least $350 trillion<\/a> worth. That\u2019s a lot of money, and it\u2019s clear that when you are talking about nominal loan amounts in the trillions, a one basis-point (0.01%) change in the rate can have an impact in the billions of dollars.<\/p>\n You may think that because LIBOR is based upon the interest rates banks charge each other, it would be calculated by taking a look at real-life loans between banks. This is how I always assumed it worked. You may think this, but you would be wrong. In fact, banks are asked how much they think they would pay if they had to borrow. And when I say \u201cbanks\u201d, I mean \u201cone guy in a bank with zero oversight\u201d. Through aggregating estimates sent in by a large number of banks, one arises at the official LIBOR rate. It is obvious that, since the rates are mere guesses, there is ample room for fudging the number, and you would be right<\/a>.<\/p>\n Imagine if this worked for the little guys. You call up a bank for a mortgage, and the bank asks you, \u201cSo, what interest rate do YOU think you would pay to borrow this amount?\u201d You tell them, the bank checks with your friends, and presto! They provide a loan close to the rate you quoted. Sadly, average people don\u2019t get to quote interest rates, they get interest rates quoted at them.<\/p>\n Since Barclay\u2019s Bank has been fined for this behavior, is this really evidence of the different rules for the wealthy, especially in the financial world? Well, $450 million sounds like a lot, but again, given how large the portfolio is of credit tied to LIBOR, a few hundredths of a percent here and there can add up to billions. Second, and more importantly, how many people have or will go to jail because of this? How many bank executives will have to pay back their bonuses? Sure, they may change how LIBOR is calculated (a good set of suggestions is here<\/a>), but that won\u2019t undo the damage that has already been done.<\/p>\n Let\u2019s move onto another common malady in the financial world of late: theft of customer funds. This is when you deposit money with a financial institution and they simply steal it from your account. As in, it\u2019s gone. MF Global<\/a> did this, to the tune of $700 million. Peregrine Financial Group<\/a> did this for $100 million. Whereas Russell Wassendorf has been arrested for his crime, not a single person at MF Global has been charged with anything.<\/p>\n This money was stolen as if it were lifted straight out of people\u2019s wallets. Normally, if you rob a bank and take it for a few thousand dollars, you get to go to prison for several years<\/a>. Several hundred million, though, and everybody is too confused to do anything about it.<\/p>\n Really, is it any wonder that confidence in banks has dropped precipitously<\/a>?<\/p>\n That\u2019s the lay of the land for finance. Where else do we see separate rules for the wealthy? Look no further than Mitt Romney. Today Ezra Klein has a fascinating story<\/a> on how Romney first came to Bain Capital, then left, under some very beneficial terms. Very beneficial.<\/p>\n As Klein says, there\u2019s nothing illegal about any of this. And there\u2019s nothing wrong with Romney pushing for all he can get in employment negotiations: that\u2019s how it works. But step back for a moment and imagine if this would work for the rest of us: would it be possible to go to our boss and say, \u201cI\u2019ve got a great idea for a business that I\u2019d like to pursue, but if it fails, I\u2019d like my old job back with the salary and raises I will have forgone in the meantime\u201d? I don\u2019t think most of us would be able to swing this kind of deal.<\/p>\n I\u2019m a risk-averse person, so I can definitely understand why Romney would push for this kind of deal for himself. I\u2019d do the exact same thing. But I can\u2019t. Nor can the rest of us. When we take risks on a new job or new endeavor, we don\u2019t have a backup. We don\u2019t have $20,000 to borrow from our parents<\/a>, or have stock to sell to finance college<\/a>. We don\u2019t have the safety net that people like Romney have.<\/p>\n Of course, the other thing to mention is Romney\u2019s tax returns. Does he have to release them? Of course not. Does he look bad by not doing so? Yes. Why doesn\u2019t he then? Probably because he paid either a very low tax rate, or even no federal income taxes at all for some years. Again, this is not necessarily illegal. It would, however, inconveniently highlight the myriad tax shelters that the wealthy are able to take advantage of, as opposed to us wage-and-salary types that can\u2019t really evade taxes, and therefore pay a higher income tax rate than the Romneys<\/a>.<\/p>\n Do I, or people who criticize the financial industry and Romney hate capitalism, success, America? Of course not (despite what you<\/a> may<\/a> hear<\/a>). The problem is that for the vast majority of people, people who are worrying about layoffs, about underwater mortgages, about bills, and about falling further and further behind<\/a> (than Canada<\/a> even!), we can\u2019t play by the same rules as the 1%. In our world, if you steal, you go to jail; if you commit fraud, you go to jail; and if you strike out on your own, you are walking the tightrope without a safety net.<\/p>\n So it\u2019s galling to see a person, who by luck was born into a safety net wider and softer than most will ever enjoy, argue that we need to shred the safety net<\/a> for those truly on the edge. It\u2019s frustrating to see a member of the 1% who pays a lower tax rate than most working folks want to cut taxes even more for the rich and in all likelihood raise taxes on the rest of us<\/a>. It would be one thing if Romney said, \u201cI understand that I have benefited from a lot due simply to my parents\u2019 bank accounts, and I want to share those opportunities that I\u2019ve enjoyed with everybody else.\u201d But he\u2019s doing the exact opposite: pulling up the ladder behind him.<\/p>\n It’s clear that through both the legal and illegal means mentioned, those at the top are flinging themselves higher and higher than the rest of us.\u00a0Obama certainly isn\u2019t perfect when it comes to reversing that widening gap (he\u2019s been very conciliatory<\/a> towards Wall Street even if they now hate him<\/a>). However, Romney is running on a platform not to stop the growing inequality, but to throw it into overdrive. It will take a lot of time to start rolling back the damage that has been inflicted upon the country in the past few decades, but only one candidate seems remotely interested in doing so. The other one doesn\u2019t see a problem, or worse, sees a feature instead of a bug.<\/p>\n","protected":false},"excerpt":{"rendered":" If there is one thing that is evident this election cycle (and, more broadly, throughout the ongoing financial meltdown that has been going on for years now), it\u2019s that the wealthy play by a very different set of rules from the rest of us. Sometimes, the things they do are technically illegal, but end up… Continue reading Different Rules<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[4],"tags":[119,142],"class_list":["post-753","post","type-post","status-publish","format-standard","hentry","category-politics","tag-economy","tag-elections","entry"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/posts\/753","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/comments?post=753"}],"version-history":[{"count":2,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/posts\/753\/revisions"}],"predecessor-version":[{"id":756,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/posts\/753\/revisions\/756"}],"wp:attachment":[{"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/media?parent=753"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/categories?post=753"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nathanhunstad.com\/blog\/wp-json\/wp\/v2\/tags?post=753"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}