A few reactions to Occupy Wall Street

On Saturday, I was in New York City and had the opportunity to visit Zuccotti Park, where I was able to observe and interact with members of Occupy Wall Street.

The first thing I noticed was that the protests were far smaller than I had been led to believe. Based on what I had read in the press and the pictures I had seen, I had imagined that I would find a vast encampment of tens of thousands of people in a park in lower Manhattan. The truth was far less exciting.

It would have helped to have known that Zuccotti Park is not really a park at all, but a small plaza that is about one-seventh the size of a typical city block. This is what it looks like when it is un-occupied:

My companion and I were able to walk through all the aisles in less than 10 minutes.

Further diminishing Occupy’s impact was the fact that a significant proportion of the people in the area were visitors like me who wanted to see what was happening rather than permanent residents or dedicated protesters.

The second thing I learned about Occupy Wall Street is that it is unthreatening. Certain people have accused the protesters of a wide array of crimes, whether it is state sponsorship by North Korea, endemic antisemitism, or more generalized hostility to the American Way. These criticisms are silly and misinformed.

When I was there, the denizens were friendly and (mostly) clean. There were several food-service stations and I could see people washing dishes and sweeping the ground. The closest thing I could find to antisemitism was an old man with a rainbow-colored shirt holding a sign saying “Wall Street ♥ Israel.” Such people are fixtures at any large gathering of Americans, so it did not make much of an impression.

There were certainly plenty of oddballs. The strangest was a man dressed in a costume that made him look like a mix between a goth (face tattoos plus an outfit almost entirely black), a cowboy (his hat and coat), and a sympathizer with the Confederate States of America (a bandanna with the CSA battle flag). He had no sign and merely stood still, watching everyone else. Unfortunately I do not have a picture.

There were representatives of Socialist political parties but they were on the edge of the encampment and did not seem to be getting a lot of attention. Other people were opposed to “greed,” generically, or more specific concerns such as Monsanto’s manufacture of genetically-modified crops. I did see a sticker that I liked which showed a picture of a pig with a parachute. The caption was “No More Bailouts.” The biggest attraction was a brass band performing in the center of the plaza. They were actually pretty decent by the standards of New York City street performers.

About one-third of Zuccotti Park was reserved for the tents of the permanent residents. This area was also clean but was pretty densely packed. There were young couples holding signs saying things like “Met @ OWS” as well as single men with signs like “Need GF.” One young woman was holding a sign that said (approximately) “No F*cking Pictures” while posing for photographs. In general, the residents were either old hippies or people in their twenties with lots of piercings. They were mostly white.

The result was that the whole thing felt more like an art fair at a university campus than the center of a mass protest movement. This is regrettable because there are legitimate reasons to be upset.

It is an outrage against democracy and freedom that a small group of companies are protected from the vicissitudes of the market by taxpayer guarantees and the Federal Reserve. The megabanks exploit the rest of the country by using these subsidies—ultimately paid by regular people—to take risks that they could not otherwise have afforded. It is socialism for the rich.

Since creditors know that the megabanks will always be bailed out when threatened by their own incompetence, they charge the “too big to fail” firms a lower price for capital than they otherwise would. This boosts the spread that the megabankers earn between their costs and their income. When times are good the megabankers appear to be smarter than they really are, and they pay themselves accordingly.

When times are bad, they use accounting gimmicks to inflate their profitsThis redounds to the pay packets of the bankers at the expense of shareholders, who are often pension funds and retail investors. If that is insufficient to protect their outrageous incomes from market forces, they demand bailouts to “save the system.” When those financing the bailouts want to cut costs by capping salaries, the megabankers protest through their proxies.

The creditors also benefit from this arrangement. They earn a premium above what they could get from owning government debt, yet they demand that everyone else bear the risk implied by that pricing. The practical effect is to redistribute wealth towards those who already own the most. This has been a particularly thorny problem in Ireland.

(Unusually, the people of Iceland courageously followed a different course by refusing to use government funds to repay foreign creditors of Icelandic banks, which would have cost about $20,000 for every man, woman, and child in the tiny Nordic country.)

This state of affairs, which is by no means inherent to the free market capitalist system, is an offense that ought to be opposed by everyone who does not suckle at the teat of taxpayer guarantees and emergency liquidity operations. Occupy Wall Street could become the vehicle for this opposition—but it is not there yet.

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About Matthew C. Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.

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