James Meek has a magnificent article at The Guardian. Were it possible to imagine a riveting description of the impact of privatization of formerly public services in Britain compared with the contemporaneous process in the former Soviet Union, this would be it. Part history and travelogue, part rumination on the relative advantages and disadvantages of socialism and capitalism, the argument is superficially unpretentious but sophisticated and in the end deep, and in lovely prose to boot.
The article can’t easily be summarized, but it recounts the author’s philosophical journey through economics coinciding with a physical one as the tide of capitalism swept aside the old communal structures of the former Soviet Union. He gives credence to often-argued claims about the benefits to society of privatizing public services, then proceeds to explore the available information to see if that credence is warranted. While he does not like the result, he is careful in apportioning responsibility. The National Health Service, for example, remains private but has seen many market-like “reforms” modify its behaviors.
What the story of the latter years of the NHS shows is that the most powerful market force eating away at the core of the welfare state is not so much capitalism as consumer capitalism — the convergence of desires between the users of a public service and the private companies providing it when the companies use the skills of marketing to give users a sense of dissatisfaction and peer disadvantage. “If consumption represents the psychological competition for status,” writes Daniel Bell, “then one can say that bourgeois society is the institutionalisation of envy.” Hip replacement, a procedure invented within the NHS by John Charnley, began as a blessed relief from pain for which patients were, as Charnley said, pathetically grateful. It rapidly progressed to a rationed entitlement. It has now become a competitive market.
Spoiler alert, though, Meek does blame Thatcher for the loss of what was formerly the property of the British people and is now more often than not owned by foreigners. The losses, he asserts, were not measured only in pounds and real estate. In a real sense part of the compact between state and individual was dissolved, and corporations, even more faceless and less accountable than government, took over and immediately began raising rates, the British railways, water, and electricity being prime examples. Ironically, it appears that the best-run, most efficient railway corporations are owned by other, mostly European, states, flatly contradicting the basis for privatizing to begin with.
But Thatcher cut taxes and spending! Well, yes and no. Progressive income tax rates were cut, sure enough, but she also raised the VAT, a consumption-based tax that is inherently highly regressive. So much like the situation here in the US, the actual amount paid by individuals in taxes is adjusted to place the heaviest burden on the lower brackets. And that’s ignoring what I think is a powerful argument Meek makes that given the absolute necessity in today’s world for electricity, water, and communications the amount we pay to have those in our homes is a tax in every way except that it’s collected by private corporations rather than accruing to the common benefit.
All in all, a great piece of writing whose focus on the UK illuminates its idiosyncratic issues as well as the larger human, political and economic, questions that society generally has failed to grapple with.
…by this from Public Citizen? Because I am deeply versed in economics? Hardly. I never took so much as an introductory course in economics.
No, I was suspicious of NAFTA when Clinton first trotted it out twenty years ago not because I had a deep understanding of the free trade issue but because I was old enough by then, although only sixty, to have already learned the difference between shit and chocolate ice cream.
Cut out those pesky tariffs, Clinton told us, so we can move those unionized auto assembly jobs from Michigan to Mexico and everybody benefits. Mexican wages are bound to go up and if American workers wind up taking a little hit on wages their cars will become cheaper.
See? Easy. In our pursuit of the greatest good for the greatest number there is no need, for instance, to include in NAFTA a requirement to lower American tariffs in lockstep with the predictable increase in Mexican assembly line wages. The invisible hand of the market will take care of that. It wouldn’t (and didn’t), of course, the invisible hand being invisible due to its nonexistence.
Absent any such requirements, it was plain that Clinton wasn’t selling us chocolate ice cream. And sure enough:
On the eve of the North American Free Trade Agreement’s 20th anniversary, a new Public Citizen report shows that not only did promises made by proponents not materialize, but many results are exact ly the opposite. Such outcomes include a staggering $181 billion U.S. trade deficit with NAFTA partners Mexico and Canada, one million net U.S. jobs lost because of NAFTA, a doubling of immigration from Mexico, larger agricultural trade deficits with Mexico and Canada, and more than $360 million paid to corporations after “investor-state” tribunal attacks on, and rollbacks of, domestic public interest policies.
The study tracks the promises made by U.S. corporations like Chrysler and Caterpillar to create specific numbers of American jobs if NAFTA was approved, and reveals government data showing that instead, they fired U.S. workers and moved operations to Mexico. The data also show how post-NAFTA trade and investment trends have contributed to middle-class pay cuts, which in turn contributed to growing income inequality; how since NAFTA, U.S. trade deficit growth with Mexico and Canada has been 45 percent higher than with countries not party to a U.S. Free Trade Agreement, and how U.S. manufacturing and services exports to Canada and Mexico have grown at less than half the pre-NAFTA rate.
“NAFTA’s actual outcomes prove how damaging this type of agreement is for most people, that it should be renegotiated and why we cannot have any more such deals that include job-offshoring incentives, requirements we import food that doesn’t meet our safety standards or new rights for firms to get taxpayer compensation before foreign tribunals over laws they don’t like,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “Given NAFTA’s record of damage, it is equal parts disgusting and infuriating that now President Barack Obama has joined the corporate Pinocchios who lied about NAFTA in recycling similar claims to try to sell the Trans-Pacific Partnership (TPP), which is NAFTA-on-steroids…”
In case you haven’t already seen it, here’s an interesting chart from the International Comparison Project at the World Bank via Matt Yglesias at Vox. Representing GDP on the vertical scale and population size on the horizontal allows for a grasp on information that is less abstract and more intuitive.
Click to view full-size image
One can take many lessons from such a graph, of course. I imagine there are capitalists looking at more detailed versions as a map of “national markets”, i.e. populations, to exploit next. But it also puts in perspective that China soon becoming the largest economy doesn’t mean its standard of living (as measured by GDP per capita) has even risen to the world average. Largest is a measure of breadth as well as height.
The excerpt below is from a review by Bill Curry of Ralph Nader’s new book, Unstoppable, which sounds like something we should all read. Curry is a former Clinton White House advisor who ran twice for governor of Connecticut against John Rowland. Both times the voters in their wisdom chose Rowland — a sleaze bag who wound up in prison for corruption and is currently a minor-league Rush Limbaugh who sells his political endorsements on station WTIC.
Between 1996 and 2000 the Wall Street Democrats who by then ruled the party’s upper roosts scored their first big legislative wins. Until then their impact was most visible in the quietude of Congress, which had not enacted any major social or economic reforms since the historic environmental laws of the early ’70s. It was the longest such stretch since the 19th century, but no one seemed to notice.
In the late ’70s, deregulation fever swept the nation. Carter deregulated trucks and airlines; Reagan broke up Ma Bell, ending real oversight of phone companies. But those forays paled next to the assaults of the late ’90s. The Telecommunications Act of 1996 had solid Democratic backing as did the Financial Services Modernization Act of 1999. The communications bill authorized a massive giveaway of public airwaves to big business and ended the ban on cross ownership of media. The resultant concentration of ownership hastened the rise of hate radio and demise of local news and public affairs programming across America. As for the “modernization” of financial services, suffice to say its effect proved even more devastating. Clinton signed and still defends both bills with seeming enthusiasm.
The Telecommunications Act subverted anti-trust principles traceable to Wilson. The financial services bill gutted Glass-Steagall, FDR’s historic banking reform. You’d think such reversals would spark intra-party debate but Democrats made barely a peep. Nader was a vocal critic of both bills. Democrats, he said, were betraying their heritage and, not incidentally, undoing his life’s work. No one wanted to hear it. When Democrats noticed him again in 2000 the only question they thought to ask was, what’s got into Ralph? Such is politics in the land of the lotus eaters.
Guest blogger John Shannon, author of the Jack Liffey mysteries, takes on the mystery of economic inequality:
This is not a good era to be a bleeding-heart liberal — or a progressive, as many of us would prefer to be called. Yes, I admit it, I empathize with the orange-sellers on our freeway on-ramps, and with the homeless holding up their hand-lettered squares of cardboard for spare change. I feel for the fast-food workers holding down two or three jobs who were just denied a tiny increase in their minimum wage. And I even sympathize with those who hear a click on their telephone and fear the NSA is on the line, recording. Disheartening times indeed.
But just last week in a flash of inspiration I saw an incredibly simple fix to all these problems. I don’t know why it hasn’t been proposed before. Who could oppose a constitutional amendment that simply declared every person a corporation?
Think of it! Overnight, the Justice Department would be assigning teams to protect our privacy rights as corporations. We know they would, because it’s exactly what the U.S. keeps lecturing China about. That it’s perfectly reasonable to spy on governments, we do it too, and on individuals (even heads of state like Angela Merkel), but it’s unacceptable to spy on corporations. Their secrets are sacred. As individuals our secrets were fair game, but as corporations, not so much. With this new amendment, the NSA would have to be reined in or at least re-aimed overseas.
But that’s only the beginning. We’d all be corporations so we’d be too important to fail. I know, it used to be too big to fail, but we know from the Declaration of Independence that all of us (all of us corporations, remember) were created equal. So if GM and Chase Bank are too important to fail, so are you and I, so is that guy at the stoplight asking for change. Whenever any of us edged toward failure, there would have to be a new TARP fund ready to bail us out.
The banks were offered, what, $700 billion by Congress? And the Federal Reserve, under the table, offered to lend trillions if necessary, though nobody knows how much actually went out. In a new dispensation, we might need even more money than that, there’re so many of us small corporations. That could be a lot of money, of course, but getting it is the government’s problem, not ours. Perhaps they could tax billionaires, or offshore funds, or Wall Street stock transactions, or capital gains.
The working poor would be corporations, too. Since all these hard-working small corporations would need to survive, we would have to boost the minimum wage right up to something above the bottom edge of livable — like most other industrial countries. It’s $17 an hour in Australia after all, $12 to $25 an hour in Switzerland, $13 in France.
There are probably many more unforeseen benefits to making us all corporations. For instance, as we know, the Supreme Court decreed in Citizens’ United that money from corporations is identical to political speech and must be protected against any Congressional or state limitations. It’s perfectly logical then to assume that all us corporations must be guaranteed an equal vote, too.
The Supreme Court would have to protect our corporate voting rights against all the forms of voter suppression and gerrymandering going on in the so-called red states. We certainly don’t want to discourage our poorer and darker-skinned brother and sister corporations from voting. With a little imagination, I’m sure we can identify other benefits, too. Just think of all the state protections that corporations have against “frivolous” lawsuits, liability laws, environmental legislation, etc.
Of course, even this modest proposal might turn out to be controversial to some. After all, Congressional foot-dragging over a straightforward yearly increase in the debt ceiling hurt the U.S. credit rating and nearly brought down the world economy. Just in case, then, we could prepare a back-up proposal. It would follow the legacy of that grand compromise over slavery built into our Constitution — if you recall, for purposes of state taxation and voting rights, each slave was three-fifths of a person. Our backup plan could offer that each of us would be only three-fifths of a corporation. It’s not perfect, of course, like any compromise, but we’d have a lot more rights than we have now.
There’s no time like the present to get to work on a nation-saving “people are corporations” constitutional amendment.
Wikipedia: A long con is a scam that unfolds over several days or weeks and involves a team of swindlers, as well as props, sets, extras, costumes, and scripted lines.
The myth of the rugged American individualist works so well because it convinces the poor that they should not act in concert or they will never be rich. The rich, after all, have become that way by being rugged, independent entrepreneurs. Most of them have not, however, as Thomas Piketty has just demonstrated.
In general the rich have got that way by acting in concert, and the poor will remain poor as long as they fail to do the same. Schools, country clubs, corporate bureaucracies, professional societies, stock exchanges, and a wide variety of other social, economic and political organizations are the cooperative tools of a class that habitually acts in concert to advance its interests. One of the ways it advances them is to persuade the poor that nothing of the sort is going on: that each rich man got that way all by himself, and anyone who hopes to imitate him must do the same.
From Al Jazeera we learn that JPMorgan Chase, in commendable pursuit of a porn-free world, has been throwing kinks into the kinksters:
Kayyali said in a blog post on the subject that banks like Chase, which has reportedly closed hundreds of porn professionals’ bank accounts in little over a week, are playing the “morality police.”
“Cyber security is a pretty big term,” she said, as for Chase, “it very much appears as if the company is making moral decisions not necessarily based on security but about what content people should be allowed to use their services to provide.”
Adult entertainment trade group the Free Speech Coalition did not indicate to Al Jazeera that it would seek legal action to protect the industry’s personal and financial interests.
But CEO Diane Duke said that “in this day and age, for any bank to claim the moral high-ground is laughable.”
As an economic illiterate, the following had never occurred to me. But then I don’t remember ever seeing this obvious fact in the public prints before, so maybe I’m not alone. Maybe we’re all idiots.
[Thomas] Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments. Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.
Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth.
“If you own a house worth $500,000 but you have a mortgage of $490,000 then your net wealth is $10,000,” he explains. “So in my system you would owe no tax.”
Right now, an upper-middle-class person with a pricey house and a mortgage is taxed identically to a colleague with a similar income who inherited a similar house from his parents. This, to Piketty, is nonsensical. He thinks economists who emphasize the importance of building a tax code that’s friendly to wealth accumulation are onto something, but that the emphasis on low rates for the rich is entirely misguided. The goal should be to make the haves pay more so that the rest of us can pay less.
If you haven’t yet read about the study by Martin Gilens and Benjamin Page, it apparently collects a pretty fair amount of data and comes to an unsurprising conclusion, corresponding with your suspicions about how much political power you actually have. The authors’ summation of their results is that “economic elites and organized interest groups play a substantial part in affecting public policy, but the general public has little or no independent influence.”
Briefly, the study looked at the results of 1,779 polls taken between 1981 and 2002 that asked for opinions on proposed policy changes and also included information on respondents’ incomes. Those with incomes at the fiftieth percentile were considered to represent average citizens while those at the ninetieth represented the economic elites. The study also compiled the opinions of a number of large interest groups as varied as AARP, the Christian Coalition, the NRA, the American Legion, and AIPAC. Finally, the authors generated correlation coefficients to disentangle the knotty problem of how much influence these three segments of the American populace wield over the policies the government ends up undertaking.
Andrew Prokop at Vox presents slightly edited graphics showing the situation at a glance. The first shows average citizens’ influence, which is plotted on the vertical axis. The percentage of average citizens who agree on a topic is on the horizontal, so that the left edge represents less agreement and the right edge greater.
If you’re wondering why you’re not really seeing any effect, it’s because there isn’t any. Basically, whether 10% or 90% of the population agrees on a course of action doesn’t matter with respect to what the government decides to do. Now let’s examine the economic elites and the interest groups for comparison. (Click on the image for a full-size version.)
The data appear to be solidly behind the US-as-oligarchy meme. The economic elites and interest groups often get what they want if most of them agree, whereas average citizens really only get what they want when the elites want it too. This makes it harder to realize that we actually have no influence, because we sometimes do get what we want. It’s just that it’s happenstance.
Has anyone read the Thomas Picketty book that I’ve seen so many stories about? I haven’t yet had time even to read many reviews, though I saw The Nation’s was supposed to be something like 10,000 words. If everyone would just stop writing for a bit while I catch up…!
From a recent Pew Research poll and study, a consideration of net financial worth of Americans in 2010. (“Net financial worth” being savings accounts, IRAs, 401(k)s, and even pensions -- exclusive of home value but seemingly inclusive of investments.). Again, this is net financial worth (wealth exclusive of R/E), not annual income.
First, median net financial worth (meaning that half of our citizens are below the following levels):
• WWII babies — $46,000 (i.e., now at least 69)
• Early boomers (b. 1946-55) — $55,000 (now at least 59, at or hovering near retirement age)
• Late boomers (b. 1956-65) — $32,000 (now at least 49, with fifteen years or so left to accumulate net financial worth)
Then, average net financial worth:
• Depression babies — $42,000 (people at least in their 70s)
• WWII babies — $60,000
• Early boomers (b. 1946-55) — $75,000
These are figures for individuals, but even if we call most of them couples and double the figures, it’s frighteningly little to live on for ten years, let alone maybe twenty-five with God’s will. It certainly leaves no room for further investment income of a smashing $180/month on, say, $100,000 principal, assuming the folks don’t eat or heat their homes or get sick. (Thanks to FDR for Social Security — and may those who today would gut that program themselves die in wretched poverty and pain.)
The wealth — net financial worth — of our top-ten-percenters is of course included in both those median and average figures, and even those grotesque imbalances at the top fail to lift the median and average levels from their shocking depths. What does that tell us? More important, what effect will these retirement years of abysmally low net worths have on our society? What will the Easters be like for the lower (say) seventy percent of us — and their Christmases?
Today the local Democratic Socialists meeting was held in my town. After the typical business of a volunteer organization, we began a discussion of Adolph Reed’s article Nothing Left – The Long, Slow Surrender of American Liberals (behind a firewall unfortunately) in the March issue of Harper’s. Far be it from me to attempt a synopsis of this article, but quoting Reed’s closing statements may suffice.
We need to reject the fantasy that some spark will ignite the People to move as a mass. We must create a constituency for a left program — and that cannot occur via MSNBC or blog posts or the New York Times. It requires painstaking organization and building relationships with people outside the Beltway and comfortable leftist groves. Finally, admitting our absolute impotence can be politically liberating; acknowledging that as a left we have no influence on who gets nominated or elected, or what they do in office, should reduce the frenzied self-delusion that rivets attention to the quadrennial, biennial, and now seemingly permanent horse races.
It is long past time for us to begin again to approach leftist critique and strategy by determining what our social and governmental priorities should be and focusing our attention on building the kind of popular movement capable of realizing that vision. Obama and his top aides punctuated that fact by making brutally apparent during the 2008 campaign that no criticism from the left would have a place in this regime of Hope and Change. The message could not be clearer.
This is a bitter pill for long-time leftists to swallow – admitting impotence is not easy for any of us. The discussion went in a few different directions, but ultimately we all came to realize that in electoral politics, leftists have no alternative – either support the Democrat or take the risk that the usually far worse Republican will win.
Every two years, leftists who know that the Democratic candidate does not share their views nevertheless turn out to campaign for that candidate. Most around the table admitted to voting for Obama in 2008, although most of us knew at the time that he was going to serve the interests of Wall Street, not Main Street. A majority voted for Jill Stein in 2012, but only after doing the math and ascertaining that Romney had no chance of winning our state. But what’s a leftist to do?
My own position is that leftists have failed to convince a significant number of working Americans that the interests of the wealthy do not and will never be the same as the interests of workers – elementary Marxist class analysis. Without that essential bit of political understanding, workers will be easily swayed by the enormous advertising campaigns for and against the two major party candidates and will vote for one of them, thus sealing their fate for another two to four years. Left organizations, including even the American Communist Party, covered their web sites in 2012 with pictures of President Obama and urged their followers to support him, not because they believed he was a leftist, but because there was no alternative.
It strikes me that unless the left spends as much of their limited time, money and resources on creating an alternative, they will continue to face the choice between two corporate parties that are anti-labor, pro-war, and eager to bail out the next failing bank. Continuing to hold rallies, send petitions, or hold placards in front of Congressional offices about this or the other righteous cause will have the same effect it has had for the last 40 years – things will keep going in the opposite direction.
We were lucky to have a political science professor in our midst who said this reminded her of the situation in Chile. Chile had a multi-party democracy, but the post-Pinochet era has been dominated by two parties, both of whom espouse neoliberal policies. However in recent years, the students and the indigenous population have formed splinter parties that are truly socialist and although the recent election has returned Michelle Bachelet to power, she is far more likely to pursue real socialist policies rather than the more centrist policies of her 2006-2010 presidency. It is those new parties and their popular support that push her in that direction.
Can we move in that direction here in the United States? I think it is possible, but difficult. Students, and recent ex-students, are a natural constituency for a party that has a platform to eliminate student debt and provide free higher education. Recent immigrants and their communities might support a party that calls for easy naturalization for those whose only crime is entering the country without proper documentation. Unorganized labor, such as those in the service industry, might support a party that supports a $15/hour minimum wage indexed to inflation. Lots of thinking people might support a party that is calling for a repeal of the Bush and Reagan tax cuts on the wealthiest Americans and Medicare for all. It will take a lot of work to convince people to support a third party, but failing to do so traps us in a duopoly that gives us only a choice to make our lives worse quickly or more slowly.
This item was delicately buried on page three of the Business section of the February 12th New York Times (excerpted): “As workers at the Volkswagen plant in Chattanooga, Tenn., prepare to vote this week on whether to join the United Automobile Workers … State Senator Bo Watson warned that if VW’s workers voted to embrace the U.A.W., the Republican-controlled legislature might vote against approving future incentives to help the plant expand.
“A loss of such incentives,” the report continued, “could persuade Volkswagen to award production of a new S.U.V. to its plant in Mexico instead of to the Chattanooga plant.…” Republican U.S. Senator Bob Corker of Tennessee also weighed in against the union, calling it “a Detroit-based organization” (gasp! touché.) whose key to survival was to organize plants in the South. Well, Bob, yes – just as Volkswagen is a Germany-based organization, the U.A.W.’s thrust is (hold onto your seat) … to organize workers at plants.” Communist trickery!
The Times goes on to report that the union’s chances at the plant “have been buoyed by Volkswagen’s decision not to oppose” the union’s drive, and even its “hint” of support for it. “Volkswagen is eager to have a German-style works council” at the plant, in order to bring together managers and workers for more effective operations. But for this to happen, according to the report, there has to be union representation at the plant. Oh, oh.
So, to protect businesses in America, the Republican bosses will condone blocking business expansion, even if it means that a business may well move its work to, say, Mexico in response? How can it be that the party of self-proclaimed conservative American values would threaten a manufacturer’s well being if it merely and legally agrees to unionize – and for its own corporate benefit? And, at that, after state legislators had lured the company to Tennessee in the first place, with all sorts of heavy incentives? Is this the way to get the “job creation” and “opportunity for all Americans” that the Republicans in Washington DC rhapsodize about day and night?
So, my fellow Americans, here is the ugly upshot of this story: we once again find the Republican establishment shilling crudely and destructively for the corporate powers, which are deathly afraid American working people might regain their voice within what John Kenneth Galbraith called the “countervailing powers” – the three-legged stool of corporation, labor union, and government – that held each other in check in the years of American prosperity and relative equality following the Second World War.
The Tea Party know-nothings are barking up the wrong tree if they really care about that “Don’t Tread on Me” thing. Dear simpletons: it’s not the government that should be driving you into a frenzy; it’s the corporations. They’re on a roll toward gaining essentially unhindered control over the affairs of your Republic and mine. First, they, with their political flunkies, are in the late stages of neutering the private- and now the public-sector unions. Recently, they – through their Republican puppets – have turned up the heat on government, the next leg of the countervailing stool. They have been especially hysterical about the national government since their latest stooge left the presidency and a Kenyan socialist took over. They already own much of Congress and the regulatory agencies, and are now legally freer with their billions to buy more.
But … an uppity union is showing a sign of life in Tennessee. Well, better to wound a genuine, non-theoretical job creator (and the American families in the community around it) than to give a union a single modest advance in cahoots with that job creator itself. (That’s a scary slippery slope, boys.) The Corporation-Republican Party is not only mean – these are real jobs at stake, for real workers, real families – but batshit crazy. They are threatening to devour their own. No wonder some of us (that includes the new Pope) have a bad attitude.
My day began with my wife informing me she was not quite 300 dollars overdrawn at the bank. By an odd coincidence, I was in a position to make up that shortfall for her. And since we were low on cat food and the grocery and the bank are in the same shopping center, I opted to drive down and deposit cash rather than to do an online transfer. I'm old enough to remember when depositing cash was the fastest way to do that sort of thing.
Well, the nice lady at the bank informed me that I had to show ID to deposit cash into an account for which I am not a signatory. That was irksome, but not as troubling as the fun fact she laid on me next: As of March 1, no one but the authorized user of a given account can make a cash deposit into that account. This, I was told, is a new federal regulation to combat money laundering. In the interests of politeness, I refrained from pointing out that perhaps our federal regulators should be directing their efforts toward the banks themselves, rather than the customers of those banks.
However, I was rude enough to point out that in performing a very straightforward transaction, the base assumption was that I am committing a crime, until proof to the contrary is provided. Nor is this the only day-to-day transaction that is so treated. If I wish to purchase certain (nominally) over-the-counter cold remedies, I have to provide ID — because the base assumption is that these products are mainly purchased to make meth. I have to provide ID to buy a compressed air cleaner for my computer — because the base assumption is that I am purchasing it to get high. Apparently, in our business-friendly America, we can no longer conceive of legitimate uses for a lot of the products being sold to us. (While we're at it, if I buy that compressed air cleaner at the right electronics chain, I will be asked on my way out to furnish proof that I did not shoplift it.)
Even more troubling is the thought I had getting into my car: Apparently our government now views its own currency mainly in terms of how it can be used to break the law. Tell me I'm overreacting...
Tony in Florida writes:
You asked about the status of BitCoin. Here’s what the U.S . Constitution says about coinage:
“The Congress shall have Power to coin Money (and) regulate the Value thereof.”
“No State shall coin Money (or) make any Thing but gold and silver Coin a Tender in Payment of Debts.”
So, where does BitCoin fit in with all this? Can a Federal bank accept BitCoin and pay up value in dollars in payment of debts? Can a State bank accept BitCoin and pay up value in dollars in payment of debts? Then why do some banks do it? Is it for anonymity in drug dealing and “dark site” trading?
One of the many virtues of BitCoin is that their transactions are untraceable (except by the NSA) until tendered for dollars, gold or silver. Trading profits along the way go unreported to, and undiscovered by, the IRS, in America and around the world. This is an irresistible advantage of BitCoin over other forms of coinage. They should pay Jamie Dimond in BitCoin. Then he wouldn’t have to pay any taxes at all.
Does anyone, including the U.S. Supreme Court, actually read and think about the document known as the U.S. Constitution? Or do we just say whatever we wished it said, such as the proposition that financial influence of our legislators and public officials constitutes protected “free speech,” or Corporations (unmentioned in the Constitution) are “persons” with all the rights of persons including free speech (but not any of the liabilities of actual human persons, such as serving in the military draft, serving time in the federal or state penitentiary for acts of criminal nature, or being executed in Texas?
Well, cheer up, we can always buy our way out of almost any cul-de-sac — if we use BitCoin.
At Gin and Tacos Professor Ed says:
General Motors under [CEO Roger] Smith spent $90 billion on robotics and automation in nine years … Of course none of it worked, with factory robots breaking down constantly, painting one another, and welding car doors shut…
The fact is that General Motors didn’t go bankrupt, it committed financial suicide because its executive culture fostered a loathing for the UAW and the hourly workforce that was so extreme that it obliterated basic logic and business sense. The idea was not to replace the workers with Japanese robots (GM Robotics was acquired from Fujitsu) because it would save money; it was to replace the workers with robots because fuck the workers.
Try to picture the mindset of people who would rather run their company into the ground than give their grunt employees a Cost of Living raise. It’s like an airline that would rather blow all of its planes up on the runway than give passengers an entire can of soda.
But enough about Delta.
Is this a great country or what?
Almost a third of the country’s half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.
Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children’s Health Insurance Program, according to the University of California at Berkeley’s Labor Center…
We’re still number one in unfairness but tiny Israel is closing fast, according to Alex Kane on Alternet
But most Americans probably don’t know that the 2nd most unequal “rich” country is the close ally and client state of Israel, whose own oligarchs own a significant slice of the Israeli economy.…
About 21 percent of Israelis live in poverty, the highest among developed countries that are part of the Organization for Economic Cooperation and Development.
I was 14 in 1948, when Israel was born. It sounded wonderful. From the horror of World War II had come a new nation dedicated to just and progressive communal values, to the dignity of labor, and without poverty or excessive riches. I dreamed of joining a kibbutz some day. Would they take goyim, though? Of course they would. After all, Israel was tomorrow!
…and tomorrow and tomorrow, crept in its petty pace to today.
Read these excerpts and then proceed directly to Naked Capitalism for the rest. The essential, primal split in America is not about race, color or creed. It is the one between loaners and borrowers. Examined closely enough, all our political battles trace back to that. There are many more of us borrowers than loaners, of course, but we are slow learners.
Today, in 2013, debt numbers all over are at levels that nobody would have believed possible only 30 years ago. Household debt, national debt and corporate debt hang around our necks like so many nooses, and all we can do to prevent ourselves from suffocating is to borrow more. And so, inevitably, debt levels rise further. And just as inevitably, more and more people fall by the wayside; they can’t keep up anymore. They are either too much in debt already, or they can’t find a job that pays enough — provided they find a job at all — or both. In the process, we have become, the vast majority of us, entire societies of debt slaves, living in constant fear of losing a job and/or a home, and/or contracting a disease.
And it’s not just paying back their own debt which people find ever harder: much of the debt from the financial — and overall corporate — sector has been transferred to the public sector, first becoming national debt and then trickling down into household debt through taxes and cuts to services…
It’s ironic that one of the undoubtedly most capitalist countries on the planet, Switzerland, appears to take wealth redistribution more serious than any other, with a slew of referendums (yes, they have actual democracy) aimed at decreasing income inequality. In March, one such referendum forced public companies to give shareholders a binding vote on executive compensation. In November, there’s a vote on the 1:12 initiative, which stipulates that executives can’t make more than 12 times the salary of the lowest-paid employee. Which somewhat perversely means executives have a very good reason to raise that lowest salary: they themselves can get 12 dollars for every single dollar they give the employee, so an extra $1000 per month for the latter translates into $144,000 extra per year for the bosses.
Heads they win, tails we lose. David Dayen at Naked Capitalism explains how the fix is in:
Consider also how the nature of the gridlock itself empowers elite goals in this case. Democratic pundits and allies have talked themselves blue about the doomed Speakership of John Boehner, the lunacy of Ted Cruz, and whether the Republican fever will break. Precious few words, by contrast, have been written about the fact that the SOLUTION here, the position that Democrats have been pushing, is a “clean” continuing resolution, which will enforce sequestration limits, a spending cap below societal need and economic demand, into Fiscal Year 2014.
And while that would only hold for a couple months, anyone who thinks sequestration will somehow be cancelled (or even “replaced,” which does the economy next to no good from a macro standpoint) by the same people who just shut down the government over “defunding” Obamacare, which is by its nature mandatory spending and not defunded today, is nuts. But Democratic politicians benefit from the virtual silence about how the country is doomed to austerity spending caps for what could be an entire decade. And elites enjoy advantages from such a state of affairs as well.
Here’s Ed at Gin and Tacos on his dabblings in the stock market:
My tolerance for the absurdity of the whole enterprise is in decline. Every time I make a profitable transaction now, I can’t stop thinking, “Why do I have more money now? I didn’t do anything.” And I didn’t. Nobody who plays this game does. It is a world in which nothing is produced and destroyed except money itself. One day you buy something for x dollars. The next, you sell it for 1.5x. Your personal profit is money created out of thin air.
And this, on a much larger scale, is the dominant profession of our financial (and social, and political) elite. They create ever more complex financial instruments out of other intangible financial assets and then they sell them to one another and everyone walks away with money even though nothing happened. The old saying about the stock markets being a form of liar’s poker is a lie inasmuch as poker is a more legitimate enterprise. Real money changes hands between real people performing a transaction with a payout agreed upon in advance.
These people – our Producers, our Galtian heroes, our Job Creators – are people who don’t actually make, create, or produce anything. It’s all blips and clicks and algorithms and trades programmed to self-execute when defined parameters are met. It takes knowledge and a specific talent to do this successfully; that is indisputable. Regardless, I can never wrap my mind around how … intrinsically worthless are the “assets” involved in this game. The only thing that the hedge fund manager or the day trader creates is personal wealth.
My neighbor Tony Piel, a former director and legal counsel of the World Health Organization, started out with Citibank. One of his assignments from its chairman, George Moore, was to set up a public/private development bank for Morocco.
Here Tony wonders if what was good enough for Morocco might not be good enough — better, actually — for the United States than leaving the economy in the hands of Wall Street’s sociopaths:
Now, some forty years later, back in the USA, we find the world’s most powerful nation in crisis and in desperate need of economic development and jobs. In my day in Citibank, we would have opened the valves of business and personal lending to solve the crisis. That’s what commercial banks are for. But today the five largest US banks (BofA, Citi, Morgan-Chase, Wells Fargo and PNC) having received tens of billions of dollars in bailouts for those “too big to fail,” and holding some 40 percent of all deposits and 48 percent of all bank assets, have cut back on small business lending by a full 53 percent. (Where are the George Moores of banking now?) Here’s the question: Should state-owned banks come to the rescue of Main Street?
We have a home-grown model to guide on, and to build on: the state-owned Bank of North Dakota (BND), established in 1919 to promote agriculture, commerce, industry and infrastructure development in North Dakota. The BND takes placements of North Dakota state and state agency funds, and acts as an economic development agency and “banker’s bank,” lending to and covering risks of private banks and businesses. It arranges low cost loans to farmers, students, and local enterprise. BND also makes a market in municipal bonds to promote and finance community development.
The BND has almost $ 4 billion in assets, a $ 2.67 billion loan portfolio, and over $ 50 million in profits for six straight years. Over the last ten years, the bank has funneled almost $ 300 million in profits to North Dakota’s state treasury. During the recent national credit crunch, when private banks ratcheted down their lending, BND’s business lending actually grew by 35 percent, and private sector jobs were increased throughout the state, outpacing the rest of the nation.
What’s the development bank secret? The answer: Regulated government service salaries. No fat cat bonuses. No kick-backs. No self-dealing. No double dipping. No excessive risk taking. No gambling with other people’s money. No bundled mortgages, no derivatives, no credit default swaps, and no currency speculation. No short-selling. Transparent accounting. Profits are returned to equity. The point of the enterprise is not self-interest. The point is economic development. That’s what a democratic state development bank is all about. That’s why Morocco succeeded. That’s why North Dakota succeeded. It’s difficult to argue with success.
The question is, could something like this work in Connecticut and other states? The answer, perhaps, is Why Not? The principal objection to such a state bank may be based on the false ideological premise that government and private enterprise are necessarily and irrevocably hostile opponents. The Moroccan experience suggests otherwise.
More pointedly, private banks may fear that they may lose some of their deposits and be forced to compete more actively with each other and with the state bank for lending opportunities. But perhaps competition is a good thing? Furthermore, when the economy recovers and further develops, the opportunity increases for all. There are more and bigger slices of a larger pie. It’s win-win for everyone.
…and the poor get poorer. Did you know this disturbing little factoid? I didn’t.
Never mind that some states “expanded” Medicaid and others did not. Here is the central point of unfairness for me, and the Kaiser site describes it falsely. They write: “[Y]ou will be eligible for coverage.” In fact, you aren’t “eligible,” because you don’t have a choice. You’re forced into Medicaid. This is important if you’re over 55, because Medicaid expenses will be clawed back from your estate. ObamaCare, in other words, prevents you, by force majeure, from providing for your children if you’re poor and over 55. You don’t even have the option of taking on risk by buying a crappier policy. How can that be fair?
The Democrats have been so deeply penetrated by the neoliberal/Robert Rubin/Hamilton Project types that they aren’t that different from the right on economic issues. Both want little regulation of banking and open trade and international capital flows. Both want to “reform” Medicare and Social Security. Both are leery of a welfare state, the Republicans openly so, the Rubinite Dems with all sorts of hand wringing and clever schemes to incentivize private companies that generally subsidize what they would have done regardless (note that Americans have had a mixed record in providing good social safety nets, but a big reason is our American exceptionalism means we refuse to copy successful models from abroad).
The powerful influence of moneyed interests on the Democratic party has achieved the fondest aims of the right wing extremists of the 1970s: the party of FDR is now lukewarm at best in its support of the New Deal. Most Democrats are embarrassed to be in the same room with union types. They are often afraid to say that government can play a positive role. They were loath to discuss the costs of income inequality until it became so far advanced that it is now well nigh impossible to reverse it. After all, that sort of discussion might sound like class warfare, and God forbid anyone on the mainstream left risk sound like Marx…
So the Democratic party (and remember, our two party system makes the Democrats the home by default for the left) pretends to be a safe haven for all sorts of out groups: women, gays, Hispanics (on their way to being the dominant group but not there yet), blacks, the poor. But this is stands in stark contradiction to its policies of selling out the middle class to banks and big corporate interests, just on a slower and stealthier basis than the right. So its desperate need to maintain its increasingly phony “be nice to the rainbow coalition” branding places a huge premium on appearances. It thus uses identity politics as a cover for policy betrayals. It can motivate various groups on narrow, specific issues, opening the way for the moneyed faction to get what it wants.
Michael Klare: We Americans do not need Keystone XL — there are plenty of other available sources of energy, and we can reduce our demand through conservation efforts. But the tar sands industry desperately needs KXL, as all other practical conduits for exporting increased tar sands production seem to be closed off (like the Northern Gateway pipeline through British Columbia) — meaning they’ll have lots of resources, but no export options. No wonder they’re desperate to get Obama to approve the pipeline!
James Stafford: What should we know about Keystone XL that the mainstream media doesn’t tell us, or doesn’t understand?
Michael Klare: The fact that KXL will not carry “oil” at all — despite their claims — but a heavily polluting mixture of bitumen, diluents, and toxic chemicals that must be processed through extraordinary means before it can be refined into anything resembling a usable fuel.
I wish Professor Klare had taken up a question that has always puzzled this economics illiterate: Why does everybody seem to think that oil independence is a good thing? Why wouldn’t it make better sense for us to burn everybody else’s oil first, leaving us the last man standing?
With grad school occupying most of my attention for the last three years I haven’t kept up my currency in economic matters, to coin a phrase. For instance, I know that as compared to recoveries in recent American history the gains this time around are slower in arriving. There are signs that the economy is improving but the gains are more heavily concentrated at the top than before.
But I was surprised to read the following from Larry Elliott at the Guardian, whom I’ve recently begun to follow in part because of my new portal to everything that’s going on in the world of news, NewsBlur. So long, iGoogle, I’ve met someone else!
In any case, Elliott says this about Britain’s 0.3% growth in the first quarter:
The improvement has been a long time in coming. Britain’s national output remains more than 2% below where it was at its peak in early 2008: by this stage after previous recessions — even the Great Depression of the 1930s — all the lost ground had been recouped.
Wow! Even in the Great Depression all the lost ground had been recouped by this point in the recovery in the UK. Does anyone know what the equivalent measurement would say about the US?
From the Social Evolution Forum:
Let’s make this discussion more concrete. In the context of American labor history, ‘cultural’ forces (in the broad sense) sometimes worked to encourage wage increases, and sometimes to hold them down. For example, at the beginning of the Great Depression there was a broad consensus among the political and business elites that worker wages should not be lowered. In December 1929 President Hoover addressed four hundred of key members of the business community urging them not to cut wages. Leading executives responded in 1929–30 by pledging to maintain wages at the expense of profits. As a result, real wages actually grew quite vigorously between 1929 and 1941, helped along by a deflation of prices.
Remember when the Great Recession hit in December 2007 and President Bush urged key members of the business community not to cut wages? Yeah, me neither.
This video has gone viral for good reason: it’s very smoothly produced with well thought out charts and graphs that are animated in ways that help viewers get the picture of just how far we are from some sort of reasonable wealth distribution in this country.
Lately we’ve been hearing a lot of conservative crowing about the stunning success of Margaret Thatcher’s privatization of public monopolies. As with so many of the Chicago Boys’ factoids, though, there’s more to the story. Lots more. Here’s an excerpt from a long examination of the question by University of Missouri economist Michael Hudson.
Yet by 1997 the Conservatives were voted out of office by one of the largest margins in their history. What concerned voters were the results of privatization that Mrs. Thatcher had not warned them about. Prices did not decline proportionally to cost cuts and productivity gains. Many services were cut back, especially on the least utilized transport routes. The largest privatized bus company was charged with cut-throat monopoly practices. The water system broke down, while consumer charges leapt. Electricity prices were shifted against residential consumers in favor of large industrial users. Economic inequality widened as the industrial labor force shrunk by two million from 1979 to 1997, while wages stagnated in the face of soaring profits for the privatized companies. The tax cuts financed by their selloff turned out to benefit mainly the rich.
From Prospects of Industrial Civilization, by Bertrand and Dora Russell (1923):
The only men nowadays who believe in injustice are those who profit by it, and even they in their hearts feel that their belief is not genuine but merely an embodiment of self-interest. I except from this indictment the big capitalists of America, who are more naïve, more untouched by modern thought, than any other set of men with the exception possibly of a few Central African negroes. American businessmen still believe in the capitalist system, but businessmen elsewhere merely hope it will last their lifetime, provided they can obtain sufficient machine guns and ships to shoot down or starve those who advocate systems which, in their hearts, they know to be better.
From Naked Capitalism:
Now Johnson carefully laid the bread crumbs, but so as not to violate the rules of power player discourse, pointedly switched from the banana republic term “oligarch” to the more genteel and encompassing label “elites” when talking about the US (“elites” goes beyond the controlling interests themselves to include their operatives as well as any independent opinion influencers). Yet despite his depiction of extensive parallels between the role played by oligarchs in emerging economies and the overwhelming influence of the financial elite in the US, there’s been a peculiar sanctimonious reluctance to apply the word oligarch to the members of America’s ruling class…
But the fact that some people have advantages and are able to make the most of them, isn’t the reason to pin the “o” word on America’s top wealthy. It’s that, like Simon’s prototypical emerging market magnates, they increasingly dominate our society and are running it strictly for own self interest and devil take the rest of us. And the results on important metrics are worse than in Russia. The Gini coefficient is a widely-used measure of income inequality. The Gini coefficient is worse (higher) for the US than for Russia. Even though its rich have gotten richer and have pulled away from their lessers, the rest of the population has also done better:In dollar terms, Russia’s GDP increased 7.5-fold over the last decade from around $200bn to $1.5 trillion; at the same time, nominal average wages increased 14-fold over the same period from $50 to around $700 a month.And the latest statistics on the Gini coefficients (at least readily findable on the Web) are a few years stale. As we’ve written, the income gains in the US from 2009 to 2011 went entirely to the top 1%, which saw a 121% increase; the rest of the population suffered a small decline. That would increase the US Gini coefficient even further.
The architects of the Iraq war are still at large, as are the pundits who cheered them on, as are the bankers who created the economic crash. The lesson is clear in each case: American elites are not held accountable for their failures. They are an aristocracy that is free to do whatever it wants, knowing that it will not lose its power, prestige and status no matter what happens. Once you’re accepted into the club you get tenure, and you can indulge in as much fraud, extortion and folly as you wish. The little people will be tasked to suffer the consequences and pay for the mess, and you can enjoy your evening at the White House Correspondents’ Dinner without any anxiety whatsoever. As long as you don’t download kiddie porn, sleep with 13-year-old girls, frolic with Boy Scouts, or get photographed in a brothel with a chicken mask and a bull whip, you’re golden.
The rest of us get zero tolerance laws, paramilitary police forces, surveillance drones, warrantless wiretaps, German Shepherds sniffing through our kids’ lockers at school, sobriety check points, “click it or ticket” sweeps and other such delightful previews of life in post-Constitutional America. But that shit ain’t for you.
If we sell pot we go to jail, maybe even lose our careers. If you start a disastrous, unnecessary war that kills millions of people and wastes billions of dollars, you go on the Sunday talk shows and get fawned over like you’re the biggest foreign policy wiz since Lord Palmerston, or even Dr. Kissinger! You get a lucrative book deal. You hire a hack to write it. You give it an idiotically simple title that you’ve plagiarized from a third grader’s essay like Lessons Learned or What I’ve Learned. Have your wife go on The View to share your sweet human side to the housewives of America. Put together an exploratory committee. When you’re a member of the elite, failure is an option, and every crisis is indeed an opportunity. There’s nowhere to go but up, up, up.
About that book. Keep it simple. If your average football coach can’t imbibe its main points during a single bout with the piles, you haven’t accomplished your mission. Remember, David Gregory and George Stephanopoulos might be reading. Tailor your prose accordingly. Never mind that no one outside of Chris Matthews’ boudoir actually will read it, and don’t worry that it’s going to end up in a bin at the Salvation Army next to Vanna White’s biography and innumerable copies of A Million Little Pieces. This is about marketing and public relations, not literature. It’s about your worldly success in the here and now. The future doesn’t matter, as one of your colleagues famously observed, because we’ll all be dead.
Thus the same people who brought us the Iraq disaster and the Great Recession are now bringing us bomb Iran and bring on austerity. That’s how the game works. It’s one great big obscene charade. They know it. We know it. They know we know it. They know we know they know we know it, and no one cares. Even if we did, there isn’t a damn thing we could do about it anyway, is there?
…and alack, but Ed at Gin and Tacos is, regrettably and inarguably, right that there is no left left:
This is the real drawback of our political system and process. With only two parties and the end of the political-ideological conflict between socialism and capitalist democracy that defined most of the 20th Century we’re left debating most — albeit not all — issues within a very narrow ideological range. We’ve all agreed upon the End of History and that free market capitalism is the final form of human social organization, and that America shall be a hegemonic military power, and that our politicians shall be beholden to the financial interests that back them, and that we will argue only in the margins (except on “social” issues, where legitimate disagreement is permitted because the titans of industry don’t give a shit about them). So we have already settled on policing the world and are now arguing about how best to do it, just as we have decided that the financial industry will shape our society to its liking and we are now arguing about whether a handful of regulators should be tasked with watching them do it.
From Peter Turchin, professor of ecology and mathematics at the University of Connecticut:
In the US, there is famously a close connection between wealth and power. Many well-off individuals — typically not the founders of great fortunes but their children and grandchildren — choose to enter politics (Mitt Romney is a convenient example, though the Kennedy clan also comes to mind). Yet the number of political offices is fixed: there are only so many senators and representatives at the federal and state levels, and only one US president. As the ranks of the wealthy swell, so too do the numbers of wealthy aspirants for the finite supply of political positions.
When watching political battles in today’s Senate, it is hard not to think about their parallels in Republican Rome. The population of Italy roughly doubled during the second century BC, while the number of aristocrats increased even more. Again, the supply of political offices was fixed — there were 300 places in the senate and membership was for life. By the end of the century, competition for influence had turned ugly. During the Gracchan period (139—110BC), political feuding led to the slaughter of the tribunes Tiberius and Gaius on the streets of Rome. During the next century, intra-elite conflict spilt out of Rome into Italy and then into the broader Mediterranean. The civil wars of the first century BC, fueled by a surplus of politically ambitious aristocrats, ultimately caused the fall of the Republic and the establishment of the Empire.
I’m all right, Jack, but you aren’t — not if you’re a baby boomer. Duncan Black explains why, in USA Today.
Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles…
The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives. Proposals to improve our system of private retirement savings — even good ones — will offer little to no help for the baby boomers who are currently nearing retirement, and are also unlikely to be of sufficient help for current younger workers. We need to increase Social Security benefits, now and in the future. It's the only realistic way to provide people with guaranteed economic security and comfort post-retirement.
Excellent piece at The Atlantic on the opacity of bank reporting and the impact it’s having on investment in banks in general because experienced and knowledgeable traders cannot understand the risks associated with the banks’ financial positions. They appear to be so highly leveraged that they could easily destroy the entire economy if things fail to go their way; nothing, it seems, was learned from the crash they so recently caused. And of course why would it be? We bailed them out last time they destroyed it.
In the decades following the 1929 crash, banks were understandable. That’s not because they were financially simple—that era had its own versions of derivatives and special-purpose entities—but because the banks’ disclosures were more straightforward and clear. That clarity sprang from the fear of consequences. The law, as Oliver Wendell Holmes Jr. said, is a prediction of what a court will do. And the broadly scoped laws of that time gave courts wide latitude.
Going to jail for financial fraud was a real risk back then, and bank executives worried that their reputations would be destroyed if a judge criticized what they had done. Richard Whitney, a broker who had been the president of the New York Stock Exchange, was sent to Sing Sing prison in 1938 for embezzlement. “Sunshine Charlie” Mitchell, the president of National City Bank, the predecessor to Citibank, was indicted for tax evasion after the 1929 crash and was also the first of many bankers to testify before the famous Senate Pecora Committee in 1933. The Pecora investigation galvanized public opinion, and helped usher in the landmark banking and securities laws of 1933 and 1934. The scrutiny and continuing threat of prosecution convinced many bank executives that they should keep their business simple and transparent, or worry about the consequences if they did not.
For those who wonder what would happen if the GOP had won the presidency and both houses last month, an interesting experiment is playing out right now in Kansas. It turns out that the laws of math still apply, even inside The Bubble:
OVERLAND PARK, Kan. — Acknowledging that the state is facing a “hard dip” in revenues, Kansas Gov. Sam Brownback said Tuesday that the Legislature should consider ways to pay for massive income tax cuts that he signed into law earlier this year…
Legislative fiscal analysts predicted the tax cuts would cost the state about $3.7 billion in revenue over five years.
Brownback and other advocates of the tax plan are banking that a short-term dip in tax revenues will eventually be replaced with revenues created by economic growth spurred by the tax cuts.
When Brownback first proposed the income tax plan in January, he did propose a number of ways to cover lost revenue, but he ran into trouble when lawmakers received a cool reception from constituents who didn’t want to give up their home mortgage interest deduction.
He also ran into a public relations problem when it was revealed that his tax plan — as originally proposed — would actually have raised taxes on people with incomes under $25,000 while lowering taxes for everyone else.
A hundred and fifty-one years and still counting, the Civil War goes on. The Confederacy morphed into the Dixiecrats and then into the GOP which was easily swallowed by the Tea Party and here we are. I cannot think of a single core principle of American conservatism which does not, upon close examination, serve the interests of the master over those of the slaves. Wage slaves to be sure, and no longer exclusively black, but a slave is a slave.
An excerpt from Michael Lind’s analysis of the Confederacy’s continuation of war by other means:
…Notwithstanding slavery, segregation and today’s covert racism, the Southern system has always been based on economics, not race. Its rulers have always seen the comparative advantage of the South as arising from the South’s character as a low-wage, low-tax, low-regulation site in the U.S. and world economy. The Southern strategy of attracting foreign investment from New York, London and other centers of capital depends on having a local Southern work force that is forced to work at low wages by the absence of bargaining power.
Anything that increases the bargaining power of Southern workers vs. Southern employers must be opposed, in the interest of the South’s regional economic development model. Unions, federal wage and workplace regulations, and a generous, national welfare state all increase the bargaining power of Southern workers, by reducing their economic desperation. Anti-union right-to-work laws, state control of wages and workplace regulations, and an inadequate welfare state all make Southern workers more helpless, pliant and dependent on the mercy of their employers.
A weak welfare state also maximizes the dependence of ordinary Southerners on the tax-favored clerical allies of the local Southern ruling class, the Protestant megachurches, whose own lucrative business model is to perform welfare functions that are performed by public agencies elsewhere, like child care…
The essential political divide in the United States is between lenders and borrowers. Here’s one of the ways it plays out between those who charge interest and those who pay it. Or between the job creators and the moochers, as Romney would put it.
Companies that pay out all their cash flow as interest do not pay income taxes on this diversion of revenue, because interest is a tax-deductible expense. As for the financial engineers at the top – the class that has replaced industrial engineers – they aim to get rich not by earning profits, but by capital gains. These are taxed at much lower rates. So the financialized tax system encourages speculation rather than profit-making direct investment.
Suppose that a company earns $1 million dollars of profit in a year. About $400,000 must be paid in income tax. A corporate raider will buy the company’s stockholders (equity owners), for $10 million in junk bonds. The entire $1 million dollars of profit will now be paid to the banker or the bondholder in the form of interest. The company won’t report a profit, so there is no tax payment. The financial manager will hope to increase the company’s price (to re-sell it on the stock exchange) by cutting costs or selling off its pieces to make a capital gain. This is how Republican presidential candidate Mitt Romney’s Bain Capital made money. It is “balance sheet” engineering, not aimed at raising production or living standards…
We’ve heard a lot of moaning these past days over the anniversary of Occupy Wall Street. Sure, it was fun while it lasted — but you can’t change the world without an agenda, without leaders, without structure, organization, bureaucracy.
And yet out of this anarchy has just come an enormously useful handbook — by anonymous authors of course — called The Debt Resistors Operations Manual. It is available — free of course — here. (h/t to Naked Capitalism.)
Credit card companies don’t mind if you’re late paying your bill or if you maintain a balance, as long as you go on paying your monthly minimum. Cardholders who never carry balances on their cards have long been known inside the industry as “deadbeats,” money-losers. Since almost all of the industry’s profits come from late fees and interest rate penalties, it depends on your slipping up.
This is why monthly statements are intentionally designed to be confusing. If they change the design of your statement — say, by moving a box to the left, or making the print a little smaller — in such a way as to cause even one cardholder out of a thousand to misunderstand and miss a payment, that’s millions of dollars in additional profit for them. In the past they would trip up consumers by intentionally making the due date fall on a Sunday or a holiday. This enabled them to extract even more from late fees, the whole time insisting it was all your fault…
Medical debt is debt that individuals accrue when they are charged, but don’t or can’t yet pay for, out-of-pocket health-care-related expenses charged by the hospital, clinic or doctor (provider). As soon as you pull out the plastic and put it on your credit card — something strongly advised against when trying to manage medical bills — it becomes personal or consumer debt…
In addition to making sure you receive coverage that you’re eligible for, avoid putting medical bills on your credit card. Doing so converts your medical expenses to consumer debt, which puts you in an even worse place. Having credit card debt instead of medical debt likely means greater fees and penalties, and greater difficulty securing a job or mortgage.
This is fascinating stuff, if true. It has always seemed to me that the disappearance of well-paid blue-collar jobs in America can be traced to Clinton’s embrace of NAFTA. But can we also blame the housing bubble and consequent Great Depression II on him? I put the question out there for those with more knowledge of economics to answer.
Basically, it was under Clinton that Fannie and Freddie really began blowing the housing bubble, issuing epic amounts of mortgage-backed debt.
The story that Gasparino tells is basically: Liberal Bill Clinton thought he could use government to make everyone a homeowner and so naturally this ended in disaster.
Gasparino specifically cites the controversial Community Reinvestment Act, a popular conservative bogeyman:How did they do this? Through rigorous enforcement of housing mandates such as the Community Reinvestment Act, and by prodding mortgage giants Fannie Mae and Freddie Mac to make loans to people with lower credit scores (and to buy loans that had been made by banks and, later, “innovators” like Countrywide).
The Housing Department was Fannie and Freddie’s top regulator — and under Cuomo the mortgage giants were forced to start ramping up programs to issue more subprime loans to the riskiest of borrowers.
Reagan’s budget director, since come to Jesus, tells it like it is:
…Mr. Ryan professes to be a defense hawk, though the true conservatives of modern times — Calvin Coolidge, Herbert C. Hoover, Robert A. Taft, Dwight D. Eisenhower, even Gerald R. Ford — would have had no use for the neoconconservative imperialism that the G.O.P. cobbled from policy salons run by Irving Kristol’s ex-Trotskyites three decades ago. These doctrines now saddle our bankrupt nation with a roughly $775 billion “defense” budget in a world where we have no advanced industrial state enemies and have been fired (appropriately) as the global policeman.
Indeed, adjusted for inflation, today’s national security budget is nearly double Eisenhower’s when he left office in 1961 (about $400 billion in today’s dollars) — a level Ike deemed sufficient to contain the very real Soviet nuclear threat in the era just after Sputnik. By contrast, the Romney-Ryan version of shrinking Big Government is to increase our already outlandish warfare-state budget and risk even more spending by saber-rattling at a benighted but irrelevant Iran…
… a conversion narrative brought to you by Business Week:
Before I met Ayn Rand, I was a logical positivist, and accordingly, I didn’t believe in absolutes, moral or otherwise. If I couldn’t prove a proposition with facts and figures, it was without merit. In the midst of a conversation, she said to me, “Do I understand the thrust of your position? You are not certain you exist?” I hesitated a moment, and I said, “I can’t be sure.” And she then said to me, “And who, by chance, is answering that question?” With that little exchange, she undermined the philosophical structure I had built for myself. The contradiction was too glaring and opened me up to listen to the rest of what she had to say. We remained close until she passed away in 1982.
After which Greenspan presumably became certain she did not exist. Or uncertain she did not exist. Or existed only in the sense that a bundle of AAA-rated subprime mortgages may be said to exist. Or something.
Well, what the hell, at least the future Fed chairman wasn’t mindfucked by L. Ron Hubbard. We’d all be hooked up to E-meters and audited by Tom Cruise.
Yves Smith at Naked Capitalism:
…While people who are under financial stress don’t have much in the way of options, I see more and more people of modest and better means planning on becoming expats to make their retirement incomes go further…
Those who are approaching retirement age and have the time, energy, and financial headroom would do much better to get out of Dodge. America ranks badly on pretty much every social indicator, which means that moving to what is nominally a third world county isn’t just a step up in terms of spending power but often in overall quality of life.
Thus we are likely to see another sort of hollowing out take place: the lower income and wealthy elderly will remain here, while more in between who have the resources and energy will depart. We already have the economic-oriented literature depicting retirees as a burden. Imagine what a middle class exodus in this age group will do for the political and economic position of the aged…
The Guardian has a series of articles on the flight of wealth from countries that are producing it to a tiny number of bank accounts in countries that are tax havens. It’s not news that a small number of people are extraordinarily rich. But it might be news that 0.001% of the world’s population — that’s right, one one-thousandth of one percent — or about 92,000 people have $10 trillion in assets stashed in these tax havens. In total, 10 million people worldwide hold offshore assests; considering them all, claims a study commissioned by the group Tax Justice Network, you find upwards of $21 trillion, possibly $32 trillion. For comparison, estimated US GDP in 2011 was a bit over $15 trillion, while Japan’s was slightly below $6 trillion.
Where did this money come from? Well, that depends on what you think about capital. Does profit come work or financial manipulation? Americans used to favor the former answer, but that got your hands dirty rather than getting you rich quick. So, like empires before us, we farmed out the actual work to our colonies and kept the hugely enriching stuff at home, namely finance and the military might needed to enforce its extraction. Concentration of wealth is the goal of empire once it becomes established, and ours is no different. We concentrate wealth gathered, from the locals’ viewpoint often stolen, from around the world into our hands. And we concentrate wealth from all Americans into the hands of a tiny proportion of the population.
The study was performed by James Henry, formerly chief economist at McKinsey and an expert on tax havens.
The detailed analysis in the report, compiled using data from a range of sources, including the Bank of International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.
This is particularly true of states with oil riches. A person with a sense of history might be tempted to bring up how the people who control those vast sums of money in the oil-rich states came to be in charge and to be capable of defending their wealth and privilege. Certainly one must look beyond those states, and toward North America and Europe, for some of the most powerful sources of influence.
Tax Justice Network calculates that if the $21 trillion in tax havens earned 3% interest per year and governments could tax that income at 30% it would generate $189 billion each year, which is more than the rich countries spend on aid to the developing world annually.
Billions of people around the world are suffering from malnutrition, disease, endemic warfare, and environmental degradation. These problems cannot be separated from the concentration of enormous amounts of wealth in small numbers of hands. Indeed these two issues are two sides of the same coin: with one comes the other. There is nothing positive for society or the individual in the accumulation of such private fortunes, and we are all paying a price for letting it happen.
Mitt the Twit offers us this assessment of the choices we face in November:
...I hope people understand this, your friends who like Obamacare, you remind them of this, if they want more stuff from government tell them to go vote for the other guy — more free stuff. But don’t forget nothing is really free.
Mitt, Mitt, Mitt… “stuff from government” is not free. We pay for it. That’s what those things we call “taxes” are supposed to be used for. It’s not free. And most of us realize it’s not free. You only think “stuff from government” is free because you’re not paying those same taxes.
I hope this has been helpful, Mitt. Feel free to drop me a line if you find any other fundamentals of the social contract to be confusing.
Something I've done that I’ll bet Mitt Romney has never done is... fill out a job application.
Guys like Romney don’t fill out job applications, y’see. According to Mitt’s Wikipedia page — and here Wikipedia's notorious subjectivity works in our favor — his employment history begins thusly:
Romney was recruited by several firms and chose to remain in Massachusetts to work for Boston Consulting Group (BCG), reasoning that working as a management consultant to a variety of companies would better prepare him for a future position as a chief executive.
In contrast, my employment history began with a clean shirt, my own pen, and an index card on which I had jotted down three personal references. I went to the mall just north of town and went from store to store, asking at each one if they were accepting applications. If they were, I reasoned it would make a better impression if I had my own pen than if I asked to borrow one. There’s something else I bet Mitt Romney has never done: give an iota of thought to the impression he would make by asking to borrow a pen.
Eventually, my efforts yielded the sort of job one would expect from a shopping mall in the late 70s — a minimum wage gig that turned out to be seasonal. I was told when I was hired in September that this particular store did not hire seasonally, which led me to expect that I could work there for as long as I did a good job. However, when there were massive layoffs the following January — myself among them — I realized that I had been lied to about that. I would bet that, too, is an experience Mitt Romney has never had. Rather, my guess would be that Mitt has always been the one lying to employees. (Although one could argue that currently he is lying to his prospective employers, which to varying degrees we have all done.)
Since then, I have filled out many job applications for all sorts of jobs. One is worth mentioning. When I fled Ohio for San Francisco (to launch my illustrious stand-up career) I had to choose between necessities and luxuries. One of the things that came under the heading of luxury was... a telephone. Ya know why? Because I had no credit history, the phone company required a prohibitively large (for me) deposit. And because I had no phone, a prospective employer refused to take my application. Apparently, what I considered a minor inconvenience he considered an insurmountable barrier. I will bet Mitt has never had to worry that he would not be seriously considered for any position in which he was interested. And I don't have to bet on this one — I will guarantee you Willard M. Romney has never had to do without a phone, for any reason.
I am happy to report that it has been a long time since I’ve had to fill out a job application. I have graduated to the ranks of people who get hired by circulating resumes, and from there to the exalted ranks of those who have their resumes dismissed out of hand. I am quite sure the being in that latter category is another experience that Mr. Romney and I will never have in common.
Romney recently suggested adding a Constitutional qualification that “the president has to spend at least three years working in business before he could become president of the United States.’” I might go along with that — if those three years began with filling out a job application. Unlike Mr. Romney, I think that would educate any would-be president in the way this country reallyworks.
It could just turn out that events force Obama to do what we’ve needed him to do all along. Personally, though, I doubt it.
More likely, in my opinion, is that he’ll continue to try splitting the difference and having it both ways. That seems to me a pretty risky approach to re-election because it basically depends on events to carry him through rather than asserting a reason for continuing in office. But at this point it’s hard to imagine anything but an equivocal response from Barack Obama. I hope I’m wrong, but I’m not holding my breath.
Consider the Obama campaign’s approach to what seems intended as a touchstone for the election strategy, the attack on Romney’s time at Bain Capital. Certainly there is much to despise in the Bain record, including exhibitions of capitalism at its worst. And it’s hard to make the case for the capitalist’s favorite meme, creative destruction, at a time when so many mortgages are underwater, so many people are out of work, and so many corporations and their executives are rolling in cash. They get the creation, we get the destruction.
This strategy, though, doesn’t have everyone on board.
Some Democrats in Virginia expressed concern that voters in the business-oriented suburbs around Washington would not coalesce around attacks on Bain. Sen. Mark R. Warner, a former cellphone entrepreneur, said in an interview that Bain is “a valid issue and debate” but also a company that “did a good job for their investors.” One prominent Virginia Democrat who requested anonymity to speak candidly said the Bain strategy is “risky” because it feeds an existing narrative among business leaders that the Obama administration is not friendly to their interests.
The problem is that it’s so hard to criticize Bain without critiquing capitalism itself. That, of course, is what the country desperately needs right now, and the Occupy movement has brought the issue to our collective consciousness. Now would be a perfect time to bring the discussion to basic questions of fairness and sustainability. But the Democrats are just as owned by Wall Street as the Republicans. Can you guess which business sector’s contributions to the two campaigns dwarf all others?
So it may come to the point that all Obama’s efforts to cozy up to Wall Street will come to naught and the Street will pick the Mitt, who after all is much more like them. Will Obama then choose to swing for the fences and try to recruit the non-voters with a full-throated denunciation of the destructive side of capitalism, or will he try to split the difference between reality and Wall Street? If he picks the latter he stands a good chance of losing in November.
Talking about the outsized influence of Wall Street on both political parties, Tom Edsall has it in a nutshell:
Obama has been caught between rising corporate opposition to his re-election, on one hand, and his own reluctance to take an adversarial stance towards the industry, on the other.
And how could it be otherwise?
Romney has made it very clear how he will help Wall Street if he wins. It’s President Obama who is in a conflicted position. Obama could conceivably take a more aggressive regulatory posture. The more likely scenario, given recent history, is that he would be apprehensive about the consequences of regulating hedge-fund operators and investment bankers. In the aftermath of Citizens United, Obama and the rest of the political community are aware of how dangerous the financial sector can be in the freewheeling world of campaign finance.
After winning three World Series with the Arizona Diamondbacks and Boston Red Sox, Curt Schilling retired with a reputation as gutsy and competitive with an eclectic blend of mostly right-wing political views. He supported George W. Bush and John McCain for president and talks about Ann Coulter’s intelligence, but he also called Barack Obama a “person of unparalleled character” and supports stricter gun control. Tort reform, go figure, appears to be a big issue for him.
But perhaps it’s easier to understand his view of frivolous lawsuits when you read about the deal he got from Rhode Island. After retiring from baseball and briefly flirting with a Senate run, partially derailed by his being registered as an independent, Schilling decided to take his outsized ego into the video-game business. He called his entry Green Monster Games LLC after the left-field wall in Fenway Park, and later renamed it to 38 Studios LLC to honor his own jersey number. His position was founder, chairman, and executive visionary. The company’s goal was to build massively multi-player online games, or MMOs. He intended to compete at the World-of-Warcraft level and promised $1 million bonuses to employees who lasted until the company was worth $1 billion.
The video-game biz seem like a natural fit for a guy like Curt. After all, it “requires superb timing, superb management, superb talent, and a good dose of luck”, as Barry Gilbert, vice president of Strategy Analytics, a consulting firm that advised Rhode Island during its negotiations with 38 Studios, put it. Apparently Schilling has that dose of luck, if nothing else, because he managed to negotiate a $75 million guaranteed loan from Rhode Island, which his company is finding it difficult to repay.
After missing a $1.1 million payment May 1 and a personal plea from Schilling for more public assistance this week, 38 Studios has said it does not not have enough money to pay its employees. On Wednesday, the state economic development official who oversaw the loan guarantees resigned abruptly. In a bizarre twist, at one point Thursday, company representatives hand-delivered a check to the Rhode Island Economic Development Corporation, apparently to cover the late $1.1 million payment, but then later said the company had insufficient funds to cover it.
If nothing else Schilling thinks big.
Schilling had originally hoped to launch the game’s first product in 2010. But he immediately hit trouble raising money. He shocked venture capitalists with an audacious pitch for $48 million — far more than gaming companies typically receive in an initial round of funding. In addition, Schilling was reportedly reluctant to give up much stock in exchange for funding. Flybridge Capital Partners and several other Boston area firms passed on 38 Studios.
“More than one VC who has met Schilling has come away with the impression that an investment would require quite a bit of ‘babysitting,’” noted a trade publication, Private Equity Week, at the time.
Schilling estimated he might need more than $100 million to complete the multiplayer game, code-named Copernicus.
Enter Rhode Island, whose Democratic legislature passed a jobs promotion program involving $125 million in loan guarantees, most of which went to Curt’s company as incentive to move from Massachusetts.
“I had heard rumors that both the governor and House leadership were desperate to cut a deal with Schilling,” [Republican state Representative Robert Watson, former Rhode Island House minority leader] said. “Nobody was admitting to anything at the time. Frankly, Keith Stokes [director of the Rhode Island Economic Development Corp.] and Governor Carcieri’s office were full of obfuscation, camouflage, and possibly outright lies.” Watson said he opposed the program as “a scandal waiting to happen.”
It looks like Curt Schilling has managed to use this company to bilk Rhode Island of millions of dollars, and now he’s asking the government he’s against to give him a handout when he’s already rich and carping about small government.
“We got hoodwinked; we got played,” Watson said. “How many millions of dollars does Curt Schilling have? He can’t write a check? It’s Rhode Island that is supposed to provide the money? I think not.”
Stokes, who resigned late Wednesday, had little to say about the unraveling deal with Schilling, insisting the economic development agency’s negotiations with the company remain confidential. He would not directly address whether the agency gave proper oversight to the state’s investment in 38 Studios.
“I really can’t comment on the nature of the transaction,” he said. “I can give you my favorite William Faulkner quote, which is: ‘All of us failed to match our dreams of perfection.’”
If that’s your best defense, I’d retain an attorney.
Eat your heart out, American students. This from the New York Times:
As is the case throughout Canada, Quebec’s colleges and universities are mostly publicly supported, and their tuition rates are set by the provincial government. Quebec residents pay the lowest rates in Canada.
The government wants to increase the annual university tuition of $2,144 by $321 a year for five years.
It’s fascinating and instructive to watch the people of Greece searching for effective methods of combatting the terrorism of the finance industry.
Anxiety in Athens is palpable. In an increasingly electric atmosphere dominated in equal part by fear and loathing — of EU ejection and EU-dictated austerity — many worry that Greece is not only heading for the euro exit door, and with it years of desperation and poverty, but tumult of a kind not seen since the restoration of democracy in 1974.
True enough. After all, “With Greece deeply divided after an election that effectively demolished the country’s political landscape the stakes could not be higher.” Either the Greeks buckle and accept years of grinding austerity in return for making the rich richer, or they can expect desperation and poverty caused by the rich folks they spurned. Why don’t they just submit? Because that’s not what people do when they understand the situation. Submission was something one might expect from the masses in the past, when information could be more strictly controlled. But nowadays, when anybody with a mobile phone can find out what’s going on in the world, it’s no longer possible to ensure that the public remains uninformed. Witness the Egyptian uprising.
The whole mess reminds me once again of Robert Anton Wilson’s wonderful essay The Spaghetti Theory of Conspiracy.
It is characteristic of the primitive conditions on this backward planet that virtually nobody knows any of the basic facts about how the human race is actually governed. For instance:
1. Governments are not nearly as important as most people think. Since we live in a post-barter economy — a money economy — those who control the money supply effectively control the planet. Governments gave up all attempt to coin or control money in the 19th Century, mostly because they did not trust one another, i.e. no nation had faith that the coinage or currency of another nation was really worth what it claimed to be worth. The great International Banks stepped into this vacuum and, by demonstrating more fiscal rectitude than governments had in the past, became the creators of money in the modern world.
After the banks had control, they no longer needed to be quite so prim in their fiscal rectitude. Nobody could challenge them.
This means that governments cannot do anything — good or ill, wise or foolish — unless the banks first lend them the money for the project. The power is in the banks. The governments survive on the permission of the banks. If the banks cut off their credit, governments die. Any government that resists has its credit cut off and dies.
But this couldn’t happen here. Oh no. We wouldn’t put up with it.
It is hard to avoid thinking that these people are perfect swine, so I won’t even try. Oh, and let me be clear: I’m not talking about people like Annette Alejandro.
From the New York Times:
Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail…
But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.
Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.
Things Al Franken and I didn’t know, from Naked Capitalism: it seems we were both tricked back in the 1990s by slick-talking corporate hucksters:
“It is literally — literally — malfeasance for a corporation not to do everything it legally can to maximize its profits. That’s a corporation’s duty to its shareholders.”
Since this sentiment is so familiar, it may come as a surprise that it is factually incorrect: In reality, there is nothing in any U.S. statute, federal or state, that requires corporations to maximize their profits. More surprising still is that, in this instance, the untruth was not uttered as propaganda by a corporate lobbyist but presented as a fact of life by one of the leading lights of the Democratic Party’s progressive wing, Sen. Al Franken. Considering its source, Franken’s statement says less about the nature of a U.S. business corporation’s legal obligations — about which it simply misses the boat — than it does about the point to which laissez-faire ideology has wormed its way into the American mind…
It was only in 1997 that [the Business Roundtable] argued that taking care of shareholders was the best way to take care of the remaining stakeholders, rather than the other way around:
“…the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders. The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors.”
This doctrine, known as “shareholder primacy,” now reigns in the corporate world today, and it has so increased the power of those whom it has benefited that it will not be easy to dislodge. Those who propagate it believe, or would have us believe, that it is based in law; in fact, it is supported by no more than ideology.
This week’s New Yorker has a fascinating piece on ExxonMobil by Steve Coll which contains this exchange between Diane Sawyer and the company’s present CEO, Rex Tillerson:
Sawyer then asked him, “What is the responsibility of a multinational corporation to make the world better through charitable activity? Is it a tithe of ten per cent? How much?”
“Ultimately this is our shareholders’ money we’re spending,” Tillerson said. “So it’s not my money to tithe. It’s not the corporation’s. It’s our shareholders’.”
Tillerson’s predecessor as CEO, Lee Raymond, retired in 2006 with a going-away present from the shareholders of $400,000,000.
America continues to soil itself. Ho, hum.
So what is the best anti-poverty program? Higher wages for the jobs that are out there, currently yielding impossibly low annual incomes. The current American minimum wage ranges between $7.25 and $8.67 per hour. From time to time senior executives of Wal-Mart call for a rise in the minimum wage since, in the words of one former CEO, Lee Scott, “our customers simply don’t have the money to buy basic necessities between pay checks.” The minimum wage in Ontario, Canada, is currently well over $10 per hour, while in France it now stands at nearly $13. Australia recently raised its minimum wage to over $16 per hour, and nonetheless has an unemployment rate of just 5 percent.
This is from The Twentieth Century by historian Howard Zinn, published 32 years ago. Hardly a word or a number would need to be changed today.
One percent of the nation owns a third of the wealth. The rest of the wealth is distributed in such a way as to turn those in the 99 percent against one another: small property owners against the propertyless, black against white, native-born against foreign-born, intellectuals and professionals against the uneducated and unskilled. These groups have resented one another and warred against one another with such vehemence and violence as to obscure their common position as sharers of leftovers in a very wealthy country…
In this uncertain situation of the seventies, going into the eighties, it is very important to the Establishment — that uneasy club of business executives, generals and politicos — to maintain the historic pretension of national unity, in which the government represents all the people, and the common enemy is overseas, not at home, where disasters of economics or war are unfortunate errors or tragic accidents, to be corrected by the members of the same club that brought the disasters. It is important also to make sure this artificial unity of highly privileged and slightly privileged is the only unity — that the 99 percent remain split in countless ways and turn against one another to vent their angers.
How skillful to tax the middle class to pay for the relief of the poor, building resentment on top of humiliation! How adroit to bus poor black youngsters into poor white neighborhoods while the schools of the rich remain untouched and the wealth of the nation, doled out carefully where children need free milk, is drained for billion-dollar aircraft carriers.
Willard Romney, eBay’s current top bidder for the GOP presidential nomination, is the proud owner of no less than six homes.
Romney’s personal real estate includes six homes: one in La Jolla, two in the Boston area, a ski lodge in Utah and two lakeside residences in New Hampshire.
No word on whether any of those homes have a dog strapped to the roof.
Here are some assumptions that I think it is safe to make from the above list:
1) Willard’s houses will all abut nicely paved roads. After all, he wouldn’t want to risk gravel dings on any of his wife’s Cadillacs. Who paved those roads? That’d be “the government.” Who paid for that roadwork? That’d be “the taxpayers.”
2) Willard’s houses will all be hooked up to a sewer line. Said line will feed into a municipal system and ultimately a treatment plant. Who runs those? That’d be “the government.”
3) Willard undoubtedly sits placidly in each of his six houses, untroubled by the prospect that any of them are likely to collapse about his head. How can he do this? Because those houses will have been built to code. Whence cometh this code? That’d be “the government.” This same code also means that our Willard doesn’t have to spend any of his valuable time worrying that faulty electrical wiring will reduce his home to a pile of ashes. (Of course, if he turns out to be wrong about that, the help will promptly call the socialist Fire Department.)
4) I know nothing of the geography of Boston. But it’s safe to say that Willard’s two houses in Boston will be in the nicest parts of town. What makes them so nice? One thing would be well-maintained roads, which we’ve already covered. Another would be a solid police presence, in the form of either regular patrols or prompter response times should there be trouble. Government and taxes at work, once again.
5) La Jolla I’m more familiar with. Let’s say that Willard’s home there has a lovely ocean view. What makes that ocean view so lovely? One of those things would be government protection of coastal areas. And I’d be willing to bet there are some very nifty zoning laws that help to keep the ocean view unobstructed.
6) We can make similar assumptions about the lakeside residences in New Hampshire. Willard simply would not live next to a lake that was a fetid pool of waste and pollution. What keeps those waterways so pristine? One way or another, that will be overseen by that terrible horrible no-good very bad government.
The evidence is clear — Mitt Romney is a lousy stinking socialist! You don’t hear him denouncing any of these benefits he receives from the Government, do you? Nope. Not a peep. That means he must approve of them.
That, of course, is always how it is: It’s only “socialism” when it benefits someone else. (Especially if that someone else’s skin tone is darker than beige.)
This is a letter dated 17th July 1902 to Mr. W.F. Clark of Wilkes Barre, Pennsylvania, from George F. Baer, president of the Philadephia & Reading Railway Company. Mr. Clark had urged Mr. Baer to end an ongoing strike of his railroad:
I see that you are a religious man; but you are evidently biased in favor of the right of the working man to control a business in which he has no other interest than to secure fair wages for the work he does.
I beg of you not to be discouraged. The rights and interests of the laboring man will be protected and cared for — not by the labor agitators, but by the Christian men to whom God in His infinite wisdom has given the control of the property interests of the country, and upon the successful management of which so much depends. Do not be discouraged. Pray earnestly that right may triumph, always remembering that the Lord God Omnipotent still reigns, and that His reign is one of law and order, and not of violence and crime.
The Hearst paper in New York said, “The pious pirate is no new thing. Baer and the relations between a just God and the thieving trusts must be left to the pulpit for adequate treatment.” The Times said the letter “verged very close upon unconscious blasphemy.”
The religious newspapers went farther. From Chicago: “selfish ignorant cant that this captain of industry mistakes for religion. This is the sort of thing that makes anarchists.”
From New York: “A ghastly blasphemy.”
From Boston: “The doctrine of the divine right of kings was bad enough, but not so intolerable as the doctrine of the divine right of plutocrats to administer things in general with the presumption that what it pleases them to do is the will of God.”
Today these hostile reactions from the MSM of 1902 read as odd relics of the nation’s remote pre-Christian past. Today Mr. Baer’s views have become the guiding principle of one of America’s two large — I can’t bring myself to say great — political parties.
From Ezra Klein:
“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”
Whitney Houston died over the weekend at the age of 48. Everyone who heard the sad news agrees this is tragically young.
However, if Whitney Houston were sending out résumés at the age of 48, everyone who received one would agree that this is much too old.
In August of 1910, former President Theodore Roosevelt delivered in Osawatomie, Kansas, a speech in which he laid out what he hoped would become the fundamental beliefs of the Republican Party.
Here is part of what he said:
The new Nationalism puts the National need before sectional or personal advantage. It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock.
This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative body shall represent all the people rather than any one class or section of the people…
The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows…
We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community.
Here is all of what President Obama said earlier today in Osawatomie. I hope you will read it all, after the jump. The president has found his true voice at last. See if you agree. I have posted the remainder of his speech after the jump.
Good afternoon. I want to start by thanking a few of the folks who’ve joined us today. We’ve got the mayor of Osawatomie, Phil Dudley; your superintendent, Gary French; the principal of Osawatomie High, Doug Chisam. And I’ve brought your former governor, who’s now doing an outstanding job as our Secretary of Health and Human Services, Kathleen Sebelius……
It is great to be back in the state of Kansas. As many of you know, I’ve got roots here. I’m sure you’re all familiar with the Obamas of Osawatomie. Actually, I like to say that I got my name from my father, but I got my accent — and my values — from my mother. She was born in Wichita. Her mother grew up in Augusta. And her father was from El Dorado. So my Kansas roots run deep.
My grandparents served during World War II — he as a soldier in Patton’s Army, she as a worker on a bomber assembly line. Together, they shared the optimism of a nation that triumphed over a Depression and fascism. They believed in an America where hard work paid off, responsibility was rewarded, and anyone could make it if they tried — no matter who you were, where you came from, or how you started out.
These values gave rise to the largest middle class and the strongest economy the world has ever known. It was here, in America, that the most productive workers and innovative companies turned out the best products on Earth, and every American shared in that pride and success — from those in executive suites to middle management to those on the factory floor. If you gave it your all, you’d take enough home to raise your family, send your kids to school, have your health care covered, and put a little away for retirement.
Today, we are still home to the world’s most productive workers and innovative companies. But for most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefitted from that success. Those at the very top grew wealthier from their incomes and investments than ever before. But everyone else struggled with costs that were growing and paychecks that weren’t — and too many families found themselves racking up more and more debt just to keep up.
For many years, credit cards and home equity loans papered over the harsh realities of this new economy. But in 2008, the house of cards collapsed. We all know the story by now: Mortgages sold to people who couldn’t afford them, or sometimes even understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets — and huge bonuses — made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.
It was wrong. It combined the breathtaking greed of a few with irresponsibility across the system. And it plunged our economy and the world into a crisis from which we are still fighting to recover. It claimed the jobs, homes, and the basic security of millions — innocent, hard-working Americans who had met their responsibilities, but were still left holding the bag.
Ever since, there has been a raging debate over the best way to restore growth and prosperity; balance and fairness. Throughout the country, it has sparked protests and political movements — from the Tea Party to the people who have been occupying the streets of New York and other cities. It’s left Washington in a near-constant state of gridlock. And it’s been the topic of heated and sometimes colorful discussion among the men and women who are running for president.
But this isn’t just another political debate. This is the defining issue of our time. This is a make or break moment for the middle class, and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, and secure their retirement.
Now, in the midst of this debate, there are some who seem to be suffering from a kind of collective amnesia. After all that’s happened, after the worst economic crisis since the Great Depression, they want to return to the same practices that got us into this mess. In fact, they want to go back to the same policies that have stacked the deck against middle-class Americans for too many years. Their philosophy is simple: we are better off when everyone is left to fend for themselves and play by their own rules.
Well, I’m here to say they are wrong. I’m here to reaffirm my deep conviction that we are greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, and when everyone plays by the same rules. Those aren’t Democratic or Republican values; 1% values or 99% values. They’re American values, and we have to reclaim them.
You see, this isn’t the first time America has faced this choice. At the turn of the last century, when a nation of farmers was transitioning to become the world’s industrial giant, we had to decide: would we settle for a country where most of the new railroads and factories were controlled by a few giant monopolies that kept prices high and wages low? Would we allow our citizens and even our children to work ungodly hours in conditions that were unsafe and unsanitary? Would we restrict education to the privileged few? Because some people thought massive inequality and exploitation was just the price of progress.
Theodore Roosevelt disagreed. He was the Republican son of a wealthy family. He praised what the titans of industry had done to create jobs and grow the economy. He believed then what we know is true today: that the free market is the greatest force for economic progress in human history. It’s led to a prosperity and standard of living unmatched by the rest of the world.
But Roosevelt also knew that the free market has never been a free license to take whatever you want from whoever you can. It only works when there are rules of the road to ensure that competition is fair, open, and honest. And so he busted up monopolies, forcing those companies to compete for customers with better services and better prices. And today, they still must. He fought to make sure businesses couldn’t profit by exploiting children, or selling food or medicine that wasn’t safe. And today, they still can’t.
In 1910, Teddy Roosevelt came here, to Osawatomie, and laid out his vision for what he called a New Nationalism. “Our country,” he said, “…means nothing unless it means the triumph of a real democracy…of an economic system under which each man shall be guaranteed the opportunity to show the best that there is in him.”
For this, Roosevelt was called a radical, a socialist, even a communist. But today, we are a richer nation and a stronger democracy because of what he fought for in his last campaign: an eight hour work day and a minimum wage for women; insurance for the unemployed, the elderly, and those with disabilities; political reform and a progressive income tax.
Today, over one hundred years later, our economy has gone through another transformation. Over the last few decades, huge advances in technology have allowed businesses to do more with less, and made it easier for them to set up shop and hire workers anywhere in the world. And many of you know firsthand the painful disruptions this has caused for a lot of Americans.
Factories where people thought they would retire suddenly picked up and went overseas, where the workers were cheaper. Steel mills that needed 1,000 employees are now able to do the same work with 100, so that layoffs were too often permanent, not just a temporary part of the business cycle. These changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs or the internet. Today, even higher-skilled jobs like accountants and middle management can be outsourced to countries like China and India. And if you’re someone whose job can be done cheaper by a computer or someone in another country, you don’t have a lot of leverage with your employer when it comes to asking for better wages and benefits — especially since fewer Americans today are part of a union.
Now, just as there was in Teddy Roosevelt’s time, there’s been a certain crowd in Washington for the last few decades who respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If only we cut more regulations and cut more taxes — especially for the wealthy — our economy will grow stronger. Sure, there will be winners and losers. But if the winners do really well, jobs and prosperity will eventually trickle down to everyone else. And even if prosperity doesn’t trickle down, they argue, that’s the price of liberty.
It’s a simple theory — one that speaks to our rugged individualism and healthy skepticism of too much government. It fits well on a bumper sticker. Here’s the problem: It doesn’t work. It’s never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.
Remember that in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history, and what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class — things like education and infrastructure; science and technology; Medicare and Social Security.
Remember that in those years, thanks to some of the same folks who are running Congress now, we had weak regulation and little oversight, and what did that get us? Insurance companies that jacked up people’s premiums with impunity, and denied care to the patients who were sick. Mortgage lenders that tricked families into buying homes they couldn’t afford. A financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy.
We simply cannot return to this brand of your-on-your-own economics if we’re serious about rebuilding the middle class in this country. We know that it doesn’t result in a strong economy. It results in an economy that invests too little in its people and its future. It doesn’t result in a prosperity that trickles down. It results in a prosperity that’s enjoyed by fewer and fewer of our citizens.
Look at the statistics. In the last few decades, the average income of the top one percent has gone up by more than 250%, to $1.2 million per year. For the top one hundredth of one percent, the average income is now $27 million per year. The typical CEO who used to earn about 30 times more than his or her workers now earns 110 times more. And yet, over the last decade, the incomes of most Americans have actually fallen by about six percent.
This kind of inequality — a level we haven’t seen since the Great Depression – hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, it drags down the entire economy, from top to bottom. America was built on the idea of broad-based prosperity — that’s why a CEO like Henry Ford made it his mission to pay his workers enough so that they could buy the cars they made. It’s also why a recent study showed that countries with less inequality tend to have stronger and steadier economic growth over the long run.
Inequality also distorts our democracy. It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and runs the risk of selling out our democracy to the highest bidder. And it leaves everyone else rightly suspicious that the system in Washington is rigged against them — that our elected representatives aren’t looking out for the interests of most Americans.
More fundamentally, this kind of gaping inequality gives lie to the promise at the very heart of America: that this is the place where you can make it if you try. We tell people that in this country, even if you’re born with nothing, hard work can get you into the middle class; and that your children will have the chance to do even better than you. That’s why immigrants from around the world flocked to our shores.
And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. A few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance fell to around 40%. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a 1 in 3 chance of making it to the middle class.
It’s heartbreaking enough that there are millions of working families in this country who are now forced to take their children to food banks for a decent meal. But the idea that those children might not have a chance to climb out of that situation and back into the middle class, no matter how hard they work? That’s inexcusable. It’s wrong. It flies in the face of everything we stand for.
Fortunately, that’s not a future we have to accept. Because there’s another view about how we build a strong middle class in this country — a view that’s truer to our history; a vision that’s been embraced by people of both parties for more than two hundred years.
It’s not a view that we should somehow turn back technology or put up walls around America. It’s not a view that says we should punish profit or success or pretend that government knows how to fix all society’s problems. It’s a view that says in America, we are greater together — when everyone engages in fair play, everyone gets a fair shot, everyone does their fair share.
So what does that mean for restoring middle-class security in today’s economy?
It starts by making sure that everyone in America gets a fair shot at success. The truth is, we’ll never be able to compete with other countries when it comes to who’s best at letting their businesses pay the lowest wages or pollute as much as they want. That’s a race to the bottom that we can’t win — and shouldn’t want to win. Those countries don’t have a strong middle-class. They don’t have our standard of living.
The race we want to win — the race we can win — is a race to the top; the race for good jobs that pay well and offer middle-class security. Businesses will create those jobs in countries with the highest-skilled, highest-educated workers; the most advanced transportation and communication; the strongest commitment to research and technology.
The world is shifting to an innovation economy. And no one does innovation better than America. No one has better colleges and universities. No one has a greater diversity of talent and ingenuity. No one’s workers or entrepreneurs are more driven or daring. The things that have always been our strengths match up perfectly with the demands of this moment.
But we need to meet the moment. We need to up our game. And we need to remember that we can only do that together.
It starts by making education a national mission — government and businesses; parents and citizens. In this economy, a higher education is the surest route to the middle class. The unemployment rate for Americans with a college degree or more is about half the national average. Their income is twice as high as those who don’t have a high school diploma. We shouldn’t be laying off good teachers right now — we should be hiring them. We shouldn’t be expecting less of our schools — we should be demanding more. We shouldn’t be making it harder to afford college — we should be a country where everyone has the chance to go.
In today’s innovation economy, we also need a world-class commitment to science, research, and the next generation of high-tech manufacturing. Our factories and their workers shouldn’t be idle. We should be giving people the chance to get new skills and training at community colleges, so they can learn to make wind turbines and semiconductors and high-powered batteries. And by the way — if we don’t have an economy built on bubbles and financial speculation, our best and brightest won’t all gravitate towards careers in banking and finance. Because if we want an economy that’s built to last, we need more of those young people in science and engineering. This country shouldn’t be known for bad debt and phony profits. We should be known for creating and selling products all over the world that are stamped with three proud words: Made in America.
Today, manufacturers and other companies are setting up shop in places with the best infrastructure to ship their products, move their workers, and communicate with the rest of the world. That’s why the over one million construction workers who lost their jobs when the housing market collapsed shouldn’t be sitting at home with nothing to do. They should be rebuilding our roads and bridges; laying down faster railroads and broadband; modernizing our schools — all the things other countries are already doing to attract good jobs and businesses to their shores.
Yes, businesses, not government, will always be the primary generator of good jobs with incomes that lift people into the middle class and keep them there. But as a nation, we have always come together, through our government, to help create the conditions where both workers and businesses can succeed. Historically, that hasn’t been a partisan idea. Franklin Roosevelt worked with Democrats and Republicans to give veterans of World War II, including my grandfather, the chance to go to college on the GI Bill. It was Republican President Dwight Eisenhower, a proud son of Kansas, who started the interstate highway system and doubled-down on science and research to stay ahead of the Soviets.
Of course, those productive investments cost money. And so we’ve also paid for these investments by asking everyone to do their fair share. If we had unlimited resources, no one would ever have to pay any taxes and we’d never have to cut any spending. But we don’t have unlimited resources. And so we have to set priorities. If we want a strong middle class, then our tax code must reflect our values. We have to make choices.
Today that choice is very clear. To reduce our deficit, I’ve already signed nearly $1 trillion of spending cuts into law, and proposed trillions more — including reforms that would lower the cost of Medicare and Medicaid.
But in order to actually close the deficit and get our fiscal house in order, we have to decide what our priorities are. Most immediately, we need to extend a payroll tax cut that’s set to expire at the end of this month. If we don’t do that, 160 million Americans will see their taxes go up by an average of $1,000, and it would badly weaken our recovery.
But in the long term, we have to rethink our tax system more fundamentally. We have to ask ourselves: Do we want to make the investments we need in things like education, and research, and high-tech manufacturing? Or do we want to keep in place the tax breaks for the wealthiest Americans in our country? Because we can’t afford to do both. That’s not politics. That’s just math.
So far, most of the Republicans in Washington have refused, under any circumstances, to ask the wealthiest Americans to go the same tax rates they were paying when Bill Clinton was president.
Now, keep in mind, when President Clinton first proposed these tax increases, folks in Congress predicted they would kill jobs and lead to another recession. Instead, our economy created nearly 23 million jobs and we eliminated the deficit. Today, the wealthiest Americans are paying the lowest taxes in over half a century. This isn’t like in the early 50s, when the top tax rate was over 90%, or even the early 80s, when it was about 70%. Under President Clinton, the top rate was only about 39%. Today, thanks to loopholes and shelters, a quarter of all millionaires now pay lower tax rates than millions of middle-class households. Some billionaires have a tax rate as low as 1%. One percent.
This is the height of unfairness. It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay a higher tax rate than somebody pulling in $50 million. It is wrong for Warren Buffett’s secretary to pay a higher tax rate than Warren Buffett. And he agrees with me. So do most Americans — Democrats, Independents, and Republicans. And I know that many of our wealthiest citizens would agree to contribute a little more if it meant reducing the deficit and strengthening the economy that made their success possible.
This isn’t about class warfare. This is about the nation’s welfare. It’s about making choices that benefit not just the people who’ve done fantastically well over the last few decades, but that benefits the middle class, and those fighting to get to the middle class, and the economy as a whole.
Finally, a strong middle class can only exist in an economy where everyone plays by the same rules, from Wall Street to Main Street. As infuriating as it was for all of us, we rescued our major banks from collapse, not only because a full blown financial meltdown would have sent us into a second Depression, but because we need a strong, healthy financial sector in this country.
But part of the deal was that we would not go back to business as usual. That’s why last year we put in place new rules of the road that refocus the financial sector on this core purpose: getting capital to the entrepreneurs with the best ideas, and financing to millions of families who want to buy a home or send their kids to college. We’re not all the way there yet, and the banks are fighting us every inch of the way. But already, some of these reforms are being implemented. If you’re a big bank or risky financial institution, you’ll have to write out a “living will” that details exactly how you’ll pay the bills if you fail, so that taxpayers are never again on the hook for Wall Street’s mistakes. There are also limits on the size of banks and new abilities for regulators to dismantle a firm that goes under. The new law bans banks from making risky bets with their customers’ deposits, and takes away big bonuses and paydays from failed CEOs, while giving shareholders a say on executive salaries.
All that is being put in place as we speak. Now, unless you’re a financial institution whose business model is built on breaking the law, cheating consumers, or making risky bets that could damage the entire economy, you have nothing to fear from these new rules. My grandmother worked as a banker for most of her life, and I know that the vast majority of bankers and financial service professionals want to do right by their customers. They want to have rules in place that don’t put them at a disadvantage for doing the right thing. And yet, Republicans in Congress are already fighting as hard as they can to make sure these rules aren’t enforced.
I’ll give you one example. For the first time in history, the reform we passed puts in place a consumer watchdog who is charged with protecting everyday Americans from being taken advantage of by mortgage lenders, payday lenders or debt collectors. The man we nominated for the post, Richard Cordray, is a former Attorney General of Ohio who has the support of most Attorneys General, both Democrat and Republican, throughout the country.
But the Republicans in the Senate refuse to let him do his job. Why? Does anyone here think the problem that led to our financial crisis was too much oversight of mortgage lenders or debt collectors? Of course not. Every day we go without a consumer watchdog in place is another day when a student, or a senior citizen, or member of our Armed Forces could be tricked into a loan they can’t afford — something that happens all the time. Financial institutions have plenty of lobbyists looking out for their interests. Consumers deserve to have someone whose job it is to look out for them. I intend to make sure they do, and I will veto any effort to delay, defund, or dismantle the new rules we put in place.
We shouldn’t be weakening oversight and accountability. We should be strengthening them. Here’s another example. Too often, we’ve seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there’s no price for being a repeat offender. No more. I’ll be calling for legislation that makes these penalties count — so that firms don’t see punishment for breaking the law as just the price of doing business.
The fact is, this crisis has left a deficit of trust between Main Street and Wall Street. And major banks that were rescued by the taxpayers have an obligation to go the extra mile in helping to close that deficit. At minimum, they should be remedying past mortgage abuses that led to the financial crisis, and working to keep responsible homeowners in their home. We’re going to keep pushing them to provide more time for unemployed homeowners to look for work without having to worry about immediately losing their house. The big banks should increase access to refinancing opportunities to borrowers who have yet to benefit from historically low interest rates. And they should recognize that precisely because these steps are in the interest of middle-class families and the broader economy, they will also be in the banks’ own long-term financial interest.
Investing in things like education that give everybody a chance to succeed. A tax code that makes sure everybody pays their fair share. And laws that make sure everybody follows the rules. That’s what will transform our economy. That’s what will grow our middle class again. In the end, rebuilding this economy based on fair play, a fair shot, and a fair share will require all of us to see the stake we have in each other’s success. And it will require all of us to take some responsibility to that success.
It will require parents to get more involved in their children’s education, students to study harder, and some workers to start studying all over again. It will require greater responsibility from homeowners to not take out mortgages they can’t afford, and remember that if something seems too good to be true, it probably is.
It will require those of us in public service to make government more efficient, effective, and responsive to people’s needs. That’s why we’re cutting programs we don’t need, to pay for those we do. That’s why we’ve made hundreds of regulatory reforms that will save businesses billions of dollars. That’s why we’re not just throwing money at education, but challenging schools to come up with the most innovative reforms and the best results.
And it will require American business leaders to understand that their obligations don’t just end with their shareholders. Andy Grove, the former CEO of Intel put it best: “There’s another obligation I feel personally,” he said, “given that everything I’ve achieved in my career and a lot of what Intel has achieved…were made possible by a climate of democracy, an economic climate and investment climate provided by…the United States.”
This broader obligation can take different forms. At a time when the cost of hiring workers in China is rising rapidly, it should mean more CEOs deciding that it’s time to bring jobs back to the United States — not just because it’s good for business, but because it’s good for the country that made their business and their personal success possible.
I think about the Big Three Auto companies who, during recent negotiations, agreed to create more jobs and cars in America; who decided to give bonuses, not just to their executives, but to all their employees — so that everyone was invested in the company’s success.
I think about a company based in Warroad, Minnesota called Marvin Windows and Doors. During the recession, Marvin’s competitors closed dozens of plants and let go hundreds of workers. But Marvin didn’t lay off a single one of their four thousand or so employees. In fact, they’ve only laid off workers once in over a hundred years. Mr. Marvin’s grandfather even kept his eight employees during the Depression.
When times get tough, the workers agree to give up some perks and pay, and so do the owners. As one owner said, “You can’t grow if you’re cutting your lifeblood — and that’s the skills and experience your workforce delivers.” For the CEO, it’s about the community: “These are people we went to school with,” he said. “We go to church with them. We see them in the same restaurant. Indeed, a lot of us have married local girls and boys. We could be anywhere. But we are in Warroad.”
That’s how America was built. That’s why we’re the greatest nation on Earth. That’s what our greatest companies understand. Our success has never just been about survival of the fittest. It’s been about building a nation where we’re all better off. We pull together, we pitch in, and we do our part, believing that hard work will pay off; that responsibility will be rewarded; and that our children will inherit a nation where those values live on.
And it is that belief that rallied thousands of Americans to Osawatomie — maybe even some of your ancestors — on a rain-soaked day more than a century ago. By train, by wagon, on buggy, bicycle, and foot, they came to hear the vision of a man who loved this country, and was determined to perfect it.
“We are all Americans,” Teddy Roosevelt told them that day. “Our common interests are as broad as the continent.” In the final years of his life, Roosevelt took that same message all across this country, from tiny Osawatomie to the heart of New York City, believing that no matter where he went, or who he was talking to, all would benefit from a country in which everyone gets a fair chance.
Well into our third century as a nation, we have grown and changed in many ways since Roosevelt’s time. The world is faster. The playing field is larger. The challenges are more complex.
But what hasn’t changed – what can never change – are the values that got us this far. We still have a stake in each other’s success. We still believe that this should be a place where you can make it if you try. And we still believe, in the words of the man who called for a New Nationalism all those years ago, “The fundamental rule in our national life – the rule which underlies all others — is that, on the whole, and in the long run, we shall go up or down together.”
I believe America is on its way up. Thank you, God bless you, and may God bless the United States of America.
We need more rich persons like this:
…I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc.
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer…
From Edward O. Wilson’s On Human Nature:
I suggest that we will want to give [universal human rights] primary status not because it is a divine ordinance…or through obedience to an abstract principle of unknown extraneous origin, but because we are mammals. Our societies are based on the mammalian plan: the individual strives for personal reproductive success foremost and that of his immediate kin secondarily; further grudging cooperation represents a compromise struck in order to enjoy the benefits of group membership.
A rational ant — let us imagine for a moment that ants and other social insects had succeeded in evolving high intelligence — would find such an arrangement biologically unsound and the very concept of individual freedom intrinsically evil. We will accede to universal rights because power is too fluid in advanced technological societies to circumvent this mammalian imperative; the long-term consequences of inequity will always be visibly dangerous to its temporary beneficiaries. I suggest that this is the true reason for the universal rights movement and that an understanding of its raw biological causation will be more compelling in the end than any rationalization contrived by culture to reinforce and euphemize it.
Is Dr. Wilson right? “In the end,” who knows? At present, in the United States at any rate, the biological consequences of inequity are invisible to its temporary beneficiaries.
One of the great puzzlements in politics is the lock that the GOP has on businessmen, from Main Street to corporate America. Are they blind to their own self interest? The truth is out there, after all, and not hard to find.
By virtually every measure, over the lifetimes of every voter in the country, Democratic administrations have been better for the economy than Republican ones. Not by a little, either. By a lot.
In a sense this is a vindication of the GOP’s economic principles, which are the opposite of its actual practices once in power. The GOP, in fact rather than in theory, is historically the party of big deficits and big government. Reagan busted the budget. Clinton balanced it. Bush busted it again, even worse.
What’s going on, then? Are all these tough-minded, hard-nosed, bottom-line business men actually suckers? Well, yes and no. Yes if the businessmen are engaged in what Samuel Ricard called gentle commerce. This is positive-sum commerce, in which both parties profit from a transaction. It characterizes much of what we thing of as Small Business and it largely depends on return customers.
But the answer is no if the businessmen are engaged in zero-sum transactions where there is a loser for every winner. Think of a monopoly electric utility, as we are doing so unhappily in Connecticut right now. Think of a broker selling a mortgage to a man who can’t afford it. Think of most of the credit “industry.” These people don’t need to care if they cost the other fellow his job, his health or his home; they’ve got yours, Jack, and now they’re off to the Hamptons with it.
When they win, everybody else loses. This is one of the reasons for the seemingly odd disconnect between the Dow Jones Industrial Average and the real economy in which most of us live. After all, profits go up when you fire workers.
The small businessman easily grasps this point, and so he votes Republican in order to bust the unions and do away with the minimum wage — even, if Newt Gingrich has his way, to bring back child labor. He only grasps when it’s too late the further point that fired workers can no longer afford to be his customers.
Wall Street and the corporations may grasp the point, but don't much care. Their operating principle is that of those Enron energy traders who cashed out after collapsing California’s economy — IBG, YBG. I’ll Be Gone, You’ll Be Gone.
More tomorrow on the role played by budget deficits in implementing this great Republic moral principle. (As a member of the Democrat Party, I guess I can turn Republic into an adjective if I want to…)
I’m seeing some tut-tutting around the blogosphere over this:
To our knowledge, Jay-Z has not been to Occupy Wall Street, or any other Occupies across the world. Yet he was recently seen wearing a t-shirt that read “Occupy All Streets,” with the W in “Wall” crossed off and the S added. His clothing company, Rocawear, is about to start selling said shirts. None of the profits, thus far, are scheduled to go back to Occupy Wall Street.
It seems to me we’re missing out on a teachable moment here.
Here’s the thing. You pay Jay-Z for a t-shirt, and whaddya get? You get a t-shirt. You’re supposed to get a t-shirt, ’cause you paid for it. That’s what we used to call “business.”
Compare and contrast with the way our Wall Street friends operate. You pay for a house and wind up with nothing. You pay for retirement and wind up with nothing. You pay for an investment and wind up with nothing. That’s what we used to call “fraud.”
But now it’s what we call “business.”
I suppose it says something about the woeful state of this country that mere hucksterism and crass exploitation seem more straightforward and honest than the institutions that currently control our national policies.
Read Krugman today. And copy your Congressperson if he, she or it is a Republican. In a nutshell:
…But a funny thing happened on the way to economic Armageddon: Iceland’s very desperation made conventional behavior impossible, freeing the nation to break the rules. Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net. Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver.
So how’s it going? Iceland hasn’t avoided major economic damage or a significant drop in living standards. But it has managed to limit both the rise in unemployment and the suffering of the most vulnerable; the social safety net has survived intact, as has the basic decency of its society…
From The Acquisitive Society, by R.H. Tawney (1920)
All these rights — ground-rents, monopoly profits — are “Property.” The criticism most fatal to theml is not that of Socialists. It is contained in the arguments by which property is usually defended. For if the meaning of the institution is to encourage industry by securing that the workman shall receive the produce of his toil, then precisely in proportion as it is important to preserve the property which a man has in the results of his own efforts, is it important to abolish that which he has in the results of the efforts of someone else.
The considerations which justify ownership as a function are those which condemn it as a tax. Property is not theft, but a good deal of theft becomes property. The owner of royalties who, when asked why he should be paid £50,000 a year from minerals which he has neither discovered or developed nor worked but only owned, replies, “But it’s property!” may feel all the awe which his language suggests. But in reality he is behaving like the snake which sinks into its background by pretending that it is the dead branch of a tree, or the lunatic who tries to catch rabbits by sitting behind a hedge and making a noise like a turnip. He is practising protective — and sometimes aggressive — mimicry. His sentiments about property are those of the simple toiler who fears that what he has sown another may reap. His claim is to be allowed to reap what another has sown…
In countries where the development of industrial organization has separated the ownership of property and the performance of work, the normal effect of private property is to transfer to functionless owners the surplus arising from the more fertile sites, the better machinery, the more elaborate organization…
It is the foundation of an inequality which is not accidental or temporary, but necessary and permanent. And on this inequality is erected the whole apparatus of class institutions, which make not only the income, but the housing, education, health and manners, indeed the very physical appearance of different classes of Englishmen almost as different from each other as though the minority were alien settlers established amid the rude civilization of race of impoverished aborigines.
Rep. Ritch Workman, R-Melbourne, filed a bill this week to bring back “dwarf tossing,” the barbaric and dangerous barroom spectacle that was imported from Australia and thrived briefly in Florida before it was outlawed in 1989.
“I’m on a quest to seek and destroy unnecessary burdens on the freedom and liberties of people,” Workman said. “This is an example of Big Brother government.
“All that it does is prevent some dwarfs from getting jobs they would be happy to get,” Workman said. “In this economy, or any economy, why would we want to prevent people from getting gainful employment?”
I suppose there are the obvious observations: In the midst of what is a Depression in all but name, this is what a (nominal) public servant decides to focus on??? Just how many jobs does Workman think this move is going to create? Are there a lot of little people clamoring for this particular remedy? Did it not perhaps occur to Mr. Workman that maybe — just maybe — the “jobs they would be happy to get” are the same jobs the rest of us would be happy to get? Y’know — the ones that pay decently and offer benefits, like our parents’ jobs generally did in a bygone age?
But apart from the WTF quality of this particular proposal, there is something deeper. Namely that Mr. Workman and his fellow Republicans consistently see “freedom” in terms of the crassest exploitation. That Terrible Horrible No-Good Very Bad government is preventing the free market from exploiting dwarfs! Surely there is no other word for this but Tyranny. And just as surely it must be as beneficial to dwarfs to be exploited as it is for those who would exploit them!
Or children, for that matter — as the various state-level proposals from our Republican friends to do away with child-labor laws demonstrate.
So dwarfs opting to be tossed — that’s Freedom! Of course, if these same individuals were to decide to congregate outside Mr.Workman’s office to demand decent jobs and real economic fairness, I have no doubt that he would waste no time in denouncing them as un-American. Such is the compassion of today’s conservatives.
The point, which Teddy Roosevelt was the last Republican president to grasp, is that the natural and inevitable result of “free market” competition is not efficiency, invention, a level playing field, personal freedom, or the greatest good for the greatest number. It is monopoly.
This is what the Republican small government types would fear if they had a clue. Not government regulation. Ask anyone for his or her worst experiences with unresponsive, uncaring, indifferent, and rapacious bureaucracies. The answer will seldom be the Post Office or the Social Security Administration or even the Department of Motor Vehicles.
Nine times out of ten it will be a bank, an insurance company, a giant utililty, a cable provider. You can’t vote the rascals out. There is no congressman to complain to. You haven’t got a hope of successfully suing them. Corporate decisions are unappealable, mercilessly and mindlessly enforced by courts and bill collectors.
You can’t even get past the phone tree to speak to anybody in actual authority. Such people must exist, but they are faceless and unaccountable. You are in Kafka country. Just ask any of the poor bastards defrauded and evicted in the great mortgage swindle that blew up the economy for everyone but the bankers responsible.
This is the “big government” the useful idiots of the Tea Party ought to fear. Instead they are speeding its arrival. Perhaps it has already arrived. Look at the chart.
The only thing capable of standing in its way is the regulatory authority of the “big government” that the boobies have been taught to fear. Indeed it may already be too late. The Citizens United decision and the corporate-owned Congress and Obama’s economic team may have seen to that.
In which case God bless us all, and Tiny Tim Geithner.
We look back at the Great Depression and out the window at our present one, and wonder why we never seem to learn from our mistakes. At the cycle of deficits and income inequality and again wonder why. At Vietnam and Iraq and wonder why. Are we blind? Amnesiacs? Idiots?
If an individual citizen presented with symptoms so repetitive and self-destructive, no psychiatrist would hesitate to pronounce him, in layman’s terms, crazy. Why can’t they — the conservatives of both parties — ever learn?
This, though, is to misunderstand matters. They have learned. The disasters brought on so predictably and persistently by Republican administrations were not, in their view, deplorable. They were, and are, great victories.
From the GOP’s point of view both Reagan’s and George W. Bush’s stewardships of the economy were not failures, but wildly successful. Wages stayed flat or dropped, unions were busted, public and private debt skyrocketed. Good news everywhere you looked — if you were a stock gambler or an asset-stripping takeover artist or a money lender. Jobs lost to assembly lines in China, call centers in India? Marvelous. Pointless and endless wars? God’s in his heaven, all’s right with the world. Without war what would become of war profiteers?
What would become of the rest of us, you ask? Who cares. We’ve got ours, Jack. And yours, too.
What happens every time a large company announces that they're going to fire thousands of people? Their stock goes up. Every. Time. So it seems to be a reasonable conclusion that our Wall Street friends love them some unemployment! Jobs mean wages, after all, and wages come out of the bottom line. Bad wages! Terrible horrible no-good very bad wages!
And yet, today we have this:
The major U.S. stock indices fell at the open Friday morning and continued falling, on the heels of a employment report that showed the jobless rate tick up to 9.2 percent in June...
So... Wall Street doesn't love them some unemployment? I'm terribly confused now.
I guess no one could have foreseen that when you do everything you can to eliminate jobs, the end result is likely to be, y'know, a lot of people without jobs…
… they’re even worse, Philip Green argues in Logos. Excerpts:
…Thus the extension of the rule of law to encompass governance over the destructive powers of the free market for labor has often been the most important arena of all for the protection of democratic citizenship. If the dogma of the market rules over all, there can be no democratic political equality: One law for the Lion & Ox is oppression…
As though to underline a reality that the commentariat prefers to ignore, the invasion and occupation of Iraq was followed by the abolition of all Ba’athist legislation: except for the outlawing of unionization in the dominant public sector — including the nationalized oil industry — which the American occupiers left in force. Capital’s class war knows no boundaries…
Put simply, the wealthy won’t pay for public goods or collective welfare, and the declining middle class can’t. To take but one of many examples: the aging of the population is a pending demographic and policy disaster, yet the only approach ever discussed publicly is the destructive idea of cutting back or worse, privatizing social security — presumably so it can share the same visible fate as private pension-dependency and home ownership…
As for opposition to “big government,” this has always and only referred to extensions of the social safety net, of the possibilities of truly equal opportunity, never to the bigness of militarism and empire; let alone “the enormous increase in continuous, centrally organized and controlled intervention” that made the free market for labor possible.
As if America didn’t have enough wars already, we have before us the Epic Struggle between the Big Retailers and the Big Banks:
The battle of the “swipe fees” has been hard to miss the last few weeks. The big banks are spending millions of dollars on TV, radio and Internet ads telling us that the government should not limit the fees that they charge on debit card transactions. On the other side, a coalition of major retailers, such as Wal-Mart and Target, has been funding a comparable campaign to stop the banks’ gouging.
So far so good. It’s like the Iran-Iraq War — who the hell are we supposed to root for???? But then there’s this:
In this case, Wal-Mart is on the side of the angels; small businesses and consumers will win if they prevail. This is an important battle in its own right, but even more important as a lesson in effective politics.
Read the rest of the piece — it makes its point succinctly and effectively, and needs no help from me. But the looming brouhaha illustrates something that no one ever points out: Those terrible, horrible, no-good, very bad regulations that businesses like to complain about frequently have the curious effect of protecting or benefitting, y’know, business.
This is the dirtiest of dirty little secrets in our current discourse.
From the Associated Press, 9:52 a.m:
WASHINGTON — The number of people applying for unemployment benefits surged last week to the highest level in eight months, a sign the job market may be weakening.
The Labor Department says applications rose by 43,000 to 474,000 in the week ended April 30, the third increase in four weeks. The four-week average, a less volatile measure, rose for the fourth straight week to 431,250.
From the Associated Press, 9:52 a.m:
NEW YORK — Wal-Mart Stores Inc. remains atop the Fortune 500 list.
The annual ranking, released Thursday, also shows that the largest U.S. companies have fared much better than ordinary Americans. Companies that made the Fortune 500 this year posted the third-largest combined profit gain in the lists’ history.
Fortune Magazine compiled its list based on revenue for 2010. Editors say that companies increased profits by increasing productivity and cutting jobs. They also grew faster overseas than in the U.S.
An occasionally reliable source in Stockholm tells me he called Ikea the other day to complain about a sofa that was insufficiently bland. The woman who answered spoke excellent Swedish with just a hint of an Appalachian accent. “My name is Moonbeam McSwine,” she said. “How may I help you?”
David Sirota reports on Alternet:
Buried in the Times report is the troubling story of why Ikea opened a plant in the United States in the first place. No, the decision wasn’t made to take advantage of superior workforce skills or productivity — positive attributes that once drove our manufacturing sector and built our middle class. Instead, it was made to exploit our decreasing wage levels and weak worker protections.
Though company factories in Sweden produce the same bookcases as the plant in Virginia, the Times notes that “the big difference is that the Europeans enjoy a minimum wage of about $19 an hour and a government-mandated five weeks of paid vacation (while) full-time employees in Danville start at $8 an hour with 12 vacation days” — and that doesn’t count the one-third of Danville workers who are paid even less because they are subcontracted through temp agencies.
Ikea’s exploitation motive evokes memories of General Electric’s Jack Welch. He famously said that in an era without strong international unions and with standards-free trade pacts, profit-maximizing companies would end up putting “every plant you own on a barge” and trolling the world for the lowest wages and workplace conditions, knowing they would no longer face tariff costs.
I’ve just finished listening to President Obama’s speech laying out his plans to save the nation’s economy from Paul Ryan, the trust fund baby from Wisconsin.
No politically significant number of American voters watched along with me, because who watches long speeches in the middle of the day? (People whose minds are already made up, that’s who.) Too bad, since it was a simple, clear and convincing takedown of the Grand Old Tea Party’s plan to push our economy underwater for the third and final time.
However (you knew there’d be a however, didn’t you?), one thing struck me as the speech went along. Take a look:
We’ve laid down railroads and highways to facilitate travel and commerce…
We won’t be able to afford good schools, new research, or the repair of roads and bridges – all the things that will create new jobs and businesses here in America…
It’s a vision that says if our roads crumble and our bridges collapse, we can’t afford to fix them…
We’ll invest in medical research and clean energy technology. We’ll invest in new roads and airports and broadband access:
We are the nation that built a railroad across a continent and brought light to communities shrouded in darkness…
Every reference to railroads is in the past tense, as if no further attention needs to be paid. The golden spike got driven in 1869, after all. Maybe I’m making too much of what may have been an innocent and meaningless oversight. But in my experience major presidential addresses to the nation tend to be vetted pretty carefully by a great many players, each fighting for at least a mention of its pet projects. And not a historical mention.
Note: I love to say I told you so. At 8:18 p.m., CNN Radio moved the story from which this comes:
(CNN) — President Barack Obama’s plan for a national high-speed rail network suffered a serious setback as a result of the fight over budget cuts. No money will be allocated for high-speed rail projects for the remainder of 2011…
The budget bill says the amount of money for “Department of Transportation, Federal Railroad Administration, Capital Assistance for High Speed Rail Corridors and Intercity Passenger Rail Service shall be $0” for the remainder of fiscal year 2011. Another section of the bill rescinds $400 million from the funds that were already budgeted for high-speed rail in 2010…
This is from a Measure of America report which contains, along with a whole raft of other things you didn’t know, the following:
Rankings by state, for each major racial and ethnic group, on the American Human Development Index. The index reveals that the starkest disparities in well-being fall not between blacks and whites, but between Native Americans and Asian Americans. Asian Americans as a group top the rankings, with Asian Americans in New Jersey coming in at number one. If current trends continue, it will take Native Americans in South Dakota an entire century to catch up with where New Jersey Asian Americans are now in terms of life expectancy, educational enrollment and attainment, and median earnings.
If you’re as ill-informed as I was until just now, you’ve never heard of the Mondragon Cooperatives in the Basque country of Spain. The Rag Blog can fill the gap. Fascinating stuff. Here’s a sample:
In a few years, armed with these ideas, [Father Arizmendi] selected five graduating students from his technical school and with donations and borrowed funds from the credit union, his team of young workers formed a small cooperative workshop, ULGOR, named from one initial of each of the five students’ names.
It brought in about 20 more workers and started to produce a small but very practical kerosene stoves for cooking and heating. The single-burner stoves were much in demand and the coop thus thrived and grew. Today it’s called FAGOR, and its 8,000 current employee-owners in several divisions produce a wide range of high-quality household appliances sold across the world.
But this small startup in 1956 contained the first secret of MCC’s success — the three-in-one combination of school, credit union, and factory, all owned and controlled by the workers and the community. Starting a coop factory or workshop alone wouldn’t work; a startup also required a reliable source of credit and a source of skills and innovation.
Typically, an MCC coop is entirely owned by its workers — one worker, one share, one vote. Worker-owners get a salary that is a draw against their share of the firm’s annual profit, and is adjusted upward or downward at the end of the year. By Spanish cooperative law, a portion of the profits has to be turned over to the local community for schools, parks, and other common projects, The remainder is set aside for the repair and depreciation of plant and equipment, health care and pensions, and emergency reserves, as well as the workers’ salaries.
Technically, MCC worker-owners are thus not wage labor, but associated producers. There is an income spread, according to skill and seniority, but this is set and modified by the workers themselves meeting in an annual assembly. The assembly also elects a governing council, which in turn hires a CEO and management team.
David Rhode is a paramedic in Middleton, Wis. He works 56 hours a week, mostly in 24-hour shifts, frequently carrying wheezy patients up and down flights of stairs. He said he earns about $43,000 a year.
HuffPost asked Rhode, 36, how it feels to be overpaid. His eyebrows went up.
"I drove my Ford Focus here," he said. "I live in a 950-square-foot condominium!"
Luckily, this question is easily answered: Anyone who makes under $250,000 a year is overpaid. Anyone who make over $250,000 is underpaid.
Please make a note of it. It is, after all, one of the base assumptions of our current national discourse.
At a press conference this morning, Li’l Johnny “Where-are-the-jobs?” Boehner had this to say about the presumptive fallout from the GOP’s suggested budget cuts:
“In the last two years, under President Obama, the federal government has added 200,000 new federal jobs,” Boehner said. “If some of those jobs are lost so be it. We’re broke.”
Of course, he neglected to mention one thing: We’re broke because we choose to be. We’re broke because of a deliberate strategy of his party and his party’s backers to bankrupt this nation as a way of targeting those individuals, groups and programs of which they disapprove. (It’s what Grover Norquist means by “starve the beast.”)
And just to add to the fun, yesterday Obama spoke of “living within our means.” Jerry Brown said the same thing not too long ago — I guess this is what Democrats say now to look grown up. But it raises a question that no one seems to be asking anywhere: Just what are our means? A government has the means to increase revenue darn near anytime it wants to. It seems to me if we’re talking about maintaining the basic trappings of a society — which is a topic for another time — that a government has the duty to do so as well.
We’re fond of the metaphor of a family tightening its collective belt. Somehow we’ve overlooked one of the things families consider when they tally up the bills: How to bring more money into the house.
Just ask any parent working multiple jobs…
By coincidence I paid $3.31 for gasoline on the same day the Social Security Administration wrote to tell me that because there was so little inflation in 2010, no increase in my checks this year would be forthcomiong.
And various economists have lately been criticizing China for doing a pirouette with their statistics, accounting and budge figures. Thus they are not to be taken seriously.
And the price of gasoline in my hometown has risen 20 percent in the past year, although neither gasoline nor food prices are included in the official inflation rate issued by the government.
And various reasons are given for this oversight, but the real one is not. The real reason is that the government does not want the herd to know how much it is being sheared.
The same process works for unemployment figures. The so-called unemployment rate around here is 9.8 percent. Not included are the jobless sheep whose unemployment compensation has run out, those who never applied and those whose hours have been cut from full to part-time. The real unemployment rate is closer to 15 percent. Again the bureaucrats deny the real reason.
So the next time you read about China waltzing the numbers around, just remember the United States and its efforts to mislead.
From this lengthy article in today’s New York Times we learn once more why we should always read stories to the very end. Because that’s where the bitter truth is so oft interred.
WASHINGTON — Behind closed doors, Ben S. Bernanke, the Federal Reserve chairman, called it “the worst financial crisis in global history, including the Great Depression…”
Mr. Bernanke’s remarks, from a November 2009 interview with government investigators, were among the fresh details in the blow-by-blow chronicle of regulatory negligence and Wall Street recklessness released Thursday by a federal commission…
And, 25 paragraphs further on, the end:
But little on Wall Street has changed. One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis.
“In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said.
From last night’s State of the Union address:
For example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change. (Applause.)
Highest corporate taxes in the world? I hollered at the TV that this was Chamber of Commerce crap. Not being Rushbo, however, I checked before shooting off my mouth in public.
Turns out the answer is, it depends. Tax rates, as the President pointed out, can have little or no relationship to taxes actually paid. Every nation has its own complicated system of taxation, and direct comparisons are very difficult to make. But one method produced this result:
Other methods show our corporate taxes higher than some developed nations, lower than others. No pattern, at least that I could see, links corporate taxation convincingly either to economic success or failure.
I have no real problem with what the President may have been driving at in this section of his speech. To the extent that his vague and careful remarks meant anything at all, it seemed to be that the big corporations slime out of their taxes and leave Mom and Pop stores to make up the difference. Probably this is so. Certainly neither party will do much about it. This is America.
I’m sorry, however, that Mr. Obama went for a cheap applause line which reinforced the GOP’s ancient Big Lie: that Americans, poor babies, stagger through life under one of the world’s heaviest tax burdens.
But take a look at Business Pundit’s ranking of tax rates in 12 developed nations. Belgium taxes the most heavily, followed by Finland, Germany, Denmark, Italy and France; the United States is among the lowest — below Switzerland, but slightly above Australia, Canada, Japan, and the United Kingdom.
High taxes or low, only one country on the list can’t afford universal health care for its citizens. Again, this is America.
The excerpt below is from Upton Sinclair’s The Goose-Step: a Study of American Education. This quaint and curious volume of forgotten lore was published in 1923, even before Roe v. Wade. A thousand dollars then would be worth $12,795.50 today.
Or maybe it is medicine the young man has studied. He has heard about the nobleness of the healing art, but he has to keep an automobile and his wife wants to get into society, and competition is keen. There is one way a physician can make a thousand dollars by a few minutes’ work, and any physician who is in touch with the leisure class has women on their knees to him every week, begging him to take their money. Dr. William J. Robinson estimates that there are a million abortions performed in the United States every year, so you see that our medical schools have not steeled all their graduates against this temptation.
From Colonel Girdle:
About once a year I re-read Kurt Vonnegut’s brilliant 1990 novel, Hocus Pocus, a prescient satire about America in 2001 when the nation has been thoroughly raped by its capitalist owners & soldoff to other countries. Here is a brief excerpt taken from where the college professor protagonist recollects a speech given by the college’s writer in residence. A speech that causes consternation among the college’s board of trustees:
He predicted, I remember, that human slavery would come back, that it had in fact never gone away. He said that so many people wanted to come here because it was so easy to rob the poor people, who got absolutely no protection from the government. He talked about bridges falling down and water mains breaking because of no maintenance. He talked about oil spills and radioactive waste and poisoned aquifers and looted banks and liquidated corporations. “And nobody ever gets punished for anything,” he said. “Being an American means never having to say you’re sorry.”
Jeffrey Sachs is an interesting case. Obviously a brilliant academic, and in many ways a prime member of the economic establishment, he was involved in designing the so-called shock therapies administered 20-25 years ago to countries in financial difficulties, with disputed results. That is, the numbers look good — Bolivian inflation fell from 20,000% per year to 11% — but the resulting benefits may not have been fairly distributed. Of course it’s hard to know to what degree a single economist could influence that standard human course of action.
Nowadays Sachs is a consultant to UN Secretary-General Ban Ki-moon, and has become known as a promoter of not-quite-establishment ideas like environmental sustainability and poverty alleviation, in the process befriending Bono and Angelina Jolie. A celebrity economist for the slightly left of center crowd, in other words.
So it’s not surprising he’s pissed about Obama’s most recent giveaway. But he’s more than miffed; he’s predicting that the present course will generate a growing backlash, eventually resulting in a third party if the Democrats don’t change their ways.
This may take time. The level of political corruption in America is staggering. Everything now is about money to run electoral campaigns, which have become incredibly expensive. The midterm elections cost an estimated $4.5 billion, with most of the contributions coming from big corporations and rich contributors. These powerful forces, many of which operate anonymously under US law, are working relentlessly to defend those at the top of the income distribution.
But make no mistake: Both parties are implicated. There is already talk that Obama will raise $1 billion or more for his reelection campaign. That sum will not come from the poor.
The problem for the rich is that, other than military spending, there is no place to cut the budget other than in areas of core support for the poor and working class. Is America really going to cut health benefits and retirement income? Will it really balance the budget by slashing education spending at a time when US students already are being outperformed by their Asian counterparts? Will America really let its public infrastructure continue to deteriorate? The rich will try to push such an agenda, but ultimately they will fail.
It’s a hopeful outlook, at least. But he points out that the rich start this conflict with a big advantage:
…the richest 1 percent of American households now has a higher net worth than the bottom 90 percent. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.
This is openly class warfare being discussed by a former Harvard and current Columbia economics guru. I wonder what his fellow Columbia and Harvard graduate in the White House thinks of such a strategy. Sure would change things…
The half-way mark of Obama’s first term draws to an end. Most of the fine dreams that brought him to office have so far been frustrated. Worse, the dreamers on whose shoulders this presidency rode to Washington are alternately mocked and patronized, with the barely hidden assumption that anyone to the left of Wall Street is not a serious citizen, but instead is either a wild-eyed leftist who believes that wealth is evil, a bleeding heart who’d bankrupt the country for temporary and futile assistance to the needy, or a simpleton incapable of understanding the complex workings of modern economies.
To some extent this is based on the continuing use of an obsolete mode of thought. After the Second World War, American industry dominated the world in a manner never seen before. The other pre-war industrial powers were largely in ruins, with huge losses in population and industrial plant, while the US homeland was unscathed, and we lost far fewer soldiers from a larger population than we had in our Civil War. We were hurt, but our industries were pumping out new items so fast, our problem was to find ways to create markets. The Marshall Plan was not purely an act of humanity, though it was that, or of smart diplomacy, though it was that in spades. It was also a attempt to get the European market on its feet as fast as possible; otherwise American industries would soon find themselves overproducing and be forced to cut back, sending the economy back into a depressive spiral.
At that time it made some sense to see the success of the American method and its distribution of benefits through a wide swath of society as based on our industrial might, our ability to produce massively more than we needed or could even realistically consume. If our industries continued to prosper, the thinking went, our economy and society would, too. Of course there was a certain silliness to this line of thought; wartime prosperity happened because of the endless markets and full employment the war created. Still, it made sense politically to promise continued growing prosperity to a war-weary public.
So was the US then less plutocratic than it is now? To some extent, perhaps; but more importantly, the plutocracy is now headed by financiers rather than captains of industry. In other words, we no longer make things, we merely shuffle bits, so we no longer need lots of workers. In fact, having lots of workers just divides the pie into smaller chunks, so we prefer the smallest number of workers possible. The result is that an increasing subset of the population is excluded from the economic recovery the media and the administration tout, and many of those who are still included endure worsening conditions.
As our main industry is now Wall Street, we should probably adjust our thinking to include the obvious fact that what benefits Forbes-list types no longer trickles down even to the small extent it used to. People involved in what Calvin Trillin called “this business of securitizing things that didn’t even exist in the first place” only need the person on the street to con, and as a resource when a con goes bad and has to be paid off by the taxpayers. Witness on both counts the recent real-estate meltdown and the scams that caused it.
Thus it’s not surprising that we alternate between Democrats who represent Wall Street and Republicans who represent Big Oil. And unfortunately it’s also not surprising that Americans raised on television and superheros continue to believe that the next representative of Wall Street or Big Oil will save the economy and the environment concurrently, stop the wars, end the torture and the illegal surveillance, and return us to the democracy we thought we had. Though we haven’t had it for a very long time, and only a minority of us even then.
So Obama promises change and delivers not a bit of it. In fact he doubles down on the most horrific Bush policies with the exception of Iraq, from which he transfers troops to Afghanistan. Where we now have a hundred thousand troops and likely at least that many contractors, presumably searching for the hundred or so al Qaeda operatives thought to be hiding somewhere near the border with Pakistan.
Most likely the military presence has nothing to do with projected routes of oil pipelines. It is interesting to note, however, that oil and weapons are two more of the biggest remaining US industries, and that the interests of Wall Street and Big Oil converge when it comes to hostilities, especially those aimed at procuring and securing oil.
In any case, the old model no longer applies: what’s good for American mega-corporations is rarely good for the country as a whole. But American presidents continue to operate on the old model.
From this point of view, we can understand Obama’s promise to find a middle ground as aimed at an audience consisting of the industries represented by the two parties, in particular finance and oil. Seen from this viewpoint, the first two years have been a great success: Obama has maneuvered along traditional lines to please the two greatest destructive forces the country has yet produced, using the tried and true method of foreign war against a helpless adversary. Even better, a mercurial one, so that we no longer need to demonize a nation or a people, which is considered racist nowadays. We can, though, still manage to scare ourselves with belated realizations that our worldwide exploits and exploitations have not always been greeted by the locals with the fondest of regards.
Which, as Frank Herbert said, is the point.
If you think of yourselves as helpless and ineffectual, it is certain that you will create a despotic government to be your master. The wise despot, therefore, maintains among his subjects a popular sense that they are helpless and ineffectual.
Obama, of course, is no despot. Our system is not despotism but plutocracry, and it’s been that way since its founding. As Chomsky has taught for years, the powerful in America are bent on deterring democracy abroad and restricting it at home, rolling back the twentieth century as far as possible.
Obama is no more an agent of change than he is of despotism. The change he proposes is in the tactics of making deals among American mega-corporations as they divvy up the resources that our lives have become.
Perhaps that’s all he’ll need for re-election. That, and the weakness of any currently available Republican challenger, plus the bitter taste the public still has from the most recent Republican nightmare. Certainly he’s managed to alienate and even ridicule many of the most energetic of his former foot-soldiers, presumably following the classic Democratic strategy of assuming that they have nowhere else to go on election day. Unfortunately many will believe that.
As Gore Vidal says,
Our only political party has two right wings, one called Republican, the other Democratic. But Henry Adams figured all that out back in the 1890s. “We have a single system,” he wrote, “and in that system the only question is the price at which the proletariat is to be bought and sold, the bread and circuses.”
It’s passing strange to live in a country where people could take control of their lives and their government, yet choose not to.
Andrew Trees in the Los Angeles Times:
“Swilling the planters with bumbo” was what it was once called — the Colonial American tradition of treating voters with gifts during election campaigns, particularly plying them with rum (including a concoction known as bumbo). Virtually everyone who could afford the practice did it, including George Washington, who served 160 gallons of rum to 400 voters during the 1758 campaign for the Virginia House of Burgesses. Needless to say, this was a prohibitively expensive way to campaign, and it meant that politics was largely the preserve of the rich.
I was reminded of this phrase when a recent Center for Responsive Politics study of 2009 data found that 261 of the 535 members of Congress were millionaires (this probably understates the actual number because members of Congress aren’t required to report their homes as assets). When looking at both houses together, the legislators weighed in with a hefty median income of $911,000. For the Senate alone, median income was an astounding $2.38 million…
John Adams railed against this development more than two centuries ago. At the time, the prevailing view was that government positions should pay little, if any, salary so that only men with virtuous intentions would fill them. But Adams pointed out that this so-called solution did not ensure the election of virtuous men, only the election of rich men…
Adams’ great fear was that we would have what he called “an aristocratic despotism”: the possibility of “the rich, the well born and the able acquir(ing) an influence among the people that will soon be too much for simple honesty and plain sense.” In typical fashion, his judgment of that aristocracy was unstinting in its harshness. He wrote of “the weakness, the folly, the pride, the vanity, the selfishness, the artifice, the unbounded ambition, the unfeeling cruelty of a majority of those (in all nations) who are allowed an aristocratical influence…”
As [Adams] warned back then, you get the politics you pay for.
Read this whole post by Ed Yong at Discover. It seems that the creationists are half right. Sure enough, we have not evolved from the monkeys — we have instead devolved from them.
The anxiety caused by human inequality is unlike anything observed in the natural world. In order to emphasize this point, Robert Sapolsky put all kidding aside and was uncharacteristically grim when describing the affects of human poverty on the incidence of stress-related disease.
“When humans invented poverty,” Sapolsky wrote, “they came up with a way of subjugating the low-ranking like nothing ever before seen in the primate world.”
This is clearly seen in studies looking at human inequality and the rates of maternal infanticide. The World Health Organization Report on Violence and Health reported a strong association between global inequality and child abuse, with the largest incidence in communities with “high levels of unemployment and concentrated poverty.” Another international study published by the American Journal of Psychiatry analyzed infanticide data from 17 countries and found an unmistakable “pattern of powerlessness, poverty, and alienation in the lives of the women studied.”
The United States currently leads the developed world with the highest maternal infanticide rate (an average of 8 deaths for every 100,000 live births, more than twice the rate of Canada). In a systematic analysis of maternal infanticide in the U.S., DeAnn Gauthier and colleagues at the University of Louisiana at Lafayette concluded that this dubious honor falls on us because “extreme poverty amid extreme wealth is conducive to stress-related violence.” Consequently, the highest levels of maternal infanticide were found, not in the poorest states, but in those with the greatest disparity between wealth and poverty (such as Colorado, Oklahoma, and New York with rates 3 to 5 times the national average). According to these researchers, inequality is literally killing our kids.
From Economic Possibilities for Our Grandchildren, by John Maynard Keynes:
When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyment and realities of life — will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.
We have a bankruptcy lawyer in the family, so we knew from the beginning what a horror the banks had purchased from Congress — from most Republicans and a shamefully large number of Democrats — back in 2005. It was called bankruptcy “reform,” which in a sense it was. In the same sense that changing bank robbery from a felony to a misdemeanor would look like “reform” to Bonnie and Clyde.
So how’s that reformey stuff workin’ out fer ya? Let Nobel Prize winner Joseph Stiglitz walk you through it.
In 2005, we passed a bankruptcy reform. It was a reform pushed by the banks. It was designed to allow them to make bad loans to people to who didn’t understand what was going on, and then basically choke them. Squeeze them dry. And we should have called it, “the new indentured servitude law.” Because that’s what it did.
Let me just tell you how bad it is. I don’t think Americans understand how bad it is. It becomes really very difficult for individuals to discharge their debt. The basic principle in the past in America was people should have the right for a fresh start. People make mistakes. Especially when they’re preyed upon. And so you should be able to start afresh again. Get a clean slate. Pay what you can and start again. Now if you do it over and over again that’s a different thing. But at least when there are these lenders preying on you should be able to get a fresh start.
But they [the banks] said, “No, no, you can’t discharge your debt,” or you can’t discharge it very easily. They have a right, now, to take 25% of your before-tax income. Now imagine what that means. Let’s assume that you wound up, as it’s not that hard to do, with a debt equal to 100% of your income. You’re making $40,000, and your debt is $40,000. You have to turn over to the credit card company, to the bank, $10,000 of your before-tax income every year. But, the banks can now charge you 30% interest.
So what does that mean? At the end of the year, you’ve paid the bank $10,000, a quarter of your income. But what you owe the bank has gone from $40,000 to an even larger number because they’re charging you 30%. So you’re debt is larger. So the next year you have to give a quarter of your income again to the bank. And the year after. Until you die.
This is indentured servitude. And we criticize other countries for having indentured servitude of this kind, bonded labor. But in America we instituted this in 2005 with almost no discussion of the consequences. But what it did was encourage the banks to engage in even worse lending practices.
From Chris Floyd, further thoughts about those undisciplined socialist frogs:
While the Europeans protest for jobs and dignity, Americans pour out into the streets in angry demonstrations against the very idea of helping the poor and the economically devastated, or putting the slightest restraint on the rapacious super-rich.
The Europeans protest actual policies, while our American “dissidents” froth and rant about a fantasy world of “socialist” programs that only benefit shiftless darkies and sneaky, border-crossing Messicans — and, of course, the devil-worshiping Muslims, who are plotting every hour to poison the precious bodily fluids of real Americans and take over the country from within.
The American protesters vociferously denounce the healthcare “reform” bill — not because it is actually a gargantuan corporate boondoggle deliberately crafted to kill off the chance for any genuine reform of the system for generations, but because they believe it is communist Muslim atheist Nazi socialism, and because a few slivers of the boondoggle might possibly trickle down to help a few of those darkies and Messicans. (Although in fact it will imprison them in an inhumane system of corporate control.)
They protest against the laughably anemic “financial regulations” that the Administration has meekly proposed for its masters on Wall Street — PR measures, tissue-paper thin, that fall miles short of the kind of mild regulations that operated during America’s greatest periods of growth and broad-based prosperity.
This is from a study (download file) by Larry M. Bartels at the Woodrow Wilson School of Public and International Affairs:
In addition, senators seem to have been quite responsive to the ideological views of their middle- and high-income constituents — though, strikingly, not to the views of their low-income constituents.
Whether we consider the three Congresses separately or together, the data are quite consistent in suggesting that the opinions of constituents in the bottom third of the income distribution had no discernible impact on the voting behavior of their senators. (The point estimates are actually negative, but in every case the standard error is large enough to make it quite plausible that the true effect is zero.)…
The apparent responsiveness of senators to the views of high-income constituents was even greater, despite their somewhat smaller numbers; the pooled parameter estimate of 4.15 implies a shift of .39 in a senator’s W-NOMINATE score in response to an equivalent shift in high-income constituency opinion.
These results imply that responsiveness to the views of middle- and high-income constituents account for significant variation in senators’ voting behavior — but that the views of low-income constituents were utterly irrelevant…
The roughly linear increase in apparent responsiveness across the three income groups, with those in the bottom third getting no weight and those in the middle and top thirds getting substantial weight, suggests that the modern Senate comes a good deal closer to equal representation of incomes than to equal representation of citizens…
The results for the vote on raising the minimum wage reflect the political plight of poor constituents in especially poignant form. Those results suggest that senators attached no weight at all to the views of constituents in the bottom third of the income distribution — the constituents whose economic interests were obviously most directly at stake — even as they voted to approve a minimum wage increase.
From the New York Times coverage of an academic conference about “elites.” (The quotation marks are mine, and indicate skepticism as to whether the word is properly applied to people whose only distinction is that they have somehow got their hands on a lot of money. The photo was taken by Weegee in 1943, on a fire escape outside the Metropolitan Opera House.)
“If you look at the poor as a problem, you’ll be angry at elites or you’ll expect them to come up with a solution,” said Mr. Venkatesh, who took the most pragmatic line. “You have to come in accepting that there will always be poor people in society and there will always be wealthy people in society, and neither of the two reached that status by their own efforts…”
…if you live in Guam. From the New York Times:
And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids.” In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.
More news from the swill kings who caused the present depression. (Don’t tell me this isn’t a depression; I have eyes.)
However, while Paulson has been criticized, unfairly or not, because $12.9 billion of the bailout money went to Goldman, he’s drawn little scrutiny for what he did in his first 18 months in office, during the final frenzied stages of the housing bubble.
In his eight years as Goldman’s chief executive, Paulson had presided over the firm’s plunge into the business of buying up subprime mortgages to marginal borrowers and then repackaging them into securities, overseeing the firm’s huge positions in what became a fraud-infested market.
During Paulson’s first 15 months as the treasury secretary and chief presidential economic adviser, Goldman unloaded more than $30 billion in dicey residential mortgage securities to pension funds, foreign banks and other investors and became the only major Wall Street firm to dramatically cut its losses and exit the housing market safely. Goldman also racked up billions of dollars in profits by secretly betting on a downturn in home mortgage securities.
“No one was better positioned . . . than Mr. Paulson to understand exactly what the implications of his moving against the (housing) bubble would have been for Goldman Sachs, because he knew what the Goldman Sachs positions were,” said William Black, a former senior thrift regulator who delivered the harshest criticism of the former secretary.
Paulson “knew that if he acted the way he should, that would have burst the bubble. Then Goldman Sachs would have been left with a very substantial loss, and that would have been the end of bonuses at Goldman Sachs.
From the Wall Street Journal, of all places:
They may be an eccentric minority, or (in the view of conservatives) a lunatic fringe. But a Quinnipiac University poll this year showed nearly two-thirds of those with household incomes of more than $250,000 a year support raising their own taxes to reduce the federal deficit…
An op-ed piece in the Los Angeles Times by Garrett Gruener, an entrepreneur and venture capitalist, makes two important points about taxing the rich. (Mr. Gruener founded Ask.com and is the CEO of Nanomix and is a co-founder of Alta Partners, so he’s got street cred.)
First, he says tax rates don’t make or break the success of an entrepreneur — or the jobs he creates. He says he’s paying the lowest rates of his working life. But “if you want the simple, honest truth, from my perspective as an entrepreneur, the fluctuation didn’t affect what I did with my money. None of my investments has ever been motivated by the rate at which I would have to pay personal income tax,” Mr. Gruener writes.
History, he says, shows that “modest changes in the tax rate for wealthy taxpayers don’t make much of a difference if the goal is to build new companies, drive technological development and stimulate new industries…”
“What will change my investment decisions is if I see an economy doing better, one in which there is demand for the goods and services my investments produce. I am far more likely to invest if I see a country laying the foundation for future growth.”
This, excerpted from a longer piece in Naked Capitalism, sounds right to me. But then what do I know about money-lending and economic theory. How does it strike you?
Wolf then comes perilously close to making a fundamentally important observation, but pulls back (emphasis ours):We cannot assess the costs of regulation without recognising a few facts: first, both the economy and the financial system have just survived a near death experience; second, the costs of the crisis include millions of unemployed and tens of trillions of dollars in lost output, as the Bank of England’s Andy Haldane has argued; third, governments rescued the financial system by socialising its risks; finally, the financial industry is the only one with limitless access to the public purse and is, as a result, by far the most subsidised in the world.
Read the italicized part again. Big finance has an unlimited credit line with governments around the globe. “Most subsidized industry in the world” is inadequate to describe this relationship. Banks are now in the permanent role of looters, as described in the classic Akerlof/Romer paper. They run highly leveraged operations, extract compensation based on questionable accounting and officially-subsidized risk-taking, and dump their losses on the public at large.
But the subsidies go beyond that. To list only a few examples: we have near zero interest rates, which allow bank to earn risk free profits simply by borrowing short and buying longer-dated Treasuries. We have the IRS refusing to look into violations of REMIC rules, which govern mortgage securitizations. We have massive intervention to prop up real estate prices, with the main objective to shore up banks; any impact on consumers is an afterthought.
The usual narrative, “privatized gains and socialized losses” is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported…
So, the reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.
…and have been since that night early in the millenium when I first heard Professor Warren on late night radio as I drove through Virginia on I-95. Thrillingly, she was talking about a trick employed by insurance companies to extort fake “late fees” out of customers. The companies, it seemed, would require East Coast customers to mail their payments to a West Coast address, and vice versa. That way a sucker could pay on the dot but still incur a late fee because of the extra day or so in the mail. A few million pennies here, a few million pennies there… It all added up.
Here, I knew at once, was a woman who really, truly understood me to the depths of my socialist soul. We two could find true happiness together, I said hopelessly to myself as I drove forlorn and lonely through the gathering dark of Bush’s America.
More good sense, as usual, from Daniel Larison at The American Conservative:
According to the story Republicans tell themselves, they lost power because they spent too much, and they believe they are proving that they understand where they went wrong by opposing all forms of new spending. Even though they may be winning by default because of economic conditions, they very much want to link any success they have with this new opposition to more spending.
It’s a very neat, tidy, convenient and completely false narrative. According to the same narrative, the public supposedly soured on the stimulus because they became anxious about deficits. In fact, the stimulus lost support because it wasn’t enough of an actual stimulus bill, and so did not “work.” In some of the early Republican criticism of the bill, there was a basic acceptance of the belief that enough money spent in the right way would be stimulative. Now that a majority finds fault with the original bill, the new interpretation is that there should never have been one at all.
This makes the same mistake that Barone and a thousand others have made about the health care bill. They take all opposition to a complex, flawed, compromised, unaffordable bill and treat it as if it were all one thing, but opposition to the bill came from many different sources, including from those on the left who thought it was too weak, too much of a sell-out to insurance companies, or insufficiently ambitious in some other way.
Hostility to the compromised bill that was passed does not imply support for returning to the way things were, and hostility to the compromised bill does not necessarily reflect opposition to an increased government role in the health care sector. Barone wants you to think that it does, and he is basing almost his entire interpretation of the public mood and his expectation of a big midterm victory for the GOP on this misunderstanding. Barone’s mistake is the national GOP’s mistake in miniature: he is treating the election as a national one with a unifying theme that has a clear ideological meaning when it isn’t and it doesn’t.
Barone may end up being right that the GOP is going to win the House, but it will have been mostly by accident, because he refuses to acknowledge the real reasons why the GOP is in a position to win. The party is in a similar position: possibly on the verge of a great victory, but unable or unwilling to accept the real reason for it.
Hardly a CEO in the country would not argue that high wages are necessary to attract the very best type of chief executive. They make precisely that argument in defense of their own bloated paychecks. Paying less would put the stockholders at the mercy of a lower type of CEO altogether — a less competent and less efficient steward entirely.
But not a one of these CEOs, obscenely overpaid or merely grossly so, would give a moment’s consideration to the idea that low wages might result in less efficient and less competent workmen as well. Nor that higher wages might attract a better class, likely to work smarter and harder. Somehow workers do not need the motivation of good pay, while managers can hardly exist without it.
As we see in this uplifting story from CNN:
According to the report “CEO Pay and the Great Recession,” chief executive officers of the 50 firms that laid off the most workers since the start of the economic crisis earned nearly $12 million on average in 2009. That’s 42 percent more than the average pay of CEOs at S&P 500 firms as a whole.
“I think that really shows a really perverse incentive system in this country,” said Sarah Anderson, lead author of the Institute for Policy Studies’ 17th Annual Executive Compensation Survey. “You are handsomely rewarded for slashing jobs in the middle of the worst economic crisis in 80 years,” she said…
Another disconcerting finding of the report: 72 percent of layoff-leading firms announced mass layoffs while delivering positive earnings reports. Anderson explained layoffs are really driven by efforts “to boost short-term profits even higher and also just to continue to have such high CEO pay levels.” She said these mass cuts are often bad for business over the long-term because they impact worker morale, which can lead to lower productivity. She said they also result in additional costs related to hiring and training new workers down the road.
A thought for the weekend, from Economic Possibilities for Our Grandchildren, by John Maynard Keynes:
When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtue.
We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from he love of money as a means to the enjoyments and realities of life — will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.
I’ve suspected for a long time that home ownership was, for most people, a racket run by the banks. But what do I know? Karen Pence, on the other hand…
Before the housing bust, Americans tended to think their homes were their best and most important investments — a view promoted by Washington policy makers who made home ownership a top priority. Karen Pence, who runs the Federal Reserve’s household and real estate finance research group, argues at the American Economic Association’s meetings this week that homes are actually a terrible investment.
Putting aside the fact that home prices have fallen dramatically, she says several factors make homes a lousy investment…
1. It is an indivisible asset. If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.”
2. It is undiversified. You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood.
3. Transaction costs are very high when you buy or sell a home because of real estate agent fees, mortgage fees and moving costs.
4. It is asymmetrically liquid, meaning it’s easy to get money out when home prices are going up. (You just take out a bigger mortgage.) But it’s hard to take money out when prices are going down because refinancing becomes more difficult. Put another way, the leverage that you have in your house with a large mortgage means your investment does well in good times but could be lousy in bad times.
5. It is highly correlated to the job market, meaning that home prices in a neighborhood tend to rise when the job market is improving in the area and fall when the job market is worsening. This means that your main financial asset provides the smallest cushion to you when you might need it most.
Here’s David Stockman, Reagan’s budget chief:
…The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.
But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets…
The Rude Pundit has gone to a Big Oil rally in New Orleans so you don’t have to. Read his report. Sadly, he’s right.
Steve Benen picked up this seriously weird column by some seriously weird columnist for the Chicago Sun-Times. Excerpt below, but you can read the whole pathetic thing here, and the best part is — “It’s free!”
His fiancée smiled and commented, “Isn’t that cute. They have the spirit of giving…”
“No!” I exclaimed from the back seat. “That’s not the spirit of giving. You can only really give when you give something you own. They’re giving away their parents’ things — the lemonade, cups, candy. It’s not theirs to give.”
I pushed the button to roll down the window and stuck my head out to set them straight.
“You must charge something for the lemonade,” I explained. “That’s the whole point of a lemonade stand. You figure out your costs — how much the lemonade costs, and the cups — and then you charge a little more than what it costs you, so you can make money. Then you can buy more stuff, and make more lemonade, and sell it and make more money…”
If that’s what America’s children think — that there’s a free lunch waiting — then our country has larger problems ahead. The Declaration of Independence promised “life, liberty, and the pursuit of happiness.” It didn’t promise anything free. Something to think about this July 4th holiday weekend.
When they told me I had become redundant I beamed with pride and braced for the kiss on each cheek. As a new redundantee, I anticipated a bonus, the probability of a promotion and the certainty of kudos in the company newsletter. I imagined perks and stock options. Instead, they made me surrender my company ID, kicked me out of my reserved parking space, and gave my cloakroom hook to a new hire with fast-track credentials and the gift of gobbledygook.
You know you’re in trouble when suddenly you don’t have a place to hang your hat, even if you don’t wear a hat. They didn’t have to paint me a picture; I could see the handwriting on the wall. And even if the handwriting was in shorthand, I could make it out: “Uve hd it, bg gy. U dnt mk th ct. Ht th rd.”
Even now that I understand the qualitative differential between being downsized and becoming redundant, I can’t help feeling like I’ve been run through the heavy-duty document shredder. I continue to believe there’s been some terrible mistake; things like this just don’t happen in a corporate culture where everybody in management is on the same page, going by the rules, executing the game plan, and playing on a level field.
This was a company known to be on the cutting edge and the leading-edge from top to bottom, a culture that was market-molded, customer-committed, data-driven, results-oriented. And I was right there in the middle of it, making things happen. I was a hands-on, focus-grouped, parameter-bending, meeting-calling, envelope-pushing, memo-memorizing, let’s-go-get-’em kind of mildly manic, modestly macho, mid-life, middle-of-the-road, middle-managing middle manager.
I was a company man all the way, the kind of guy people wanted to share a table with in the cafeteria.
Then they moved the goal posts just when I thought I was coming up to bat. I thought the name of the game was teamwork and sticking to the game plan. I knew I was pulling my oar and I expected to be judged by my track record. Not only did I follow the game plan, I had helped to brainstorm it, shape it, nurture it, breast-feed it. The thrust of that plan was built on some of my concepts. I was a team player’s team player.
What happened next? Kaboom! That’s what happened. The clouds began to gather and the seas began to rise and the deck began to roll and the earth began to tremble and the skies opened and the bottom fell out. Where I had been on a roll, on a tear, on the make, on the beam, on stream, on target, on track, on-line, on-site, on the alert and on time, now I was on the street, on the beach, on the outs, and on the dole.
I knew what I needed to do was to push the envelope and pull it together. I knew that if I played my cards right I could get myself into a position to backstop some outsourcing. But first I would have to reach out for some outplacement; I would need to cast some bread upon the waters to see which way the wind was blowing.
I trial-ballooned it by memoing Human Resources and pretending everything was still hunky dory between me and management. The HRD guys are the ones who are data-current on the outplacement scene but they are out to lunch on the who-just-got-pink-slipped scene. I figured I could pry some critical data out of them jobwise before they got otherwise-wise to my having so recently become an ex-key team player on the middle management management team.
While they were fishing this critical middle-management-position-to-be-filled info out of their data bases in answer to my canny queries, I figured to be all over them with a cyber-tornado of job-application wizardry developed over many moons of not-so-woolly corporate wool-gathering in which I scenarioed the very thing that has just come down on me.
Unthinkable but it is the unthinkable you have to think about.
Yes, I see the email is stacking up — answers no doubt to my many savvy queries that will put me far ahead of the pack of applicants for the job I just lost but will soon have back again with much improved perks and bennies.
And just so you know, I will not take the job if they don’t give me a parking place nearer the front door.
I have analyzed this tendency in my paper “The Future of Socialism” (on line at UPenn Law School — Google it). It is exactly what Marx meant by the new system of social relations of production being born in the womb of the old. The reason those in charge do not react to their failures by going backwards to a less centralized time is that, by their conception of rationality, the rational thing to do is to take greater control of what seems to be out of control, which is to say to centralize. Oh, mere self-interest plays a role, but it would be a big mistake to suppose that is all that is at play.
Why does Obama ratify the seizures of executive authority pioneered by George W. Bush? Because, confronted with terrorist incidents, it is the rational thing to do. Why does a progressive like Krugman call for greater regulatory oversight? Because that is the rational way to deal with an economic system that is “out of control.”
In short, the technical and systemic pre-conditions for socialism are being born in the womb of world finance capitalism, for socialism requires the very highest level of rational management of the entire economy, something that nineteenth century capitalists were completely incapable of attempting, and that even twentieth century capitalists could only achieve fitfully.
This is the deeper reason why the right cries “socialism” at the actions of the Congress and the proposals of the President. Although they do not really understand what they are saying, they are, in an odd way, on to something. This is also why the very people who think of themselves as Masters of the Universe celebrate a “free market” while they devote their lives to enslaving it. These people are not stupid.
So, as I ask in my essay, if this is so, why aren’t we on the left having any fun? The short answer is this: the ever greater establishment of central control over the world economy is being carried out in the interests of the haves, not of the have nots. Now, those interests are not totally opposed. Both the haves and the have nots have an interest in avoiding economic crashes, because both suffer from those crashes (although the have nots may starve to death as a consequence of the crashes, whereas the haves simply must pause in their endless accumulation of wealth).
But Marx was, alas, wrong in believing that the consolidation process by those at the top of the economic pyramid would, as an unintended consequence, also consolidate the power of those at the bottom of the economic pyramid. Marx was almost certainly right in expecting ever greater instability — greater crashes. But though he saw that this would provoke ever greater consolidation of capital (what Douthat is calling consolidation of power, because of course it is not polite on the right to speak of “capital”), Marx failed to anticipate the fragmentation and collapse of the working class movement that was being born in his day…
More from one of our public truth-tellers, James K. Galbraith. Why does he bother? Why do I bother pointing you to his Congressional testimony, or you bother reading it? Nothing will be done to punish the criminals, nor to prevent them from stealing again once the heat dies down. Nothing ever is.
But read Galbraith’s whole statement here anyway. It’s like pissing in a blue serge suit. Nobody else notices, but at least it makes you feel warm.
Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.
Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice — growth and profitability — suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: “liars’ loans,” “ninja loans,” “neutron loans,” and “toxic waste,” tells you that people knew. I have also heard the expression, “IBG, YBG;” the meaning of that bit of code was: “I’ll be gone, you’ll be gone.”
If doubt remains, investigation into the internal communications of the firms and agencies in question can clear it up. Emails are revealing. The government already possesses critical documentary trails — those of AIG, Fannie Mae and Freddie Mac, the Treasury Department and the Federal Reserve. Those documents should be investigated, in full, by competent authority and also released, as appropriate, to the public. For instance, did AIG knowingly issue CDS against instruments that Goldman had designed on behalf of Mr. John Paulson to fail? If so, why? Or again: Did Fannie Mae and Freddie Mac appreciate the poor quality of the RMBS they were acquiring? Did they do so under pressure from Mr. Henry Paulson? If so, did Secretary Paulson know? And if he did, why did he act as he did? In a recent paper, Thomas Ferguson and Robert Johnson argue that the “Paulson Put” was intended to delay an inevitable crisis past the election. Does the internal record support this view?
…among the simple folk of Wall Street is foreseen by The Epicurean Dealmaker, and should certainly be fun to watch. Unhappily it will only end in the triumph of a new Great Vampire Squid with a different name. In the long run we will all be, once again, drained.
I must agree with Felix Salmon and others, who claim that the real damage to Goldman Sachs has already been done, with its formerly venerated name being dragged publicly through the mud with an accusation of fraud. While this may have little effect on the majority of Goldman’s business on the sales and trading side of the house — where counterparties are generally too smart to raise a stink about the 800 pound gorilla of the global financial markets (and often too unprincipled themselves to care) — it should and will have an effect on Goldman’s extensive investment banking business with governments, corporations, and other entities.
The Great Vampire Squid has been living for years off the simple fact that, like the fabled IBM of yore, no-one ever got fired (or sued) for picking Goldman Sachs. That calculus has been changed, and I and every one of my red-blooded peers in the industry who is not currently drawing a paycheck signed by David Viniar are making damn sure that CEOs, CFOs, government officials, and Boards of Directors know it.
For those of you who were wondering, this is the real reason why Goldman’s market capitalization has taken the vapors to the tune of more than ten billion dollars in response to an action likely to cost it no more than a tiny fraction of that amount: its reputation premium is quietly and rapidly evaporating.
There is no shortage of competent investment banks and adequate investment bankers available to conduct the financing and M&A business of the global corporate and government economy. No longer can Goldman rest assured that it will win mandates simply because it is Goldman Sachs. In fact, it may lose many for that very reason…
Although just wait and see what happens if enough of them sense that Goldman is mortally wounded. They’ll gang up and rip it to shreds without a second thought, just like they did to Bear Stearns and Lehman Brothers and almost did to Morgan Stanley. Live by the sword, die by the sword, baby. Booyah!
Here is Ezra Klein, the Great Explicator, explaining why Br’er Mitch is hollering so hard for Br’er Barack not to throw him in dat brier patch:
A bank is judged failing. The FDIC submits a plan for the bank’s liquidation — which includes firing management, wiping out shareholders, handing losses to creditors, and selling off the firm — and gets it approved by the Treasury secretary. Then the FDIC takes over the banks. The $50 billion fund is used to keep the lights on while all this happens. It’s there to prevent taxpayers from having to foot the bill for the chaos that will occur between when we recognize a bank is failing and when we shut it down.
Whatever you want to call this, it isn’t a bailout. It’s the death of the company. And the fund is way of forcing too-big-to-fail banks to pay for the execution. But stung by Republican criticisms, the administration is telling Democrats to let the fund go. And they’re not all that unhappy to see it die. “The fund isn’t a priority for the Obama administration,” reported Business Week, “which instead proposed having the financial industry repay the government for the cost of disassembling a failed firm, an approach preferred by the industry.”
So let’s just be clear: The alternative to the liquidation fund is Wall Street’s preference. That should tell you pretty much all you need to know about whether the industry really views this as a bailout.
Sane participants in the economy, admittedly a minority but a large one, are rejoicing over the SEC’s attack on Goldman Sachs, the worst of the worst and thus the richest of the rich on Wall Street.
Goldman Sachs, whose tactics exiting the collapsing subprime mortgage market have been under government scrutiny for months, now faces federal fraud charges that it duped investors into losing $1 billion on a rigged offshore deal pegged to dicey home loans.
The suit, brought Friday by the Securities and Exchange Commission, accuses Goldman and one of its vice presidents, 31-year-old Fabrice Tourre, of allowing a Wall Street hedge fund to secretly select many of the securities in the deal.
The hedge fund, Paulson & Co., then bet that those subprime mortgage securities would fail. When they did, Paulson made a $1 billion profit and investors lost more than $1 billion, nearly all their money, the complaint charges.
Wow, it’s great to see a vigorous SEC enforcing the laws and calling the influential to account. We need more of this. A good many of our recent problems happened not because we don’t have laws but because we don’t enforce them, so this is an encouraging sign.
The timing is great on the filing, too, though it’s probably just coincidence.
Years before federal regulators shut down billionaire Allen Stanford’s businesses in a massive fraud case, agents strongly suspected that he was running a Ponzi scheme but waited nearly a decade before seriously investigating his troubled banking empire, an internal report found.
In a report released Friday, federal auditors blamed the Securities and Exchange Commission — including powerful industry influences — for the long delay in investigating the network of companies now blamed for one of the largest frauds in U.S. history.
“The SEC’s Fort Worth office was aware since 1997 that Robert Allen Stanford was likely operating a Ponzi scheme,” said the SEC’s Inspector General’s Office, adding that “no meaningful effort was made by enforcement to investigate.”
Like the case of convicted swindler Bernard Madoff, the scathing report offers yet another reminder of the breakdowns in regulatory oversight that allowed a major fraud scheme to flourish for years.
David Leonardt in The New York Times highlights a key component of Obamacare that you may not have focussed on. I hadn’t, anyway.
Incidentally, if the first person to call the bill “Obamacare” was a Republican, that person will have a lot to answer for in years to come. Johnson wasn’t lucky enough to have Medicare named after him.
For all the political and economic uncertainties about health reform, at least one thing seems clear: The bill that President Obama signed on Tuesday is the federal government’s biggest attack on economic inequality since inequality began rising more than three decades ago…
It seems, [Carl] Sandburg began, that two cockroaches, brothers, were riding on a farmer’s cart into town one day, when the cart hit a bump, and they were both thrown off. The first brother fell on a big pile of dung, which is seventh heaven for a cockroach. He settled in, ate himself fat and glossy, and prospered.
The second brother fell into a deep hole, where there was nothing to eat and scarcely any way to get out. Slowly, laboriously, he dragged himself up the side of the hole, repeatedly falling back and starting again. He grew thin and weak, and his shell lost its sheen, becoming dull and discolored.
At long last, by the greatest of effort, he managed to heave himself back onto the road. Looking up, he saw his brother perched happily atop his dung pile. “Brother,” he said, looking up, “You are so fat and sleek. How have you managed to flourish like that?”
His brother looked down disdainfully over the edge of the dung and said, with a smug self-congratulatory smile, “Brains. And hard work.”
It used to be the practice at the old Washington Daily News to write things like, “Police identified the murder suspect as Howard Ignoto, of the 1700 block of Maple Street.” If a more precise address turned out to be even a single digit off, a bedridden 90-year-old bishop’s widow would inevitably be living at that number. Our lofty journalistic principle was therefore, “It is better to be vague than wrong.”
The Epicurean Dealmaker suggests following the same principle when it comes to resolution authority to discipline Wall Street houses judged too big to fail, and his reasons are equally practical:
I like the fact that the proposed resolution authority is currently vague and undefined. I think it should be written into law in as vague and undefined a manner as possible. That would make it much more effective in combating the next (inevitable) financial crisis…
For another thing, vagueness will offer regulators discretion.
This will have two salutary effects. It is well known that financial institutions — like sophisticated businesses everywhere — are expert at structuring their business practices to satisfy the letter of the law, while evading its spirit and intent with maximal effect. The more specific laws and regulations become, the easier it is for these institutions and their in-house and outside counsel to find their way around them.
Should legislation authorizing resolution authority be too specific — in the tools, techniques, and processes regulators are allowed to use in identifying and winding down financial institutions in distress — then you can bet your bottom dollar those firms will exploit this fact to skew the game in their favor. In contrast, purposely vague and undefined resolution authority will not offer its potential objects as many preemptive opportunities to evade its intended jurisdiction or consequences.
In addition, regulatory discretion would foster what I would view as a healthy increase in uncertainty among financial institutions and their stakeholders. Should, for example, a regulator have the authority to unilaterally abrogate, modify, or suspend any and all prior contracts or securities arrangements entered into by a financial institution undergoing resolution — as some might suggest — you can just imagine how much more cautious investors, lenders, and counterparties would become in their dealings with any financial institution potentially subject to such a regime in the future.
The cost of funding financial institutions would undoubtedly rise, as investors become sensitized to increased contractual risk. Firms in obvious distress would see their cost of financing skyrocket and their counterparty business dry up, as no-one with a contractual claim could rest assured it would receive exactly what it was otherwise entitled to in a resolution wind up. But then again, firms in obvious distress see that happen anyway. The point is that regulators charged with cleaning up the mess would not have their hands completely tied by contractual arrangements entered into by others when the failing company was healthy…
…Race, on the other hand, has been a more successful technology of mystification. In the US, one of the great uses of racism was (and is) to induce poor white people to feel a crucial and entirely specious fellowship with rich white people; one of the great uses of anti-racism is to make poor black people feel a crucial and equally specious fellowship with rich black people.
Furthermore, in the form of the celebration of ‘identity’ and ‘ethnic diversity’, it seeks to create a bond between poor black people and rich white ones. So the African-American woman who cleans my office is supposed to feel not so bad about the fact that I make almost ten times as much money as she does because she can be confident that I’m not racist or sexist and that I respect her culture. And she’s also supposed to feel pride because the dean of our college, who makes much more than ten times what she does, is African-American, like her. And since the chancellor of our university, who makes more than 15 times what she does, is not only African-American but a woman too (the fruits of both anti-racism and anti-sexism!), she can feel doubly good about her.
But, and I acknowledge that this is the thinnest of anecdotal evidence, I somehow doubt she does. If the downside of the politics of anti-discrimination is that it now functions to legitimate the increasing disparities not produced by racism or sexism, the upside is the degree to which it makes visible the fact that the increase in those disparities does indeed have nothing to do with racism or sexism. A social analyst as clear-eyed as a University of Illinois cleaning woman would start from there…
…and incorporated himself…
From a New York Times editorial:
Under the three-strikes law, a man named Gary Ewing was sentenced to 25 years to life for shoplifting three golf clubs from a golf pro shop.
Mr. Ewing challenged his sentence before the Supreme Court as a violation of the Eighth Amendment prohibition on cruel and unusual punishment. By a 5-to-4 vote, with Justice Kennedy in the majority, the court rejected the challenge. The dissenters were right that Mr. Ewing’s sentence was so disproportionate to his crime that it should have been declared unconstitutional.
It’s not that the court is insensitive to excessive punishments. It has repeatedly thrown them out — when they are against corporations. In 2003, the year the court rejected Mr. Ewing’s case, it overturned a $145 million punitive damage award against the State Farm Mutual Automobile Insurance Company as so excessive that it violated the 14th Amendment due process clause.
Here is an economic primer for all your teabagger friends from Fred Clark at slacktivist. It deserves as wide circulation as it can possibly get. Now I’ve done my part. Do yours.
Hey you. You there in the Glenn Beck T-shirt headed off to the Tea Party Patriot rally.
Stop shouting for a moment, please, I want to explain to you why you’re so very angry. You should be angry. You’re getting screwed. I think you know that. But you don’t seem to know that it doesn’t have to be that way. You can stop it. You can stop it easily because the system that’s screwing you over can only keep screwing you over if you keep demanding that it do so.
So stop demanding that. Stop helping the system screw you over.
Look, you can go back to yelling at me in a minute, but just read this first.
1. Get out your pay stub.
Or, if you have direct deposit — you really should get direct deposit, it saves a lot of time and money (I point this out because, honestly, I’m trying to help you here, even though you don’t make that easy Mr. Angry Screamy Guy) — then take out that little paper receipt they give you when your pay gets directly deposited.
2. Notice that your net pay is lower than your gross pay. This is because some of your wages are withheld every pay period.
3. Notice that only some of this money that was withheld went to pay taxes. (I know, I know — yeearrrgh! me hates taxes! — but just try to stick with me for just a second here.)
4. Notice that some of the money that was withheld didn’t go to taxes, but to your health insurance company.
5. Now go get a pay stub from last year around this time, from January of 2009.
6. Notice that the amount of your pay withheld for taxes in your current paycheck is less than the amount that was withheld a year ago.
That’s because of President Barack Obama’s economic stimulus plan, which included more than $200 billion in tax cuts, including the one you’re holding right there in your hand, the tax cut that’s now staring you in the face. Republicans all voted against that tax cut. And then they told you to get angry about the stimulus plan. They didn’t explain, however, why you were supposed to get angry about getting a tax cut. Why would you be? Wouldn’t it make more sense to get angry at the people who voted against that Obama tax cut?
But taxes aren’t the really important thing here. The really important thing starts with the next point…
7. Notice that the amount of your pay withheld to pay for your health insurance is more than it was last year.
8. Notice that the amount of your pay withheld to pay for your health insurance is a lot more than it was last year. I won’t ask you to dig up old paychecks from 2008 and 2007, but this has been going on for a long time. Every year, the amount of your paycheck withheld to pay for your health insurance goes up. A lot.
9. Notice the one figure there on your two pay stubs that hasn’t changed: Your wage. The raise you didn’t get this year went to pay for that big increase in the cost of your health insurance.
10. Here’s where I need you to start doing a better job of putting two and two together. If you didn’t get a raise last year because the cost of your health insurance went up by a lot, and the cost of your health insurance is going to go up by a lot again this year, what do you think that means for any chance you might have of getting a raise this year?
11. Did you figure it out? That’s right. The increasing cost of health insurance means you won’t get a raise this year. Or next year. Or the year after that. The increasing cost of health insurance means you will never get a raise again.
That’s what I meant when I said you really should be angry. That’s what I meant when I said you’re getting screwed.
OK, we’re almost done. Just a few more points, I promise.
12. The only hope you have of ever seeing another pay raise is if Congress passes health care reform. Without health care reform, the increasing cost of your health insurance will swallow this year’s raise. And next year’s raise. And pretty soon it won’t stop with just your raise. Without health care reform, the increasing cost of your health insurance will start making your pay go down.
13. I wish I could tell you that this was just a worst-case scenario, that this was only something that might, maybe happen, but that wouldn’t be true. Without health care reform, this is what will happen. We know this because this is what is happening now. It has been happening for the past 10 years. In 2008, employers spent on average 25 percent more per employee than they did in 2001, but wages on average did not increase during those years. The price of milk went up. The price of gas went up. But wages did not. All of the money that would have gone to higher wages went to pay the higher and higher and higher cost of health insurance. And unless Congress passes health care reform, that will not change.
Well, it will change in the sense that it will keep getting worse, but it won’t get better. Unless the problem gets fixed, the problem won’t be fixed. That’s kind of what “problem” and “fixed” mean.
14. Sadly for any chance you have of ever seeing a raise again, it looks like Congress may not pass health care reform. It looks like they won’t do that because they’re scared of angry voters who are demanding that they oppose health care reform, angry voters who demand that Congress not do anything that would keep the cost of health insurance from going up and up and up. Angry voters like you.
15. Do you see the point here? You are angrily, loudly demanding that Congress make sure that you never, ever get another pay raise as long as you live. Because of you and because of your angry demands, you and your family and your kids are going to have to get by with less this year than last year. And next year you’re going to have to get by with even less. And if you keep angrily demanding that no one must ever fix this problem, then you’re going to have to figure out how to get by on less and less every year for the rest of your life.
16. So please, for your own sake, for your family’s sake and the sake of your children, stop. Stop demanding that problems not get fixed. Stop demanding that you keep getting screwed. Stay angry — you should be angry — but start directing that anger toward the system that’s screwing you over and taking money out of your pocket. Start directing that anger toward fixing problems instead of toward making sure they never get fixed. Instead of demanding that Congress oppose health care reform so that you never, ever, get another pay raise, start demanding that they pass health care reform, as soon as possible. Because until they do, you’re just going to keep on getting screwed.
And it’s going to be that much worse knowing that you brought this on yourself — that you demanded it.
Thanks for your time.
As an antidote to the contemptible drivel in my last posting, here’s Joe Bageant (shown below) on the same subject:
…We are all brothers and as such are our brother's keeper. Besides, when I look around me, I do not see a nation of leeches. I see damned few folks getting something for nothing. I see the top dogs, who actually are getting something for nothing, using the bullhorn of media to convince us that one of our brothers and neighbors is getting everything. They would have us believe that the most miserable among us — the poorly educated and those whose souls have been brutalized from birth by the system’s failure to provide the basic security necessary for the development of whole people — are indeed getting something for nothing. And further believe that the most wretched deprived among us are a causal factor in the upcoming and rightful collapse of the overall meanest economic system ever devised. I see an empire of theft and coercion — both of our own people and others around the world in our name — which names the victim as the perp.
And I see a people who no longer feel the bonds of coursing humanity and their species, the sustaining earth under their feet, and beneath whose carpet their eternity waits. Rather I see a people conditioned to believe in the state and obey the state’s designated bosses. And I see the moving hand of the corporate state active in all things from birth to death — opening the eyes of the newly born and closing those of the newly dead. There’s a profit to be made in both, and every human activity in between.
Even those among us who can see, who can observe the hardening condition induced by the enemies of human liberty and well being, feel powerless in the face of this darkening and omniscient order. Despite the quadrennial claims of our political parties during national election years, no savior has arrived and none is coming. No Obama, no miracle of “green science,” no national genius will emerge to lead us. We have only the simple, direct, undeceived intelligence of ordinary men and women to rely upon. We must regain respect for the seemingly meager and often lonely powers an individual does have, and choose work and a way of living upon which we can all rely…
In late November I talked about how credit cards specifically, and the consumer financial system more generally, was fee- and ‘trick and traps’- based and how that amounted to a transfer from the poorest to the richest in our country. I found this to be a really bad thing, one that gave terrible incentives to financial firms to find innovations that would make prices and information more opaque and less transparent for consumers.
Instead of challenging the argument itself, or arguing that this system was a necessary evil to get the poorest in our country access to financial markets, I was amazed at the amount of feedback I got that argued this was a great system, because instead of ripping off the poor to give benefits to the rich, it really transferred “from the ignorant and foolish to the informed and prudent,” or as one emailer put it, in a manner representative of many other emails: “It’s the irresponsible borrowers – who are often poor – that are penalized and the ultra-responsible borrowers that are rewarded. I fail to see the problem there.” The argument is that the system works to punish those who are cognitively weak and financially irresponsible and reward those with good cognition and a sense of responsibility…
It strikes me as at base a good idea. Any means of hitting the big banks is a good idea, and the Jimmy Stewart favorite at holiday season contributes a old-timey moral quality. I really hope you watch this video, it’s only four minutes long and includes a bunch of scenes from It’s a Wonderful Life.
The question is, why are people in the position to move their accounts to begin with? And the second question is, why does the “Move Your Money” site’s local-bank finder, which generates a useful list of solvent local banks by zip code, omit credit unions? I would have thought everyone who could would join a credit union in preference to a bank. And in California, at least, that’s pretty much anyone. You can’t sign up with absolutely any credit union you find; some are organization-specific or require residence in certain areas, for example. But you can easily find several you can join. In San Francisco, for example, I think anyone can join the firemen’s credit union, or at least any city resident.
Commenters on the HuffPo post complained that not many people will move because the big banks control the credit cards, but that doesn’t seem to make any difference in the situation I understand. Credit unions can still issue Visa cards, for example.
Perhaps the commenter’s referring to people addicted to having lots of credit cards as a means of financing consumption they can’t really pay for. Then aren’t the banks the equivalent of drug kingpins of the type we execute when we can catch them? I think we know where the bankers live.
But more importantly, and more realistically, we do know where they live economically speaking, and that, as Thorstein Veblen pointed out over a century ago, is the stage on which battles of strength take place these days. The leisure class strikes at its enemies, internal and external, financially.
So let’s strike back.
JP Morgan/Chase, Citi, Wells Fargo, and Bank of America may be “too big to fail” — but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system. Let them gamble with their own money, not yours. Let’s turn big banks into smaller banks. We’ll all be better off — and safer — as a result.
The only real way, as far as I can see, to affect corporate behavior is boycotts of one form or another. The best ones are in the self-interest of the boycotters. And boy, is this one of those!
A reader who calls himself Colonelgirdle mentioned in a recent comment that he had lost his small business and his livelihood when refused credit by a bank which used its bailout money to buy another bank. I asked him if he could expand on his brief comment, and he has kindly done so:
For three years I owned and operated a mini-market/gas station in a Cincinnati, Ohio suburb. I bought an already existing store using all the assets I had, including my 401K funds, after being down-sized from my middle-management career of 22 years (in one of the many industries which the U.S. can no longer keep onshore).
Things went along fairly well and the business grew as I acquired a large clientele of regular customers from the local construction companies, other business owners, and the Ford plant. My girlfriend and I worked 90+ hour workweeks and, along with help from a few part-time employees, we operated 16 hours a day, 7 days a week, 365 days a year. In other words, I was a real practitioner of the kind of free-enterprise capitalism that our windbag politicians and business leaders praise to the heavens while making sure it doesn’t apply to them.
In the spring of 2008, I went to the county “economic development board” asking for advice about expanding my business. And because his office is in the same shopping center as my store, I walked over to Representative John Boehner’s (remember him? the Republican House Majority, now Minority, Leader?) office to ask for help. I asked the bureaucrats whether grants or tax breaks were available to help me hire employees, buy equipment, etc. No, no such thing available. Their only advice was to go to the Small Business Administration.
So I called the SBA. I won’t go into details other than that they sent out someone to take a look at my store and see if he had any words of wisdom. He was the former head of Ford’s truck and ambulance division and knew nothing I could discern about small businesses in general nor especially the retail store business.
So back I went to the county development board. After a few lengthy consultations, I was steered to a Vice President of Lending at a local branch of one of our nation’s larger banks (I won’t tell you which one, but their initials are PNC). In cooperation with that very nice VP, my girlfriend and I hashed-out a business plan and jumped through a multitude of hoops necessary to secure a relatively paltry SBA loan of $75,000.
Meanwhile, I realize now that throughout the spring & summer business had started to go sour. We were close enough to our customers that many of them confided their troubles: they were losing their jobs, they were losing their homes, their own small businesses were taking on water like Katrina. We finished up our paperwork with the bank and awaited an answer.The V.P. anticipated no problem as I had A-1 credit, very little debt, and a good plan for growing the business.
Then the financial tsunami hit…
Suddenly, Americans were informed the banks were bust and Wall Street toppled! Fed chief Ben Bernanke and his bankster buddies told us it was our money or our lives: we could either pony up nearly a trillion dollars or our economy would eat lead.
My business flow slowed to a trickle; people who are terrified don’t go out shopping. In the midst of all this it was announced that the bank I had asked for money was using its government bailout to buy the bank where I had my business accounts (National City). I didn’t think badly about that arrangement, until during that same time my business loan was turned down. The nice V.P. confided that “we just aren’t loaning to anyone right now. Come back in the spring and you can probably get it then.”
We hung on for five months after that. The store died a slow death. People without jobs to go to don’t buy near as much gasoline and candy. I let the employees go after the New Year holiday. In late February, I contacted the bank V.P. but was turned-down again. I heard on the news that the credit markets were still frozen.
A few weeks later, I put up the sign that said “Out of Business.” I didn’t get much out of the used equipment because so many businesses have gone belly-up that there’s a glut on the market (part of that real free-enterprise again).
I’m not embarrassed about my story because now most everyone is either financially ruined or close to it. And our so-called “leaders” don’t really seem to know or care about fixing it because the Dow Jones Average is going up again. I’m unemployed, broke, and waiting, praying/working for the revolution that seems inevitable.
(Editor’s note: Earlier today the colonel commented on Chuck Dupree’s posting, Thirty Million More Criminals. Since it follows naturally on the preceding account, I reprint it below.)
As one of America’s many financially-ruined citizens I have first-hand frustrating experience with applying to the government for assistance. To cite two examples: 1) so that my working, divorced daughter could go to college, she needed financial help with my granddaughter’s daycare. That took seven weeks of almost daily calling the social workers and, finally, in desperation a call to our state governor’s office hotline to get results. 2) I applied for heating energy assistance for this winter, which involves getting up about 3 am in order to stand in line in the freezing cold outside the application office to get one of 25 entrance tickets at about 8 am.
I was 17th in line, because some people camp out there all night. There were about 50 people in line, which means a lot of people turned away each day. My point is that there will be a lot of poor people spending a lot of their time going begging “hat in hand” to the bureaucrats in order to buy insurance.
I was once solidly middle-class and paid taxes for 37 years before being destroyed in the Great Recession. I was surprised at how confusing, uncaring, and inadequate our social safety net is. Pray that you don’t have to find out also.
Here's a sorry story.
When the Wall Street collapse began, I took my son’s college nest egg out of a high income bond fund, and bought a one-year CD from Wachovia Bank at 4.5 percent interest. Now that the year is up, I thought I’d roll it over at the same bank.
Not going to happen. Now they are paying just one percent and forcing their customers (read victims) to buy an 18-month CD. I have a one week window in which to get that money out, or the bank will roll it over automatically at one percent.
Remember Wachovia is now owned by Wells Fargo, which bought it for $12 billion, shortly after receiving a $25 billion bailout from you and me. This makes it the second largest bank in the U.S. which is now even more “too big to fail.”
In October Wachovia raised its credit card interest rates three percentage points. Now they range from 12 to 22 percent Another brief story to show how capitalism really works.
“The unpleasant habits of round-mouthed hagfish and lampreys are vividly described as ‘suctorial.’ Theirs is a mode of life made possible by having gills which open directly into the throat, so that they can continue to respire while still sucking blood…”
From Jay Bookman, who, unlike me, seems to have a paid subscription to Rupert Murdoch’s online Wall Street Journal. The question raised by the stolen excerpt below is whether there is any outrage at all, any slap in the face so contemptuous, any display of greed in a time of widespread suffering, joblessness, bankruptcy and homelessness so shameless that we will finally wake up?
It’s no good blaming Congress. Both House and Senate would vote to vivisect kittens on prime time if enough members were afraid that going soft on Fluffy would cost them their seats. The trouble goes beyond that.
In Michael Moore’s movie Sicko, an American ex-pat in Paris reflects that in France the government is afraid of the people, while in America the people are afraid of the government. And there you have it. And here’s the latest atrocity that will not send Americans to the barricades:
“Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street’s pay culture.
Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.”
Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year’s $117 billion — and to top 2007’s $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.”
Marcy Kaptur is a 14-term Democratic member of Congress from Toledo. Here she is, talking to Bill Moyers:
Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, ‘What should I know?’ They said, ‘Well, first of all, you should know the worst companies that are doing this to us.’
I said, ‘Well, give me the top one.’ They said, ‘J.P. Morgan Chase.’ I went back to Washington that night. And one of my colleagues said, ‘You want to come to dinner?’ I said, ‘Well, what is it?’ He said, ‘Well, it’s a meeting with Jamie Dimon, the head of J.P. Morgan Chase.’ I said, ‘Wow, yes. I really do.’ So, I go to this meeting in a fancy hotel, fancy dinner, and everyone is complimenting him. I mean, it was just like a love fest.
They finally got to me, and my point to ask a question. I said, ‘Well, I don’t want to speak out of turn here, Mr. Dimon.’ I said, ‘But your company is the largest forecloser in my district. And our realtors just said to me this morning that your people don’t return phone calls.’ I said, ‘We can’t do work outs.’ And he looked at me, he said, ‘Do you know that I talk to your Governor all the time?’ He said, ‘Our company employs 10,000 people in Ohio.’
And I’m thinking, ‘What is that? A threat?’ And he said, ‘I speak to the Mayor of Columbus.’ I said, ‘Why don’t you come further north?’ I said, ‘Toledo, Cleveland, where the foreclosures are just skyrocketing.’ He said, ‘Well, we’ll have someone call you.’ And he gave me a card. And they never did. For two weeks, we tried to reach them. And finally, I was on a national news show. And I told this story. They called within ten minutes. And they said, ‘Oh, we’ll work with you. We’ll try to do some workouts in your area.’
We planned the first one after working with them for weeks and weeks and weeks. Their people never showed up. And it was a Friday. Our people had taken off work. They’d driven from all these locations to come. We kept calling J.P. Morgan Chase saying, ‘Where’s your person? Where’s your person?’ And they finally sent somebody down from Detroit by 3:00 in the afternoon…
From today’s New York Times:
…The total return of the Standard & Poor’s 500-stock index through the end of September was almost 17 percent, and that was after adjusting for inflation. Even if the index does nothing in the final three months of the year, it will have turned in its best year since 2003.…
And from CNN today:
…Inside the Wayne County morgue in midtown Detroit, 67 bodies are piled up, unclaimed, in the freezing temperatures. Neither the families nor the county can afford to bury the corpses. So they stack up inside the freezer.
Albert Samuels, chief investigator for the morgue, said he has never seen anything like it during his 13 years on the job. “Some people don’t come forward even though they know the people are here,” said the former Detroit cop. “They don’t have the money…”
A shocking story in today’s Washington Post confirms what has seemed probable all along: the subprime housing scams that sank our economy were a vast criminal enterprise that Alan Greenspan not only knew about from the start, but actively encouraged.
Read it all, but here’s a brief excerpt that goes to the underlying problem with the anti-Keynsian Chicago school of economics — what Paul Krugman calls the “freshwater school.” This is a failure to see that the big picture is made up of millions of tiny dots. In laymen’s terms, these are known as “human beings.”
Throughout the lending boom, consumer advocates trooped regularly to the Fed’s monumental marble headquarters on Constitution Avenue to offer specific accounts of abuses in financial transactions. But what seemed powerful to advocates often was dismissed as anecdotal by regulators.
“The response we were getting from most of the governors and the staff was, ‘All you’re able to do is point to the stories of individual consumers, you’re not able to show the macroeconomic effect,’ “ said Patricia McCoy, a law professor at the University of Connecticut who served on the Fed’s consumer advisory council from 2002 to 2004. “That is a classic Fed mindset. If you cannot prove that it is a broad-based problem that threatens systemic consequences, then you will be dismissed.”
Fortunately those dark days at the Fed are past. President Obama’s choice to continue as its chairman, Ben S. Bernanke, is outraged:
Bernanke asked the Fed’s lawyers to revisit their concerns and, in July 2007, the Fed announced a pilot program to examine a few subprime affiliates.This summer, pronouncing itself satisfied with the results, the Fed announced it would launch regular consumer compliance examinations.
“In looking at our responsibility to enforce these consumer laws we believe a somewhat more proactive stance is justified,” Bernanke told Congress.
Ryan Grim argues that the Federal Reserve Board, over the years, has bought up or otherwise co-opted much of the economic community. With these results:
Greenspan told Congress in October 2008 that he was in a state of “shocked disbelief” and that the “whole intellectual edifice” had “collapsed.” House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”
“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well…”
Though [Alan Blinder] is squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.
Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. “Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant,” says Johnson.
In closed-door meetings, Blinder did what so few do: challenged assumptions. “The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he’d come out and say, ‘Well, that’s not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.’ And it just created a stir inside — it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was disrupted.”
It didn’t sit well with Greenspan or his staff. “A lot of senior staff...were pissed off about Blinder — how should we say? — not playing by the customs that they were accustomed to,” Johnson says.
Ben Bernanke didn’t make that mistake, and look where he is today. We’re in safe hands.
A column by my nephew, Will Doolittle of The Star-Post in Glens Falls, New York:
FORT EDWARD, NY — Jim Sullivan looked at his 3-year-old son Jimmy, sleeping on his wife’s lap, his head turned to the side, his mouth and nose smushed against her chest.
“This is his third head of hair,” Sullivan said.
The drugs Jimmy takes have made his hair fall out. He was born with Down syndrome and, last October, after a bad summer of fevers and vomiting and nasal and chest infections, he was diagnosed with leukemia.
Because of the Down syndrome, Jimmy’s family gets a Medicaid waiver for his care, which they have needed recently. In May, after Jim tipped over an 18-wheeler on a sharp corner, he lost his job as a truck driver.
Losing his job meant losing the family’s health insurance. Jim and his wife, Valarie, also have two daughters — Victoria, 5, and Abigail, 4. The whole family was home on Monday morning this week. Abby, wearing a pink unicorn suit, was sitting at the kitchen table with her parents, peering up at them as they talked about their struggles.
They have three sources of income: Jim’s unemployment insurance, Jimmy’s supplemental security income and food stamps. Valarie used to work as a bus driver, but, after Jimmy’s diagnosis, she stopped to stay home with him. Now she and Jim are both looking for jobs.
Valarie went to Aldi’s, where they were hiring a cashier. About 60 people showed up for the one job, she said. “When we both were working, we were OK,” Jim said. With neither one working, they are not OK.
Last year, they got a couple of months behind on their mortgage. When they tried to make a payment, the mortgage company — Tammac — wouldn’t cash the check because they sent only enough for one month, not the full amount.
Now, they’re about a year behind, and Tammac’s representatives call their house to berate them and threaten foreclosure. Friends and family have given them some cash, which they used to pay the $1,500 fee for a company, Amerihelp on Long Island, to negotiate a loan modification on their behalf.
But it has been nine months since then and nothing has changed.
They’re still in their house, but they’re still way behind on their mortgage. Jimmy is doing better, but he still has leukemia. He loves his bedroom in their little house off Durkeetown Road — “he just loves that room and being in it,” Valarie said. But she doesn’t know how they’re going to stay. She lives with the worry that, any day, they will be forced to leave.
Maybe Ben Bernanke can help. Then again, maybe not: “The damaging error that Bernanke — and Treasury Secretary Timothy Geithner have committed is to hand out all that money without demanding anything in return from the bankers and financiers.”
Like forcing them to renegotiate the subprime mortgages they continue to milk for every last penny. Ask the Sullivans.
Somehow I missed the factoid below when it first came out, but Skimble has pointed me to it. Follow this link for a stunning bar graph that makes the point so clearly that the even most mindless Republicans on the country club terrace should be able to grasp it. Not that they will.
Since 1929, Republicans and Democrats have each controlled the presidency for nearly 40 years. So which party has been better for American pocketbooks and capitalism as a whole? Well, here’s an experiment: imagine that during these years you had to invest exclusively under either Democratic or Republican administrations. How would you have fared?
As of Friday, a $10,000 investment in the S.& P. stock market index* would have grown to $11,733 if invested under Republican presidents only, although that would be $51,211 if we exclude Herbert Hoover’s presidency during the Great Depression. Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent over nearly 40 years.
An Australian reader of TPM is confused…
I cannot understand why a bunch of people feel so outraged about having universal health care policy. How is that socialism? My country along with a bunch of Europeans have had similar systems for years and although they’re not perfect, they allow for the poor, middle and upper classes to seek treatment at no cost.
I’m confused about why this is confusing.
What do you think being rich means? It’s not about having enough; positive psychology tells us that. It’s about being ahead; and how do you know if you’re ahead if you can’t turn around and see most people behind you? If your health insurance sucks, everyone else needs even worse. If your life sucks, everyone else’s should suck more.
Socialism, according to this view, is the idea that we should all have more or less the same of whatever it is we’re talking about. As a libertarian socialist, I’m not completely comfortable with that definition, but it’s not as far off as many others that are bandied about (such as the idea that socialism involves centralized decision-making). And it certainly seems to fit how Americans think of socialism.
Which is why we find it so repulsive. Here I am doing all this crappy stuff, disgusting in many ways, scrambling to get past people, leaving friends in my wake, and feeling terrible about it but denying those feelings. And you’re telling me the whole enterprise is screwed? Them’s fightin’ words.
Ramsey Clark put it simply: there’s only been one kind of government in history, though it takes many forms, and that is plutocracy. This could theoretically change; but it won’t until the psychology of the masses improves to the point that the vast majority give up trying to be rich, trying to be ahead, trying to win. As long as we glorify gain and ridicule empathy, we’ll continue on the path that Thorstein Veblen depicted in his Theory of the Leisure Class.
Veblen is to sociology what Darwin is to biology: his theory makes sense of a bunch of apparently disparate data. (In this excerpt from the Wikipedia entry I’ve omitted the links because Wikipedia entries link to every defined term and phrase.)
Veblen developed a 20th century evolutionary economics based upon Darwinian principles and new ideas emerging from anthropology, sociology, and psychology. Unlike the neoclassical economics that was emerging at the same time, Veblen described economic behavior as both socially and individually determined and saw economic organization as a process of ongoing evolution. This evolution was driven by the human instincts of emulation, predation, workmanship, parental bent, and idle curiosity. Veblen wanted economists to grasp the effects of social and cultural change on economic changes. In The Theory of the Leisure Class, which is probably his best-known work, because of its satiric look at American society, the instincts of emulation and predation play a major role. People, rich and poor alike, attempt to impress others and seek to gain advantage through what Veblen coined “conspicuous consumption” and the ability to engage in “conspicuous leisure”. In this work Veblen argued that consumption is used as a way to gain and signal status. Through “conspicuous consumption” often came “conspicuous waste,” which Veblen detested. Much of modern advertising is built upon a Veblenian notion of consumption.
As Chomsky says, if economics were a real discipline, it would study these issues. But since it’s funded by those whose status is assured by their position at the top of the economic heap, the question of whether getting ahead is a good thing never comes up. Thus it’s left to psychology and religion, which get no funding because they produce no product. But, you say, economics produces nothing either? Not true; it produces justifications for exploitation.
Steal from Goldman Sachs and the FBI’s all over you like crows on roadkill. Goldman Sachs steals from you? Not so much. The worst that could happen is they make you Secretary of the Treasury.
NEW YORK (Reuters) – A former Goldman Sachs computer programer accused of stealing secret trading codes from the investment bank was being held in federal custody on Monday, pending the posting of $750,000 bail.
Sergey Aleynikov, 39, was ordered by U.S. Magistrate Kevin Nathaniel Fox in Manhattan on Saturday to post a $750,000 personal recognizance bond to be secured by three financially responsible people…
He is accused of “theft of trade secrets” related to computer codes used for automated stock and commodities trading at an unspecified financial institution. Sources familiar with the situation have told Reuters columnist Matthew Goldstein that the financial institution is Goldman Sachs.
While we’re on the subject of disgusting greedheads (see previous posting), let’s take a look at what the banksters are up to as well. You knew the current run-up in gas prices wasn’t plain old Econ. 101 stuff, didn’t you? A simple case of supply and demand?
Here’s why you were right. The excerpts are from McClatchy Newspapers, which have been out in front of the MSM on this story, as on so many others.
June 12: Oil prices shot past $72 a barrel this week, and a growing number of experts point to Wall Street speculators as a key reason why Americans are suddenly paying a lot more for oil and gasoline…
May 20: …This turns oil futures contracts into a way for investors to hedge against inflation at the expense of American consumers, who have to pay more to fill their gas tanks as oil and gasoline prices rise.
Masters and other critics say this speculative flow of money into commodities markets is a self-fulfilling prophecy that’s distorting the usual process by which buyers and sellers set prices and is driving up the prices of oil, gasoline, grains and other essentials…
And for facts and figures, see the PDF from which the following summary comes:
In our new world of trillion dollar Wall Street bailouts, $110 billion does not seem as shocking as it once did, but this number must be put it in perspective. The U.S. Congress and President Bush passed the Economic Stimulus Act of 2008 in February of last year. It called for tax rebates of between $300 and $600 per person. By the time this stimulus finally reached the average American, the high cost of energy and food prices had nearly canceled out the entire economic benefit of the bill. At that point, the Stimulus bill simply helped Americans pay the “excessive speculation tax” levied on energy and other commodities…
Once again we have William Jefferson Clinton, Wall Street’s BBBB (Butt Boy Before Bush), to blame for this disaster. Him and his Treasury Secretary, the sainted Robert Rubin of Goldman Sachs. Here’s Jim Hightower on this point:
Why is this allowed? Because the Commodity Futures’ Modernization Act of 2000 included a provision that was quietly tucked into the law by then-Sen. Phil Gramm, R-Texas, specifically prohibiting any regulation of such commodity-based derivatives. Among the enthusiastic backers of this legalized thievery were Robert Rubin, the Wall Streeter who was Bill Clinton’s treasury secretary, and his protege, Larry Summers, who is now Barack Obama’s chief economic advisor.
This bipartisan cabal created a speculative mechanism that’s presently sucking money out of your pocket with every gallon of gas you pump. Meanwhile, every dollar that Goldman, Morgan and the rest use to inflate oil prices is a dollar they are not investing in real economic activity that could create middle-class jobs…
Wonderful post on unions by Joe Bageant today. The taste below contains a quote — the one about one man, one vote — that was new to me. The unnamed speaker had nothing to worry about. In two short years the Supreme Court would solve his problem by ruling in Buckley v. Valeo that money was the functional equivalent of votes: the more of the former you had, the more of the latter you could buy.
If a few pricks and gangsters have occasionally seized power over the dignity of labor, countless more calculating, bloodless and malevolent pricks — the capitalist elites — have always held most of the cards — Gould could sneer, “I can always hire one half of the working class to kill the other half.” And why a speaker at the U.S. Business Conference Board in 1974 could arrogantly declare, “One man, one vote has undermined the power of business in all capitalist countries since World War II.” And why that same year Business Week magazine said, “It will be a hard pill for many Americans to swallow — the idea of doing with less so that big business can have more. Nothing in modern economic history compares with the selling job that must now be done to make people accept this new reality.”
I knew of course, like most of us, that the current economic collapse was caused by a bunch of horse thieves making shit up. In this case, money.
But I never understood the actual mechanics until I read this analysis on Of Two Minds by Zeus Yiamouyiannis. It sounds right to me, but what do I know? I was an English major. Read it and tell me what you think.
Who needs the Mafia when we’ve got Congress? Here’s a taste from William Greider. Go read it all in The Nation.
The much-celebrated “Credit Cardholders’ Bill of Rights” is a fresh example of how the Democratic Party tries to have it both ways — avoiding the tough votes while mollifying the folks. The credit card reform measure imposes new rules on the industry and does away with many of the most outrageous gimmicks bankers use to extract more money from debtors. Banks cannot raise interest rates retroactively on old credit card balances or pile on hidden fees or fail to give advance notice for rate increases. These and other changes are worthy.
The achievement seems less courageous if you know that Congress was largely ratifying the regulatory rules already adopted by the Federal Reserve last year. Or that the legislation gives the industry another nine months to gouge their customers before the new rules go into effect. Or that Visa and MasterCard, Citigroup and JPMorgan Chase are free to raise future interest rates to the sky — without limit. That is the industry’s intention, as bank lobbyists reported after the bill was passed.
One of the fundamental issues that party managers wished to avoid was the scandal of American usury. Usury is the ancient sin of charging inflated interest rates sure to ruin the borrowers. It is considered immoral by Judaism, Christianity and Islam because usury involves the powerful using their wealth to ensnare weak and defenseless borrowers. The classic usurer offers an impossible choice that debtors cannot easily refuse. If they reject the terms of the loan, they will not be able to pay the rent or buy necessities. If they accept the usurious interest rates, their debts will accumulate until they are bankrupted (at which point the creditors claim their property). No civilized society can endure in such conditions.
Usury used to be illegal in the United States but it was “decriminalized” in 1980 — the dawn of financial deregulation. A Democratic president and Congress repealed all interest-rate controls and the federal law prohibiting usury. Thirty years later, American society is permeated with usurious practices — credit cards charging 30 percent and higher, subprime mortgages and other forms of predatory lending, the notorious “payday” loans that charge desperate working people an effective interest rate of 500 percent or more. Businesses, especially smaller firms, are also prey to usury in less direct ways…
Here’s what was happening while our “best and brightest” were studying economics at Harvard (a notorious gut major when I was teaching there) so they could be yuppie investment bankers and never grow up.
Last month, my news assistant came in with a new Blackberry. Only it wasn’t a Blackberry. It was a cheap Chinese knockoff of a Blackberry. Of course, the Chinese knockoff wasn’t the same as a real Blackberry. It was better.
He’d had a real Blackberry for six months — bought it on a trip to the US for $400, then had to pay another hundred or so in Vietnam to get it unlocked for local mobile service — and it was inconvenient and flukey. The new one, he found easier to use. The parts, obviously, were exactly the same — they clearly came from the same factories. But he even found the Chinese software more convenient. They were adding features that hadn’t existed on the “real” Blackberry. The knockoff cost $150.
I thought about this after reading this Derek Thompson Atlantic Business post referencing BusinessWeek’s Michael Mandel’s article arguing that the US may be losing its innovative edge. Mandel points out that the US ran a $30 billion trade surplus in advanced tech in 1998. By 2007 it was a $53 billion deficit. Thompson asks: “Where Mandel’s explanation comes up short is: What are these innovators doing wrong?”
The example of the Chinese knockoff Blackberry suggests that maybe US innovators aren’t doing anything wrong. It’s just that they’re now competing against Chinese innovators, where they weren’t 10 years ago. This may have happened for two reasons. The first is that lack of intellectual property protection, combined with the outsourcing of manufacturing for all those high-tech products to China, gradually destroyed the US’s technological edge.
The second is that in 1998, China didn’t have very many top-flight engineers. But they’ve spent the last 10 years doing nothing but graduate engineers, and now, they do. And that changes everything.
Sure it’s like kicking a cripple, but let’s explore the crossed synapses of the Newt brain anyway. Here’s Thomas Frank, the Wall Street Journal’s house liberal:
…As an example of this habit of mind, consider the essay that Mr. Gingrich published in Human Events last week. “The current liberal bloodlust over interrogations,” he wrote, referring to the Nancy Pelosi-CIA flap, is merely “the Left’s attempt to hunt down and purge its political opponents.” And yet, in a different essay he published on the very same day (this one in the Washington Times), Mr. Gingrich regretted that, in all the years of Republican rule, “there was a strategic failure to root out the left and the special interests of the left.”
Mr. Gingrich’s side failed to “root out” and destroy their opponents; now he imagines that this is what is being done to his team.
Psychotherapists might call this “projection,” and something similar pervades the essay the remarkable Mr. Gingrich published only two days later in the Washington Post. Here the former speaker can be found calling for a populist revolt in the “great tradition of political movements rising against arrogant, corrupt elites.”
A healthy sentiment, to be sure, except for the fact that “elites” are exactly what decades of conservative rule gave us by unleashing the banks, smashing the unions, and funneling the economy’s gains into the hands of the rich…
Riding freights around the country many years ago, I ran across a man who told me, “If you’re ever hungry, boy, ask a poor man.” Good advice, and still good today:
America’s poor donate more, in percentage terms, than higher-income groups do, surveys of charitable giving show. What’s more, their generosity declines less in hard times than the generosity of richer givers does…
Indeed, the U.S. Bureau of Labor Statistics’ latest survey of consumer expenditure found that the poorest fifth of America’s households contributed an average of 4.3 percent of their incomes to charitable organizations in 2007. The richest fifth gave at less than half that rate, 2.1 percent…
Pastor Coletta Jones, who ministers to a largely low-income tithing congregation in southeast Washington, The Rock Christian Church, thinks that poor people give more because they ask for less for themselves.
“When you have just a little, you’re thankful for what you have,” Jones said, “but with every step you take up the ladder of success, the money clouds your mind and gets you into a state of never being satisfied.”
Don’t reject Charles Hugh Smith’s assessment of Medicare before you’ve read his whole argument. Unless you’re a better person than I am, he has thought harder about the matter than we have.
Given the choice between government ownership (Veterans Administration) and a “please loot and overmedicate us” Medicare system, I’d go with the VA model. The bastardized socialism of Medicare (no ownership, no accountability to anyone) is the worst possible system; at least the pure socialism of the VA eliminates the stupendous incentives for looting (bill for services) and the malpractice nightmare in which providers’ attempts to ward off lawsuits via endless tests and specialists end up costing more than the lawsuits (go ahead and sue the VA; good luck with that).
Given a choice between government care and a completely free market, I’d choose the free market — as “unfair” as it is. If people had to pay all their medical care in cash, an astonishingly rapid transformation would take place: virtually no provider could collect the bills Medicare routinely pays. The single greatest driver of Federal insolvency (Medicare) would disappear.
In terms of social welfare, the government could then fund modest programs in support of wellness and not getting ill in the first place, instead of funding programs which encourage illness because it’s so darned profitable, while keeping people well is insane because there is literally no profit in that at all…
They’re mad as hell, and they’re not gonna take it anymore. Who? Wall Street bankers, of course.
The mighty Atlases upon whose shoulders we sit are getting angry at our ingratitude. They give, we take; they build wealth, and we sponge off it; they motor the world, and all we do is unthinkingly criticize and complain when the invisible hand of the market rewards them. Well, Mr. and Mrs. American whiner, they want you to know they’ve had it, as reported by Gabriel Sherman in this article in New York Magazine:
“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.
“I’m not giving to charity this year!” one hedge-fund analyst shouts into the phone, when I ask about Obama’s planned tax increases. “When people ask me for money, I tell them, ‘If you want me to give you money, send a letter to my senator asking for my taxes to be lowered.’ I feel so much less generous right now. If I have to adopt twenty poor families, I want a thank-you note and an update on their lives. At least Sally Struthers gives you an update.”
You might think your life is tough, what with losing your job, your home, your retirement, but you just don’t get it. Your perspective is warped by the distorting prism of reality. You should have gone to Columbia or Wharton. Maybe then you’d understand that the rich have special needs. They also face special problems, the likes of which you and I could never hope to understand. For example, cost structures. Cost structures are an invisible web of interlocking expenses that, well, force you to be a greedy snob. A former Goldman Sach’s man explains:
To Wall Street people who have grown up in the bubble, the meaning of the crisis is only slowly sinking in. They can’t yet grasp the idea of a life lived on less. “Without exception, Wall Street guys have gotten accustomed to not being stuck in the city in August. So it becomes a right to have a summer home within an hour or two commute from Manhattan,” says the Goldman vet. “There’s a cost structure of going with your family on summer vacation that’s not optional. There’s a cost structure of spending $40,000 to send your kids to private school that is not optional. There’s a sense of entitlement, that you need that amount of money just to live, that’s not optional.”
Do you get it yet? If you happen to be stuck in the unemployment line this August, just know it could be worse: you could be stuck in a dreary penthouse in Manhattan. But then again, you didn’t go to Columbia or Wharton, so it’s probably not sinking in. It’s all about cost structure, which never enters our beautiful minds, or the beautiful minds of those lucky Sysco delivery drivers who get to idle away their days in huge, shiny trucks.
There’s one more thing. A lot of these beneficient Wall Street people were willing to vote for Obama. You know, because they care about you, me, America in general. But this liberal sense of entitlement he’s been spreading around violates their free market principles, and not even the billions of dollars in TARP money that he’s giving them is enough allay their concerns. Thus, they warn, Wall Street just might do something unheard of in the history of American finance — turn right!
During the campaign, Obama was never shy about his promise to undo the Bush tax policies. But it was easy to ignore his occasional lapses into populist rhetoric and focus on his intense intelligence and Ivy League education. Now, in the wake of the crisis, Wall Street’s politics are shifting rightward. “All the rich people I know took George Bush for granted,” says an analyst at a midtown hedge fund. “I’m a Democrat, but I agree with Rush Limbaugh on a lot of this stuff,” rails the wife of a former AIG executive.
The argument that Obama has in fact done a great deal to help Wall Street—to the tune of trillions of dollars—doesn’t have much truck with these critics. “If you really take a look at what Obama is promising, it’s frightening,” says Nicholas Cacciola, a 44-year-old executive at a financial-services firm. “He’s punishing you for doing better. He doesn’t want to have any wealth creation—it’s wealth distribution. Why are you being punished for making a lot of money?” As a Republican corporate lawyer puts it: “It’s the politics of envy, and that’s very dangerous.”
There you have it. We’re pushing Wall Street right into the arms of Rush Limbaugh. When they deliver us to another Republican regime, we’ll only have ourselves to blame.
I bet you feel really stupid now about complaining over paying their bonuses.
Subprime mortgages, deregulation, derivatives, huge deficits to finance a stupid war, record trade imbalances, outsourcing jobs … who knew that it was all part of Bush’s secret plan to seal the borders:
MEXICALI, Mexico — Census data from the Mexican government indicate an extraordinary decline in the number of Mexican immigrants going to the United States…
Mexican and American researchers say that the current decline, which has also been manifested in a decrease in arrests along the border, is largely a result of Mexicans’ deciding to delay illegal crossings because of the lack of jobs in the ailing American economy.
The trend emerged clearly with the onset of the recession and, demographers say, provides new evidence that illegal immigrants from Mexico, by far the biggest source of unauthorized migration to the United States, are drawn by jobs and respond to a sinking labor market by staying away.
If you set out to completely discredit the bankers and eviscerate their political power, you’d proceed exactly as Obama has done, enabling it to reach its reductio ad absurdum conclusion of fat bonuses and tax-funded bailouts in the trillions of dollars, at which point the public will rise up in fury, doing the work which was impossible for you, a new “liberal” president…
What better way to trigger “change” that even the banking Aristocracy are powerless to stop than to give them everything they want: no restrictions on stupendous bonuses, no punishment or prosecution, no mark-to-market rules with actual bite, no limits on accounting legerdemain, and on and on and on?…
And what will be the result? A complete repudiation of the entire Bush/Treasury/banker bailout and “free pass” to further plundering. And when the public rises up in righteous fury, then you appear to bend, almost reluctantly, to “the public will.”
This is from a review of Richard Posner’s new book, A Failure of Capitalism. The reviewer is MIT’s Robert M. Solow, who won the 1987 Nobel Prize in economics.
It seems to me that effective limits on leverage, even if they have to be different for different classes of institutions, are basic to controlling the potential instability of the financial system. Even with more transparency, extreme leverage is what generates extreme uncertainty and systemic risk.
And it also encourages the dangerous compensation practices that Posner pillories. Leverage allows a clever player to manage enormous sums; it is then irresistible to focus on the short run and skim off mind-boggling paychecks and bonuses before the opportunity goes away…
The financial system does have a useful social function to perform, and that is to make the real economy operate more efficiently. Some human institution has to collect a nation's savings and put them at the disposal of those who have productive ways to use them. Risks arise in the everyday business of economic life, and some human institution has to transfer them to those who are most willing to bear them.
When it goes much beyond that, the financial system is likely to cause more trouble than it averts. I find it hard to believe, and I suspect that Judge Posner shares my disbelief, that our overgrown, largely unregulated financial sector was actually fully engaged in improving the allocation of real economic resources. It was using modern financial technology to create fresh risks, to borrow more money, and to gamble it away.
Greg Mankiw is an interesting case: a sometimes rational, apparently intelligent, and to some extent even open-minded professor of economics at Harvard who advised the Bush administration. Whah?
In the Sunday Times he’s written a short and interesting piece proposing that the Fed use one of a number of possible schemes to lower interest rates below zero. Does it bring you up a bit short to have such an idea proposed by a former Bush advisor? Wait, there’s more.
He acknowledges the unlikelihood of anyone with spare cash wanting to loan it at sub-zero interest rates. But there are ways to get around that, and one of his grad students came up with a clever one recently. The Fed announces the policy that once a year it will draw out of a hat a number between 0 and 9. All currency with serial numbers ending in that digit would be immediately invalid.
When the expected return on holding cash is minus ten percent, people would be glad to lend at minus three percent, lending a hundred bucks and getting back 97. Or alternatively they could find it more appealing to spend the money; but since economic stimulation is what we’re after, that’s a feature, not a bug.
Attentive observers, meaning all BA readers, will observe that large chunks of cash are not widely kept in bills with serial numbers, they’re simply bits on a computer disk somewhere. But the principle is a fascinating idea. We’re giving billions, eventually trillions, to the banks and Wall Street, who are passing it out in bonuses and dividends. In other words, taxpayers are giving their money to the rich, to assuage the latter’s angst over having destroyed the economy. Unfortunately they’re not yet flush enough with our money to begin loaning it back to us. Maybe we need to force their hands.
If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.
Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.
Do we still have an injustice barometer, or do we depend on mediated rage for an outlet? And how bad is it when a former Bush advisor is way ahead and to the left of the President who was gonna change everything?
From such higher life forms as vampire bats all the way down to human beings, taxes are a necessary way of life:
It’s also hard to cheat when you live in a small band of big-brained, sharp-eyed individuals, as humans did for vast stretches of our past, which may help explain why we are so easily taxed. “There’s not a human society in the world that doesn’t redistribute food to nonrelatives,” said Samuel Bowles, director of the behavioral sciences program at the Santa Fe Institute. “Whether it’s through the state, or the chief, or a rural collective, or some other mechanism, food sharing of large nutritional packages is quite extensive and has been going on for at least 100,000 years of human history.” In hunting and foraging cultures, the proportional tax rate is so high, said Dr. Bowles, that “even the Swedes would be impressed.”
Take the case of the Ache tribe of Paraguay. Hunters bring their bounty back to a common pot. “The majority of calories are redistributed,” he said. “It ends up being something like a 60 percent income tax.”
Pastoral and herding societies tend to be less egalitarian than foraging cultures, and yet, here, too, taxing is often used to help rectify extreme inequities. When a rich cattle farmer dies among the Tandroy of southern Madagascar, Dr. Bowles said, “The rich person’s stock is killed and eaten by everyone,” often down to the last head of cattle. “That’s a 100 percent inheritance tax.”
Am I missing something? The newest wrinkle on the politic/private derivatives bailout, outlined in yesterday’s New York Times, is a new plan to include the everyday Main Street investors in the action.
Several hedge funds are involved. They would purchase a bundle of “toxic assets” and resell them in small lots to average investors. If the assets prove to be more valuable than the price paid, the small investors will, theoretically, profit. If the “toxics” prove to be worth less than the big funds paid, then the little investors lose.
Hold on now. As part of the plan to lure Wall Street’s big players to the game, the United States is guaranteeing the loans the big guys will use to leverage their investments in “toxics,” so they can buy more. If the deal turns sour, the big firms are to be held harmless on their loans and the taxpayers eat the losses.
How about Main Streeters? If they borrow, say $500 against $500 in cash to buy some of the small lots, and the underlying deal goes South, they get no such protection from the U.S. Treasury.
Frank Partnoy in his book Fiasco says, “…the history of finance is: Wall Street bilks Main Street.” Unless I’m missing something, this time the U.S. government is helping out Wall Street to achieve its primary purpose: to screw the little guy. Maybe we should ask Obama aides Lawrence Summers and Robert Rubin, major defenders of derivative trading. Perhaps they will help?
Here’s TPM on how the GOP is twisting a scientist’s study of how much cap-and-trade legislation would cost. Cops, who are intimately familiar with this process, call it “testilying.”
• April, 2007: Reilly and several coauthors release a paper titled "Assessment of U.S. Cap-and-Trade Proposals, which estimates early annual revenues from such legislation would run $366 billion.
• Sometime between April, 2007 and March, 2009: House Republicans get a hold of his paper, divide $366 billion by the number of households in America, and conclude, erroneously, that the quotient ($3,128) will be the average cost per home.
• March, 2009: Republicans begin using this number in press releases, citing Reilly's study.
• Shortly thereafter: The Obama administration gets in touch with Dr. Reilly and asks him to explain his study and the number — he corrects the record.
• A week or so ago: Independently, a woman who says she's with the House Republicans calls Reilly — aware of the number, she invites him to come testify against cap and trade legislation. Reilly informs her that her number is probably wrong, and that he supports cap and trade legislation.
• A couple days ago: A group contacts Reilly to inform him that a large number of press releases were being issued, still trumpeting the false cost…
What do I know about what really goes on in the backrooms of the Wall Street casino? Nothing, so I’m reduced to relying on Nobel Prize-winning economists like Paul Krugman, who says that Obama’s plan to clean up the mess won’t do anything but give our money to the card sharps who broke the bank in the first place.
And now here's Nobel Prize-winning economist Joseph E. Stiglitz saying the same darned thing. Goodness, what’s a poor boy to think?
Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).
What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.
I know as much about the principles that govern Wall Street gambling as I do about astrophysics. But I’m willing to take George Soros’s word for it; he seems to be that rare combination, somebody who is both smart and rich.
In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG’s outstanding positions without abrogating any contracts…
Up until the crash of 2008, the prevailing view — called the efficient market hypothesis — was that the prices of financial instruments accurately reflect all the available information (i.e. the underlying reality). But this is not true. Financial markets don’t deal with the current reality, but with the future — a matter of anticipation, not knowledge. Thus, we must understand financial markets through a new paradigm which recognizes that they always provide a biased view of the future, and that the distortion of prices in financial markets may affect the underlying reality that those prices are supposed to reflect. (I call this feedback mechanism “reflexivity.”)
“Changes in the structure of income distribution between 2002 and 2007 reveal three clearly distinct situations. Nine countries (Argentina, Bolivarian Republic of Venezuela, Bolivia, Brazil, Chile, El Salvador, Nicaragua, Panama and Paraguay) have significantly narrowed the gap between the groups at the extreme ends of the spectrum, both by increasing the poorer groups’ share of total income and by lowering that of the highest-income households.
“The most notable reductions in the two aforementioned indicators (36% and 41%, respectively) were recorded in the Bolivarian Republic of Venezuela. Significant improvements were also observed in Bolivia, Brazil and Nicaragua, where both indicators fell by about 30…”
What Cepal fails to point out, perhaps unsurprisingly, is the politics of all this. Hugo Chavez’ Venezuela as the fastest improver? A pile of centre-left governments (Evo Morales in Bolivia, Lula in Brazil and — ahem — Daniel Ortega in Nicaragua) following close behind? This is provocative stuff.
Don’t get too excited, though. These improvements only get us back to the level of the early 1990s, (though that’s no small achievement in a world where inequality generally goes in the opposite direction). Moreover, a lot of these positive trends are now under threat from the impact of the global crisis, which is cutting regional growth to zero (from 5%), hitting employment and wage levels and reversing the trend towards formalization. Sigh.
As usual William Greider is looking ahead, so he’ll probably be discounted by those still fooling themselves about the present.
Something fundamental has been altered in American politics. Encouraged by Obama’s message of hope, agitated by darkening economic prospects, many people have thrown off sullen passivity and are trying to reclaim their role as citizens. This disturbs the routines of Washington but has great potential for restoring a functioning democracy. Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and on Wall Street. Ideas that could lead to the creation of a corporate state, legitimized by government and financed by everyone else. Once people understand the concept, expect a lot more outrage.
Public anger is likely to be a recurring episode, because the president has budgeted another $750 billion to rescue the financial system from its troubles. If Congress gives him the money, people will be watching where it goes. Obama is vulnerable to the blowback. In his address to Congress last month, he promised, “This is not about helping banks, it’s about helping people.” The first half of his statement is demonstrably not true, as people see for themselves and as bankers parade their arrogant excess. The second half is merely wishful.
Realistically, says the author of the definitive history of the Federal Reserve (Secrets of the Temple: How the Federal Reserve Runs the Country), we need a fundamental shift in the relationship between the country’s politics, at least nominally democratic, and its finances, more or less explicitly plutocratic. The central theme of American life is concentration of wealth; it explains nearly every government action.
If people and the president do not stand up for just solutions, politics as usual will prevail. Congressional leaders are once again rushing to enact hasty “reforms” that might get the financial monkey off their back, but will permanently damage our democracy. Elite opinion wants to empower the Federal Reserve to act as the “super-cop” protecting the financial system against systemic risk in the future. This idea is another instance of rewarding failure. The Fed was blind to the systemic risk accumulating during the past two decades and it failed utterly to head off the excesses — the explosion of debt and Wall Street’s fraudulent valuations. The central bank, in fact, with its erratic monetary policy, was a central source of what destabilized the economy.
Why would politicians make this cloistered and unaccountable institution more powerful, when the Fed has been derelict in its historical obligation to protect the “safety and soundness” of the system? Reforms ought to head the opposite way — forcing the Fed into daylight and the same regular order required of government agencies.
Thurman Arnold, a Yale law professor from Wyoming who became FDR’s trust-buster, in 1937 published a book called The Folklore of Capitalism. He knew a thing or two about depressions by then, and maybe we can learn from him. Not that we will. We still believe in the same mythology, and it has gotten us into the same mess. What the hell, though. Here’s an excerpt from his book:
In every field of industrial activity great organizations had built themselves into similar positions of power. They had done so under a mythology of private property which prevented those who were exploited from observing what was going on. The public saw the whole series of events as a series of horse trades by independent individuals. This mythology had become so completely misleading that men could not diagnose what was wrong when these corporate principalities failed to function, or why they injured so many people. The remedies proposed on the assumption that the corporations were individuals working for profit came out wrong because the corporations were not individuals. It was as if men assumed that an automobile was a horse and tried to run it on hay.
The class of people who could use these financial symbols realistically and unscrupulously rose to power, regardless of their efficiency as producers. They operated within a folklore which regarded the trading instinct as the salvation of the country. Traders are necessarily ruthless men. The ethics of trading is a series of ethical contradictions. Therefore, when everyone else had dropped the reins of power, this small group was in a position to seize them.
Thus the Van Sweringens, who had acquired their trading skill in real estate, obtained control of great railroad enterprises. Small blocks of stock representing an infinitesimal part of the so-called partnership gave them power over an empire. The power thus gained was without any responsibility because these blocks of stock were thought of as private property. Men skilled in the tricks which could be played with these cards could always dominate experts in transportation when the control of a railroad was at stake.
If one reads the careful investigation made by the Securities and Exchange Commission into the activities of protective committees in reorganization, one finds that those in control were almost always financiers and not technicians. A trading class was elevated to power who knew nothing of the techniques of the organizations which they led. Actual goods and services were dispensed by a great army of salaried technicians who were given neither power nor security. Economics and law assumed that everyone was acquiring private property under the impulsion of the ‘profit motive.’ “You can’t get efficiency in operation without a profit motive,” said the profound students of social organization.
When such organizations got into trouble, the remedies proposed were formulated on the assumption that they were to be applied to individuals who were exercising independent control of tangible things which they owned. Had there been a realization that these organizations were not dealing with
private property, it would have been obvious that the remedy
lay in giving the control to men with a different sense of responsibility.
The romantic legal and economic ritual of the time, however, was built up around the ideal that a trader without responsibility to the groups involved made the best general in an industrial army. In the situation which resulted only those could rise to power and rank who were more interested in the manipulation of financial symbols than in transportation, or housing, or the actual production and distribution of any sort of goods. Position and rank obtained in this fiscal world had carried no social obligation because they were subject to the rules which governed the accumulation of private property.
In the 1970s and 1980s the tiny country of Uruguay was a military dictatorship ruled by sadists and murderers. Dissenters were tortured for years in military jails. Those who survived were next sent to a nightmare of a prison called Libertad, or Liberty.
The name was not a joke. Liberty Prison was a lab experiment in which words might mean their opposite, clocks kept different and constantly changing time, calendars were inaccurate, lights were manipulated so that days would shorten or lengthen unaccountably, meals would arrive at odd intervals or not at all, and behavior that was punished on Tuesday would be rewarded on Wednesday. If indeed it had been a Tuesday or a Wednesday.
This house of mirrors had been designed by behavioral psychologists, and was carried out under their direction. And the meaninglessness had meaning. From Lawrence Wechsler’s 1998 book, A Miracle, a Universe:
Major A. Maciel, who was a director of Libertad, observed at one point, regarding the prisoners under his charge, “We didn’t get rid of them when we had the chance, and one day we’ll have to let them go, so we’ll have to take advantage of the time we have left to drive them mad.”
No matter what creatures like Cheney and Rumsfeld and Yoo and Addington may say or even believe, the goal of torture is only incidentally to elicit information. What, then were the masters of Uruguay really after with their physical and psychological tortures? Lawrence Wechsler, again, writing in the New Yorker 20 years ago:
Eduardo Galeano, the noted Uruguayan writer, provided me with a characteristically terse, aphoristic reply: “In Uruguay, people were in prison so prices could be free.”
Several other people I spoke with in Montevideo concurred, explaining that one of the main reasons for the military’s repression was to enable the generals to hand the country’s economy over to their “Chicago boys” — neoliberal economic technocrats, many of them trained at the University of Chicago under the monetarist influence of Milton Friedman, who prescribe an unfettered marketplace, with a minimum of government interference, as the cure for most of the world’s economic ills.
These economists generally oppose protective tariffs, social entitlements, minimum-wage standards, government safety-and-health regulations — the kind of things on behalf of which unions, for example, might be expected to struggle.
So what were our own torturers and psychologists in Guantánamo, Bagram, and Abu Ghraib really after? Are there parallels? Divergences? What economic philosophy has been forced on Iraq, with what results? What is the point of “mosaic intelligence” as opposed to “actionable intelligence” of the Jack Bauer variety?
Contrast and compare.
Peggy Noonan totally nails it:
The sale of antidepressants and antianxiety drugs is widespread. In New York their use became common after 9/11. It continued through and, I hypothesize, may have contributed to, the high-flying, wildly imprudent Wall Street of the ’00s. We look for reasons for the crash and there are many, but I wonder if Xanax, Zoloft and Klonopin, when taken by investment bankers, lessened what might have been normal, prudent anxiety, or helped confuse prudent anxiety with baseless, free-floating fear. Maybe Wall Street was high as a kite and didn’t notice. Maybe that would explain Bear Stearns, and Merrill, and Citi.
If President Obama forces AIG to break those outrageous bonus contracts America as we know it will come to an end. China will call in our notes. Gibraltar will tumble, the Rockies will crumble.
Or so goes the line being peddled right now not only by the administration and Wall Street, but also by significant voices in the media. For instance New York Times financial writer Andrew Ross Sorkin, who today treated this argument with ludicrous respect:
“This isn’t just a matter of dollars and cents,” [President Obama] said. “It’s about our fundamental values.”
On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.
That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.
And so on. And so forth. Read the piece and shudder for the Republic.
For God’s sake, get a grip, Sorkin. Even the dimmest sports fan knows that contracts, far from being sacred in American business or American courts, are broken every day. It is a standard, recognized business practice. Every mergers and acquisition hustler knows it; every Hollywood agent knows it; every CEO and every labor leader knows it. Potted plants know it. Birds and bees know it. Deep down, even financial writers for the Times must know it. So let’s slice the feces here, okay?
And Papa Bonk most certainly knows it, so I’ll yield the remainder of my time to the gentleman from Ketchup Is a Vegetable:
Secretary Geithner recently had one of those Lady or the Tiger choices to make. Except in his case, the doors were clear glass.
Behind one of them stood a beautiful woman dancing the mambo and singing a freedom song. That door was marked… “Just say no to AIG Bonuses.”
Behind the other door stood Barney Frank in a tiger suit backed by a mob of unemployed factory workers carrying pikes, hot tar and feathers. That door read “Take the other door, stupid.”
Secretary Geithner, wearing his Wall Street loafers with little tassels on them, a Brooks Brothers Suit and Ivy League club tie, consulted with his lawyers and set loose the mob.
Now you can’t fault a guy for listening to his lawyers, even when his lawyers are not making sense. I mean the lawyers told him he had to do it, right? If I had been his lawyer, here is what I would have told him. All contracts can be broken. The question is what do the parties do after the breach? The wronged party (in this case the AIG employees whose $165 million would not be paid) can always sue. They can also ask to settle for something else.
My advice would be let them sue. It would take from three to five years for the matter to be settled in court. In the meantime, I would have leaked to the press the fact that the Secretary had a hard balls meeting with AIG over bonuses and told them they would not be paid. The Secretary would instantly overcome a growing suspicion that the boy wonder is not so much wonder as boy. He would become a hard balls guy every bit capable of doing the tough job he has been handed. If asked about lawsuits, he would cavalierly answer, “That’s what we have lawyers for.”
To the notion that the U.S. Government does not have the authority to tell the company to abrogate the contracts, we should point out that we own 80 percent of the company. We could call a shareholders meeting and throw all the bastards out, including the CEO.
The President has done what he could to clean up this mess, but this should not have been necessary. The fact that this was a missed opportunity could not be lost on the President.
From Gail Collins today:
We are trying not to get too fixated on the fairness aspects of the bailout. However, this approach seems to resemble a plan in which you fix a classroom that’s distracted by one disruptive pupil by sending said troublemaker to a private school in Lucerne equipped with an on-campus ski lift while the rest of the kids stay at Millard Fillmore Elementary, sharing textbooks…
Instead of dancing around the problem, can’t we just have the government take over the impacted banks, hire all the unemployed bond traders to figure out how much the toxic assets are worth, dispose of them for whatever the market will bear and then sell the newly reconstituted banks back to private investors? That was Sweden’s approach, and it worked rather well.
The answer is that Americans will never do anything that Sweden does. Never have, never will. Don’t argue with me. It’s a rule.
The title above is a quote from Ronald Reagan at the 1988 Republican National Convention. He was trying to access a John Adams quote, “Facts are stubborn things,” but something more appropriate to the man and the occasion popped out.
The essay below is from my neighbor Jim, more of whose stuff can be seen here.
Compare and contrast:
1980 may seem kind of arbitrary as the jump off for the end of empire, but the economics bear it out. Under Reagan, government disbursements and revenues, as a share of GDP, jumped a full six percentage points. More, if you include his unfunded moral hygiene mandates.
All the Republicans talked Rand, Friedman, inter alia, but they acted like straightforward right wing military Keynesians. Military Keynesianism is of course nothing new in the US. But prior to 1980 there was a dominant Bismarckian consensus (have I dropped enough names yet?) that it had to be matched by social spending, otherwise the exercise of hard power would eventually become financially unsustainable.
You cannot extract surplus value — i.e. have capitalism — in great heaping bushel baskets unless you have a government willing to exercise single payer monopsony power over basic human needs, basic scientific research and renewable sources of the energy needed to drive all this. Lo and behold, the exercise of hard power is now done on credit, with only the threat of mutually assured destruction holding our creditors at bay.
I suppose one could point to a cultural shift in the eighties, as there certainly was one, but I prefer a bit more systemic determinism.
The political economy of capitalism is easiest to manage through psychological terrorism. It’s a cheap and effective way of outsourcing the quotidian enforcement of corporate feudalism to vigilante moral panic artists. There’s no shortage of people willing to enforce for free. Hell, they’ll even pay for the dubious privilege.
People become inured to this, querulous and rebellious, and the terrorism has to be stepped up. Red scares have to be coupled with ethnic scares, drug scares, satanic child care scares and so forth. Going against that, as Carter did in an achingly minuscule way, is a positive step for capitalism and a negative step for capitalists. Their enforcement costs look to climb. People who aren’t constantly depressed and frightened get a little feisty.
Under Reagan, the “clever” work-around was burgeoning unfunded mandates to make the states take on domestic psychological terrorism, and yanking the social safety net away, while the central government threw surplus value to the cretinous capitalists, hand over fist. It’s been down hill ever since.
I can’t see why anyone would want to be president after Bush. It’s not a sane thing to do. I thought, and still think, that the Democrats would have been better off throwing the election. McCain would probably not have lasted four years and right wing military Keynesianism would have been discredited for a good long time. Getting stuck with cradling the appalling, ghoulish offspring that are roving mindlessly over a dying empire would have ruined him, and the most cretinous of the cretinous capitalists.
The Democrats could have trotted out old social democratic wine in new bottles and enjoyed thirty or forty years of crowing from the top of the DC shit hill. So it goes, I guess. And my goodness, doesn’t Carter look like a saint in comparison to every asshole that’s come since.
Hint: the Lady is behind Door (b) …
Focus just on the big four money center banks: Citi, B of A, Wells Fargo, JPMorgan. According to this estimate, they need around $450 billion. Meanwhile, their combined market cap is only about $200 billion — and part if not all of that market cap surely represents the “Geithner put,” the hope that stockholders will in effect get a handout from the feds.
Given these numbers, it’s extremely hard to rescue these banks without either (a) giving a HUGE handout to current stockholders or (b) effectively taking ownership on the part of we, the people. Of these, (a) would be politically unacceptable as well as bad policy — but the Obama administration isn’t ready to go for (b), because it’s not in our “culture”.
Hence the perplexity of policy. Our best hope right now is that the “stress test” will make (b) inevitable — that Treasury will declare itself shocked, shocked to find that the banks are in such bad financial shape, leaving government receivership unavoidable.
As seen on Wall Street:
I’m afraid Jim Kunstler is right. Go read it all, and remember that no people ever had a government better than itself. We have indeed met the enemy and sure enough…
The attempted re-start of revolving debt consumerism is an exercise in futility. We’ve reached the limit of being able to create additional debt at any level without causing further damage, additional distortions, and new perversities of economy (and of society, too).
We can’t raise credit card ceilings for people with no ability make monthly payments. We can’t promote more mortgages for people with no income. We can’t crank up a home-building industry with our massive inventory of unsold, and over-priced houses built in the wrong places. We can’t ramp back up the blue light special shopping fiesta.
We can’t return to the heyday of Happy Motoring, no matter how many bridges we fix or how many additional ring highways we build around our already-overblown and over-sprawled metroplexes. Mostly, we can’t return to the now-complete “growth” cycle of “economic expansion.” We’re done with all that. History is done with our doing that, for now.
So far — after two weeks in office — the Obama team seems bent on a campaign to sustain the unsustainable at all costs, to attempt to do all the impossible things listed above. Mr. Obama is not the only one, of course, who is invoking the quest for renewed “growth.”
This is a tragic error in collective thinking. What we really face is a comprehensive contraction in our activities, especially the scale of our activities, and the pressing need to readjust the systems of everyday life to a level of decreased complexity.
For instance, the myth that we can become “energy independent and yet remain car-dependent is absurd. In terms of liquid fuels, we’re simply trapped. We import two-thirds of the oil we use and there is absolutely no chance that drill-drill-drilling (or any other scheme) will change that.
The public and our leaders cannot face the reality of this. The great wish for “alternative” liquid fuels (bio fuels, algae excreta) will never be anything more than a wish at the scales required, and the parallel wish to keep all our cars running by other means — hydrogen fuel cells, electric motors — is equally idle and foolish.
We cannot face the mandate of reality, which is to do everything possible to make our living places walkable, and connect them with public transit. The stimulus bills in congress clearly illustrate our failure to understand the situation.
The attempt to restart “consumerism” will be equally disappointing. It was a manifestation of the short peak energy decades of history, and now that we’re past peak energy, it’s over. That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money…
Opposite Land, from the New York Times:
Most Senate Republicans remained opposed to the measure, criticizing it as a case study in excessive spending that would do little to lift the economy. Some conservatives indicated Friday night that they would push for time to study the new legislation before any final vote.
“We want to stimulate the economy, not mortgage the future of our children and grandchildren by the kind of fiscally profligate spending embodied in this legislation,” said Senator John McCain of Arizona, the defeated Republican presidential nominee, who has emerged as a chief opponent of the proposal.
Real World, from Media Matters:
Economist Dean Baker, co-director of the Center for Economic and Policy Research, explains: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. ... Any reporter who does not understand this fact has no business reporting on the economy.”
Unfortunately, many of the reporters who have shaped the stimulus debate don’t seem to understand that.
ABC’s Charles Gibson portrayed spending and stimulus as opposing concepts in a question to President Obama: “And as you know, there’s a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn’t stimulate. A lot of people have said it’s a spending bill and not a stimulus…”
If there’s one fact that should be made clear in every news report about the stimulus package working its way through Congress, it is this: Government spending is stimulative.
That’s a basic principle of economics, and understanding it is essential to assessing any stimulus package. So it should be an underlying premise of the media’s coverage of the stimulus debate. Unfortunately, that hasn’t been the case. Indeed, reporters routinely suggest that spending is not stimulative.
Economist Dean Baker, co-director of the Center for Economic and Policy Research, explains: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple... Any reporter who does not understand this fact has no business reporting on the economy.”
Unfortunately, many of the reporters who have shaped the stimulus debate don’t seem to understand that.
ABC’s Charles Gibson portrayed spending and stimulus as opposing concepts in a question to President Obama: “And as you know, there’s a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn’t stimulate. A lot of people have said it’s a spending bill and not a stimulus.”
That formulation — “it’s a spending bill and not a stimulus” — is complete nonsense; it’s like saying, “This is a hot fudge sundae, not a dessert.” But nonsensical as it is, it has also been quite common in recent news reports.
There’s another problem with Gibson’s formulation, though — in describing the stimulus as a “spending bill,” he ignores the fact that the bill contains tax cuts, too. Lots and lots of tax cuts. And those tax cuts, by the way, provide less stimulus than government spending on things like food stamps and extending unemployment benefits. It probably goes without saying that Gibson didn’t ask if the bill would be more effective if the tax cuts were replaced by additional spending.
MSNBC’s Mika Brzezinski, among others, has repeatedly suggested “welfare” provisions in the bill wouldn’t stimulate the economy. This is the exact opposite of true; those provisions are among the most stimulative things the government can possibly do. There are some fairly obvious reasons why that is true, beginning with the fact that if you give a poor person $100 in food stamps, you can be pretty sure they’re going to spend all $100 of it; but if you give a rich person $100 in tax cuts, they probably won’t spend much of it at all.
But we needn’t rely on logic and common sense to know that welfare spending is stimulative; economists study these things. One such economist is Mark Zandi of Moody’s Economy.com, who served as an adviser to John McCain’s presidential campaign. Zandi has produced a handy chart showing how much a variety of spending increases and tax cuts would stimulate the economy. According to Zandi, a dollar spent on increasing unemployment benefits yields $1.64 in increased gross domestic product, and a dollar spent on food stamps yields $1.73 in GDP.
As for tax cuts, Zandi says the most effective form is a payroll tax holiday. A one dollar reduction in federal revenues as a result of such a tax holiday would produce a $1.29 increase in GDP — far less than the benefit realized from extending unemployment benefits, increasing food stamps, providing general aid to state governments, or spending on infrastructure.
Yet if you turn on MSNBC any given morning, you’re likely to find Mika Brzezinski saying something like, “I want to look at the plan and how much of it is sort of welfare programs and how much are things that we know, either from history or because economic experts somehow know this, actually stimulates the economy.” Or like this: “Does this plan add up to the definition of stimulus? I don’t think it does. And I don’t question the value of food stamps and helping low-income people pay for college. It just shouldn’t be in this bill.” Or this: “If you’re gonna have welfare programs in this bill, call them welfare programs and pass them, but don’t call them facets of the bill meant to stimulate the economy. I do feel like there’s some old politics at play here.”
There’s old politics at play, all right — the old politics of demonizing “welfare spending” without any regard for the simple truth that such spending not only helps those Americans who are struggling the most feed their families, it also does more to stimulate the economy than anything else you can think of.
What you probably won’t see is Mika Brzezinski or Charles Gibson or any other TV reporter suggesting that the tax cuts in the bill are not stimulative and should be stripped — even though they are less effective as stimulus than unemployment benefits and food stamps.
At this point, it becomes impossible to ignore the elephant in the room: Television anchors like Charles Gibson are not going to qualify for food stamps anytime soon. But they would certainly benefit greatly from some tax cut provisions that wouldn’t do nearly as much to stimulate the economy.
(This is not the first time Gibson has shown himself to be badly out of touch on basic economic issues. During a Democratic presidential primary debate, Gibson challenged the candidates on their support for repealing President Bush’s tax cuts for people making more than $200,000 a year by saying that a family in which both parents are schoolteachers would be hit by the repeal. Gibson’s cluelessness was so apparent, the audience actually burst out laughing at him.)
So far, the news media’s coverage of the stimulus debate has consisted largely of repeating false Republican spin and pontificating about which side has been making their arguments more successfully (all the while ignoring the media’s own role in aiding the GOP.)
The bright side is that if reporters care about informing the public, it’s pretty easy to do — they just have to start basing their reports on the true premise that government spending is effective stimulus, rather than on the false premise that it isn’t. Everything else flows easily from there; for example, asking Republicans why they want to lard up the bill with less-stimulative tax cuts rather than unemployment benefits.
(Jamison Foser is Executive Vice President at Media Matters for America.)
Steve Benen says:
Once in a while, a politician drops the pretense and lets his true colors come through. In this brief interview, Dick Armey, perhaps best known for calling his then-colleague Barney Frank "Barney Fag," showed just what he's made of, before a national television audience.
Here’s the silver-tongued former House Majority Leader on Hardball, debating Joan Walsh, editor-in-chief of Salon.com:
What is the role of government in the US today? The marketers say, To ruin the market. And they’re backed up by Dean Baker, an economist who actually studies the real problems.
One of those problems is economic inequality, which is now at levels last seen just before the Depression, and for similar reasons. Another is the fact the government tends to intervene in the market for one purpose only: to take money from the poor (that is, the bottom 90%) and give it to the incredibly rich.
Usually people in the United States like to believe that the market determines the distribution of income. Many get outraged over the idea that a mother on TANF can get a check for a few hundred dollars a month from the government. In this case, the government is effectively handing checks of millions of dollars to bank executives who would be out of work if the market was left to run its course.
We have to keep the financial system functioning, but we can do this without transferring hundreds of billions of dollars from middle class taxpayers to the wealthiest people in the country. If the bailout conditions imposed by the Obama administration and Congress don’t effectively eliminate shareholder wealth in the bankrupt banks and bring compensation (in whatever form) of bank executives back down to main street levels then it can only be explained by corruption. There is no excuse for this massive intervention to redistribute income upward.
You judged Paris Hilton all wrong. You thought she was nothing but a worthless, spoiled tramp, and I admit she played the part well. I myself was fooled for many years. But it turns out she’s actually a philanthropist who’s hip to the plight of the global economy. Don’t believe me? Check it out:
American socialite Paris Hilton has declared herself a saviour who shops for the greater good in tight economic times.
In Sydney to host an exclusive New Year’s dance party, the 27-year-old heir to the Hilton hotel fortune this week drew criticism for spending 5,560 Australian dollars (3,844 US dollars) in a 40-minute shopping spree.
Local charities accused her of callous excess but Hilton Wednesday defended the splurge.
“I’m in Australia, I think it’s important to help out, you know, the economy out here, everywhere in the world,” she told reporters, ahead of her New Year engagement.
“And what’s wrong with doing a little shopping? It’s New Year’s, I need a New Year’s dress.”
Acting Prime Minister Julia Gillard, questioned during a news conference Tuesday about Hilton’s shopping spree, commended the socialite for recognising Australia’s attraction as a fashion and shopping destination.
“I heard that a politician said that,” Hilton said. “I thought that was very sweet and it’s true.”
Hilton will be paid 100,000 Australian dollars by the party’s promoters for her Sydney appearance, promising a number of costume changes ahead of midnight.
Wow. That’s, like, totally cool and sweet. Now I know that I’ll be helping the economy when I go to the hardware store today to buy a pitchfork. Nothing wrong with a little shopping.
Molly Ivins, whom I continue to miss, called Lewis Lapham the best essayist in the country, and it’s still hard to find a more elegant writer. Plus, I usually agree with him.
In “By the Rivers of Babylon”, from the January Harper’s (sub. req’d.), he starts with a recent gem from our old friend Tom Friedman.
The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America… . We need to get back to collaborating the old-fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications and thinking about how — not just how much.
— Thomas Friedman, New York Times, October 15, 2008
I don’t know what country Friedman thinks he’s been living in for the past thirty years, or in which New England gift shops he searches out the treasures of the American past. I can understand why he might wish for a happy return to an imaginary state of grace, but to explain last fall’s melee in the world’s financial markets as a falling away from the Puritan work ethic is to misread America’s economic and political history and to mistake the message encoded in the DNA of the American dream. Given any kind of choice in the matter, who among the faithful ever has preferred hard work to the fast shuffle and the artful dodge, the bird in the hand to the five in the bush?
This leads to a discussion of Patriot Pirates by Robert Patton, which tells the story of American privateering in the Revolutionary War. Turns out we were privatizing war efforts from the very beginning. Lapham reports that the fleet (possibly too grand a name, since they were in no sense a unit) of privateers started with ten or twenty in the fall of 1775, and by 1783 included 4,000 “investment vehicles … licensed to practice the art of piracy as far offshore as the West Indies and the Mediterranean.”
Which naturally brings us back to the prophet of the modern-day pirates, where we began.
As with the misreadings of the spirit of American commercial enterprise, the misinterpretings of the purpose of American government substitute the theory for the practice. Just as the stock-market speculations do what they’re intended to do, which is to reward the promoters and fleece the marks, the government does what it’s supposed to do, which is to enrich the creditors and plunder the debtors. The eighteenth-century New England privateers flew the American flag as a flag of convenience, not as a declaration of their allegiance to a cause but as a license to seize the wealth stored in the hulls of wooden ships. Their twenty-first-century heirs and assigns employ the semblance of a government in Washington as an investment vehicle permitting them to seize the wealth stored in the labor of the American people. The Republican and Democratic parties compete for the brokerage business, between them putting up $2.4 billion for last year’s presidential campaigns — i.e., for the speculative ventures that bundle junk slogans into collateralized-debt obligations, which, when it comes time to off-load the boodle, transform the upside into private property, the downside into the good news that poverty replenishes the soul.
On the front page of today’s New York Times, the commissars and the CEOs converge:
Congressional Democrats were drafting legislation for government control of the auto industry, including the possible creation of an oversight board…
The Kremlin seems to be exploiting the economic crisis to establish more control over financially weakened industries that it has long coveted…
I’ve promised not to gloat about the Obama victory, primarily because we don’t know how long it will take to clean up the 30-foot-high pile of manure (and growing) that George Bush and his administration have dumped upon the American People.
However, for those of us who suffered (for what seemed like eons), dealing, enduring, and cursing at Thomas Friedman’s faux Friedman Units, there is some consolation in the following news that was just released. Whether those in the liberal blogosphere choose to gloat, I’ll leave that up to each person’s individual conscience.
However, this news from Vanity Fair is quite dramatic and may offer some of those sufferers some consolation. Whether members of the liberal blogosphere wish to protest at those overly generous speaking engagements given to Mr. Friedman, I’ll leave that up to each person’s sense of what is right and what is wrong.
I suggest, even if you don’t choose to protest, that a list be kept of organizations that Mr. Friedman supports or speaks at, and if possible, those in the left blogosphere and reality-based world should protest those organizations and his speaking engagements, or for those working for those organizations, I recommend quitting in disgust.
Do it for truth and honesty and the basic premise that truth must be rewarded and lies must be punished. Better yet, take a lesson from history and boycott any organization that offers Mr. Friedman a forum — despite Mr. Friedman’s attempts at redemption by virtue of his recent articles on global warming.
I would suggest that no one in the left blogosphere buy his books, although I know no one in the left blogosphere who does. I hope everyone enjoys the moment. Long may it last.
It would be easy to dismiss today’s rant (however spot-on it might be) by New York Times columnist Thomas Friedman as yet another ideological tirade against the U.S. automobile industry. But based on the bad news coming out of shopping-mall owner General Growth Properties [GGP], it is no wonder Friedman is feeling crankier than usual. That’s because the author’s wife, Ann (née Bucksbaum), is an heir to the General Growth fortune. In the past year, the couple — who live in an 11,400-square-foot mansion in Bethesda, Maryland — have watched helplessly as General Growth stock has fallen 99 percent, from a high of $51 to a recent 35 cents a share. The assorted Bucksbaum family trusts, once worth a combined $3.6 billion, are now worth less than $25 million.
But don’t expect Friedman to go from Beirut to Jerusalem begging for money. The distinguished columnist (and former New Establishment member) is still said to get at least $50,000 per speaking engagement on top of the millions he makes writing best-sellers.
For a long time now it has been obvious that Democratic administrations, historically, are better for the economy than Republican ones. Why hasn’t the peasantry noticed, then? Why do so many of the chickens vote for Colonel Sanders?
Kevin Drum of The Washington Monthly has an intriguing answer: that GOP presidents are able to pass anti-inflation measures and hand out money to their rich friends most easily during their first year, when their political power is at its peak.
These measures do nothing for the rest of us, of course. However:
Republicans, by contrast, tend to focus their honeymoon period on tax cuts for high earners and inflation-fighting measures. This may produce poor economic results on average, but it turns out to be timed to briefly produce a spike in activity three years in the future.
Add in some extra generous spending just before election years and a possible partisan boost from the Fed (research by University of Texas economist James K. Galbraith suggests that, controlling for economic conditions, the Fed’s monetary policy during election years is looser for Republican presidents than for Democrats), and you get consistently great economic performance during campaign seasons.
What is this nonsense? They never heard of Alan Greenspan in Stockholm?
STOCKHOLM, Sweden — Paul Krugman, the Princeton University scholar and New York Times columnist, won the Nobel economic prize Monday for his analysis of how economies of scale can affect trade patterns and the location of economic activity…
The 55-year-old American economist was the lone winner of the 10 million kronor ($1.4 million) award and the latest in a string of American researchers to be honored. It was only the second time since 2000 that a single laureate won the prize, which is typically shared by two or three researchers.
Want an unbiased view of the economic issues behind our current troubles? Sorry. Would you settle for an accurate one? Chomsky has it, as usual.
Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a “virtual parliament” of investors and lenders, who closely monitor government programmes and “vote” against them if they are considered irrational: for the benefit of people, rather than concentrated private power.
Investors and lenders can “vote” by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.
“Politics is the shadow cast on society by big business,” concluded America’s leading 20th century social philosopher John Dewey, and will remain so as long as power resides in “business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda”.
The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades “real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans”.
Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.
Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.
If you still need confirmation that the American empire is falling, here it is.
The US is to lose its power to appoint the president of the World Bank after the UK’s development secretary, Douglas Alexander, brokered a deal to throw open the post to candidates from any country.
Backed by European governments and developing countries, Alexander overcame resistance from the US and Japan to secure a reform he described last night as “a significant step forward”.
Washington has had the right to hand-pick the president of the World Bank since the institution was founded after the second world war, with Europe choosing the managing director of the International Monetary Fund.
Now more than ever, the question is whether we’ll follow the Roman and Spanish model, or the French and English one. It’s an exciting time to be alive: our actions will make a difference for a long time to come.
How much is it worth to wake ourselves from this Republican nightmare? Well, the $700 billion we’ve already ponied up seems to be a good down payment, because a lot of people are pissed.
In Kentucky, where I grew up, people tend to feel economic pressure more deeply, because many of them struggle even in normal times to keep their families at subsistence levels of income. They may be strongly culturally conservative, but they also strongly resent the rich East Coast elites who have controlled much of Kentucky for much of its history.
This has made Minority Leader Mitch McConnell’s balancing act a tricky one at times, because McConnell leads his colleagues in being in the pocket of exactly those interests. These are not Kentucky interests, though some may keep their horses on Kentucky farms. They’re the super-rich who don’t want to be taxed, the corporations who don’t want to be regulated, those who think we should consider money as speech and corporations as people.
Unfortunately for Uncle Mitch, this is a sub-prime moment to make that case. Kentuckians may not be ready to vote for a black President, but they’re damn well ready to express displeasure at continuing economic distress. They may even manage to replace the worst member of the Senate with Bruce Lunsford, who’s bound to be a least a little better, will caucus with the Democrats, and has been running the kind of ad the Democrats would win big with.
Lunsford’s ad, his first of the race that homes in on the economy, cites McConnell’s vote in 1999 for legislation that rolled back government regulation of Wall Street banking and investment firms. It also highlights the amount of campaign contributions McConnell has received from the financial sector, as tallied by the Center for Responsive Politics.
“McConnell took more than $4 million from the Wall Street financial industry, got rid of the government regulations they didn’t like and let the billionaires and CEOs stuff their pockets with cash,” the ad’s announcer says. “Now Wall Street is in trouble and taxpayers are getting the bill.”
Another ad from the Democratic Senatorial Campaign Committee that’s airing in Louisville reinforces those same points using an old-time Wild West theme. At one point, the announcer says “McConnell opened the gate and Wall Street went wild.”
Need to hear more of that.
…There is a much better solution to the current financial crisis. But it requires discarding what has been conventional “wisdom” for too long: that government intervention in the economy (“big government”) must be avoided like the plague, because the “free market” will guide the economy towards growth and justice.
Let’s face a historical truth: we have never had a “free market”, we have always had government intervention in the economy, and indeed that intervention has been welcomed by the captains of finance and industry. They had no quarrel with “big government” when it served their needs.
It started way back, when the founding fathers met in Philadelphia in 1787 to draft the constitution. The first big bail-out was the decision of the new government to redeem for full value the almost worthless bonds held by speculators. And this role of big government, supporting the interests of the business classes, continued all through the nation’s history.
The rationale for taking $700bn from the taxpayers to subsidise huge financial institutions is that somehow that wealth will trickle down to the people who need it. This has never worked…
This is part two of Bad Attitudes’ primer on the meltdown. The excerpt below is from the full transcript (PDF) of a terrific episode of NPR’s This American Life. It’s long, but worth your time. For one thing, it goes a considerable ways toward answering the question I’ve raised a couple of time here: Exactly what scummy lies did the Wall Street usurers tell to convince so many presumably sane people to take on more debt than they could possibly repay?
Adam Davidson: Right. The global pool of money. That's where our story begins. Most people don’t think about it but there’s this huge pool of money out there, which is basically all the money the world is saving now. Insurance companies saving for a catastrophe, pension funds saving money for retirement, the central bank of England saving for whatever central banks save for. All the world’s savings.
And, by the way, before you finance enthusiasts start writing any letters, we do know that 70 trillion technically refers to that subset of global savings called fixed-income securities. Everyone else can just ignore what I just said. Let’s put 70 trillion dollars in perspective. Do this. Think about all the money that people spend everywhere in the world. Everything you bought in the last year, all of it. Then add everything Bill Gates bought. And all the rice sold in China and that fleet of planes Boeing just sold to South Korea. All the money spent and earned in every country on earth in a year: that is LESS than 70 trillion, less than this global pool of money.
Alex Blumberg: Wow, that’s a lot of money.
Adam Davidson: It is a lot of money. And that money comes with an army of very nervous men and women watching over the pool of money: investment managers. This army is nervous because they don't want to lose any of that money and they also want to make it grow bigger. But to make it grow, they have to find something to invest in. So, for most of modern history, they bought really, really safe, really boring investments: things called treasuries and municipal bonds. Boring things. But then, right before our story starts, something changed, something happened to that global pool of money………
These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.
Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability — which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.
This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft — but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars — but it was manipulated into being two million.
This is the whirlpool sucking down finance.
Mark Wilson, just back from Washington, sends this very brief photo essay on the State of the Union:
Are the Democrats getting smarter? Probably not, but the situation has transposed into one they understand: political posturing. And they’ve figured out the opponent’s plan.
Democratic leaders see the trap.
Reject the bill, and get blamed for whatever economic catastrophe may await. Pass the bill without strong GOP support, and get blamed for bailing out Wall Street fat cats at taxpayers’ expense.
That’s why House Majority Leader Steny H. Hoyer (D-Md.) and Majority Whip Jim Clyburn (D-S.C.) called on the president Tuesday to deliver a prime-time address laying out the case for the plan — an address aimed both at viewers back home and at Republican members at the Capitol.
“I caution the president that we cannot pass this package without his party’s support,” Clyburn said. “If it’s a crisis … and we all need to come together, then as leader of this nation, the president needs to take the lead and bring the country together behind his plan. He must make a case to congressional Republicans and to the American people that his $700 billion rescue package is the right solution.”
Senate Majority Leader Harry Reid (D-Nev.) was blunt: “This is a Republican proposal,” he said Tuesday, “and we need some Republican votes.”
They may not have grown spines, but at least the Democrats’ spidey sense is tingling. They have that old feeling of having been here before. Of course, the situation was clear to the audience long ago, and we’re all waiting for the Democrats to catch up. According to Politico,
…Gingrich (R-Ga.) is already trying to pitch the Paulson proposal as the “Obama-Bush plan,” and current Republican members — sensing the mood back home — are itching to send out press releases boasting about how they “voted against the Democrat Congress bailing out Wall Street.”
Then, of course, we have the reports of the beneficent McCain influence on the economic discusssions in Washington, presumably ensuring that whining is confined to the upper crust.
I continue to advance what I think Occam suggests: that the Rove machine, which is clearly running the McCain campaign at every level it cares about, has fallen back from the front line of defending the White House to the redoubt of the Senate filibuster and a compelling persecution narrative to keep up the spirits of the Base.
Of course the Base’s retreat is covered by Big Oil, whose spirits are already about as up as they can get. What our friends in the oil industry would like more than anything right now is invisibility. Which doesn’t seem likely as housing and Wall Street crumble, and lifestyles of the American middle class, dwindling like the Roman one before it, navigate the declining pre-eminence of the American empire.
For which people could have prepared, but didn’t. And they could have been helped and advised to, but they weren’t. Quite the contrary, in fact. They were and are relentlessly propagandized in the opposite direction: a trillion ads per American lifetime.
As the Sixties said, you create your own reality, and the Republicans surfed that wave for a couple of decades. In the end, though it pains a true hippie to say it, reality bites. Rove’s models, surely as least as sophisticated as, because vastly better funded than, those at FiveThirtyEight.com, must predict loss for McCain/Palin in nearly every realistic circumstance. Which leaves two problems: generating unrealistic circumstances, and preparing to rebuild after defeat.
Well, how about a financial 9/11? Maybe Americans can be scared into rallying around that flag. If so, the Republicans can complete the assault on the Constitution. And if not, at least people won’t be focused on Iraq. They might even be sufficiently distracted by the danger not to notice exactly who it is that’s running off with their wallets. They might even hand over some arbitrarily large number of dollars as a donative, a sacrifice to appease the wrath of the Gods of Capital.
But we can choose to move in the opposite direction. We can choose to express our displeasure, our dis-ease, with the proposed solutions that bail out the super-rich at the expense of the rest of us.
We can, for example, cosign the letter from Senator Bernie Sanders, I believe the only open socialist in Congress. The emphasis in the first paragraph is mine. If everyone in the country saw these numbers, the November election would see a historic turnout. I mean, I thought I had a fairly good concept of the distribution, but it’s changed drastically in just the past five years, starting, coincidentally, around the time we invaded Iraq. Where’s Harry Truman when he need him?
While the Administration has quickly rallied to help Wall Street, it has ignored the needs of the declining middle class. Since President Bush has been in office the wealthiest people in this country have made out like bandits and have not had it so good since the 1920s. The top one-tenth of one percent now earn more income than the bottom 50 percent of Americans and the top one percent own more wealth than the bottom 90 percent. Incredibly, the richest 400 people in our country saw their wealth increase by $670 billion during the Bush presidency.
[ … ]
Any plan to clean up the mess on Wall Street must:
- Ensure that middle income and working families are not the ones who are paying for this bailout by
- Imposing a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue over five years;
- Ensuring that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and
- Requiring that taxpayers receive equity stakes in the bailed-out companies so that the taxpayers’ assumption of risk is rewarded when companies’ stock goes up.
Taken together these three provisions will substantially reduce the likelihood that this bailout will end up on the backs of average American taxpayers.
- Include a major economic recovery package which puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy. Further, we must protect our must vulnerable families from the very difficult times they are experiencing.
- Repeal the disastrous de-regulatory legislation that facilitated this crisis. End the danger posed by companies that are “too big to fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up.
A bailot tutorial in English plain enough to be understood by even the lowest-information voter, from Chuck Butcher’s excellent blog, Chuck for…
Since we’re becoming socialists it might be important to know what that means. AIG was bailed out by the US government and now it seems we’ll be buying mortgages and securities. Our government just went right straight into business, stock market business. Try to find the government in the world that has gone into a one trillion dollar socialization program.
We’re not buying something like Exxon Mobil; we’re buying junk. Now, it isn’t like we can watch the credit markets implode and think the rest of the system won’t go with it. I’m not going to argue that and I’m not going say that “these people” getting taught a lesson is nearly as important as avoiding economic catastrophe. But now I do want to know where this socialism experiment is going to go.
Where it stands is that people took out loans they shouldn’t have, and people issued loans to those who shouldn’t have gotten them, and then those got packaged up into a real mess. Lots of blame to spread around but where it stops is the lending.
The money was loaned because it could be loaned and then sold and sold and sold. The US government said, OK, you’ll do fine on your own. When the foreclosures started the government was fine with it, “that’ll teach them,” as long as it was individuals - regular folks in over their heads. So, we understand that it has to be a crisis and one in a big way…
I can think of other crisis situations, like health care. Today we have some sort of socialization of health care — broke and uninsured you can still go to the emergency room and those costs get dumped into the system, governmental health programs and insurance to pay for it. Those pieces get to socialize this in an uneven and strategically stupid fashion. A single payer system is called socialized medicine by the Republicans and plutocrats in general. Somehow this crisis doesn’t rise to the bar. Why is pretty interesting.
The health care debacle in the US is killing our companies’ ability to compete, untreated illnesses are morphed into serious conditions costing multiples of treatment costs, huge amounts of money are being dumped into the private system with poor return — essentially we are throwing away a catastrophic sum of the citizens’ and businesses’ money daily.
But it is the where it’s thrown that is the difference, that money goes into the insurers’ hands and from there into investment banks (what doesn’t stay in the hands of insurers). The citizenry and businesses are financing the plutocrats with their health care. Your health risk is socialized into the pockets of wealth.
Nobody who is being raped is big enough to strike the chord of interest of the plutocrat enablers. The Democrats won’t do it, not without the Republicans getting on board, even with a solid majority and the Presidency they won’t try. They will get handed their heads for trying alone. The Republicans have come on board, along with their plutocratic pals and that is not going to happen as long as they have the incentive to rape the nation.
Here’s what the tax adverse don’t get, there are legally few ways to restrict greed. You can create disincentives. The tax structure is the one way individual money can be managed by government, and Republicans are aware of it — see the Bush tax cuts. Over- amped CEO compensation starts to look manageable if the tax load is based on multiples of average worker compensation, say at 20x for the total package (that’s everything, jets, stock options, even the executive restroom) the rate goes from 40% to 70%.
Wealth that only generates wealth through paper games can be addressed, if your money is in concrete working assets like factories and equipment (no your yacht isn’t an S-corp business) you’re safe but once you’re above the top 5% in total complete income your capital gains go to 25%, inheritance taxes to 25%, and there is no sheltering, everything is out there. FICA gets uncapped, no upper limit. If you send money overseas, it gets taxed both directions at the top rate. Off-shore your corporation, all US operations taxed at the top corporate rate. Military and national security and infrastructure projects denied to any non-US tax paying entity. Mortgage deduction for 1 house and zero for any house in the top 10% valuation. Enough of subsidizing these people.
Class Warfare is the first response of the Republicans and I’ll agree that it is, it is the counter-attack in the war that’s been waged from St Ronnie on. You’ve been screwed to the wall — you’re reading this, I mean you — and you have no idea just exactly how badly. You cannot go to the IRS/US Census data and see how badly; it is hidden. All that huge wealth you’re looking at is only IRS-reported taxable income, not the real extent of it. The tax games that hide this are arcane and I have no ability to break the actual numbers down for you but what you see has no relationship to reality.
This is what the government has encouraged, absolute naked greed and rapaciousness, because there is no downside to it. The mess we’re in right now let run its course would only dent true wealth while killing everybody else and it is being socialized because it would dent wealth. There is the specter of global chaos and violence, but you have a lot of faith if you think that is the foundation.
The next Republican or plutocratic enabler that says something about personal responsibility should have a gun stuck in their face and be given some personal responsibility. By rights, there should exist in this country a real opposition to the plutocrat agenda and there is not. There is no payback for sticking it to the citizens, we’ll actually re-elect a bunch of these dirtbags and wealth itself will not be held to account at all. They won’t be burned out of their mansions and tarred and feathered, they’ll hang onto their wealth. Too bad.
Don’t forget the man who caused the Merrill Lynch collapse. Just last year, Stanley O’Neal was paid $48 million a year and pocketed a $160 million severance package when he was fired. The stock had gone from the $50s to $5. This is the way capitalists operate on Wall Street. At a certain level no one is held accountable.
Now we are on the brink of bailing out similar firms, with similar compensation packages, with no agreements as to pay for the remaining executives and no equity for the taxpayers. My suggestion is that they be paid –$50 million, and be required to cough up that amount in back wages before they get any bailout.
Those opposing any limits on executive compensation argue that limits might discourage some firms (their executives) from participating. That’s patriotism for you.
Treasury Secretary Henry Paulson says we have to bail these firms out to save the country, but the greedy executives may balk at saving the country for fear of missing out on obscene golden parachutes. That, too, is patriotism for you.
Now I understand the scale of the meltdown. Two thousand is a lotta apple pies; but two thousand each??
Here’s Timothy P. Carney of the Evans-Novak Political Report. The noncrazy wing of the Republican Party seems to be in a state of deep despair.
- Congressional Republicans and conservatives, meanwhile, are almost completely at a loss. Republicans are still finding their footing after denying for months that the economy is endangered. Frantic behind closed doors, they seem unable to propose any solution that approaches the magnitude of the problem. Promising more drilling, capital-gains-tax cuts, and full business expensing comes across as laughable — the same things the GOP was pushing while saying the economy was strong.
- At the presidential level, it’s not only that McCain and Palin lack credentials and knowledge about economics, but McCain also lacks a real rudder. As the GOP nominee, he has taken up free-market talk, but does he really have any roots in a philosophy? Does Palin have the clout or the know-how to guide McCain? The answer to both questions is probably not.
- When Republicans highlight the Democratic big-government programs that contributed to the mess — Fannie Mae, Freddie Mac, and the 1977 Community Reinvestment Act directing private capital in low-income housing — they lack conviction and credibility, having long been champions of policies such as IRAs and 401(k)’s driving money to Wall Street, or the home-mortgage interest deduction and the “ownership society.”
Subject: Not Spam — Important Business Offer!!!
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Former United States President George W. Bush brings himself up to speed on the collapse of the American economy:
Well, my first instinct wasn’t to lay out a huge government plan. My first instinct was to let the market work until I realized, upon being briefed by the experts, of how significant this problem became.
And so I decided to act and act boldly. It turns out that there’s a lot of interlinks throughout the financial system. The system had grown to a point where a lot of people were dependent upon each other, and that the collapse of one part of the system wouldn’t just affect a part of the financial markets; it would affect the average citizen — and how. Well, it affect their capacity to borrow money to buy a house or to finance a college loan. It affect the ability of a small business to get credit. In other words, the system risk was significant, and it required a significant response, and Congress understands that. And we’ll work to get something done as quickly and as big as possible.
For those amongst us who have had the pleasure of reading Jerome Doolittle’s famous cult classic novel, The Dead Zoo, available on this website for free, the facts noted in a commentary by Michael Lewis on Bloomberg News will probably give the rest of you as much of a somber laugh as it did for me. And I’m sure Ronald will enjoy watching his Dead Zoo being expanded when he gets a break from that great shoveling job he’s now doing in the depths of the Lair where he now resides.
Remember when everyone believed in Alan Greenspan? When John McCain, running for president in 2000, said that if Greenspan died he’d have him stuffed and propped up against the wall at the Federal Reserve, where he’d remain chairman?
h/t to The Mess that Greenspan Made.
This is just a snippet from Nobel Prize-winning economist Joseph Stiglitz’s clear and compelling explanation of how Bush, Greenspan and the Wall Street usurers drove our economy over a cliff — and what we ought to do about it. But of course won’t.
…We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is “too big to fail.” If it is that big, it should be broken up…
Howdy there, pardners, sorry I’ve been out of touch. A housemate moved and we bungled the Comcast handoff; as a result I spent a week in blessed innocence of the outside world. Now I return to find the world has fallen apart! Five hundred points off the Dow Jones, 4.4% off the NASDAQ. Where is the world headed? Is this the end of capitalism as we know it? Fortunately the Guardian has commissioned a survey article on this very topic.
Ken Livingstone, former Mayor of London, says:
Sadly, I don’t think this will be the end of capitalism. But there is going to have to be a return to a much, much more interventionist state. As a system for the distribution and exchange of goods, you can’t beat the market. But the mistake a lot of politicians have made is to think that because the market was good at that, it could be good at everything: it could train workers, create infrastructure, protect the environment, regulate itself. Quite obviously, it can’t.
So the real issue is, what sort of international structures do we need to ensure this never happens again? Thatcher and Reagan deregulated massively and let the financial markets do as they liked — and they’ve turned into one bloody great big rip-off. The good news is, there’ll now be a realisation — even George Bush sees this now — that we need international regulatory mechanisms that will ensure, for example, that these people and operations actually pay tax. There’ll be a realisation in Britain that while it’s certainly useful to host a world financial centre, it has to rest on a solid, genuinely productive real economy. In China now they make things; we’ve decided we’re not interested in that.
Former broker Max Keiser adds a long-term view:
This is not a blip. It’s extremely significant. We will see a shift in power away from the US, and towards the developing world — to countries such as Brazil and the Gulf states that have commodities to sell, and to China, where the savings ratio is high. We are going to see a new world order. America as a driver of the global economy is finished.
The left has nothing to say about any of this. And because the left has no economic programme, we will see the rise of social unrest. We are already seeing it in the US. The left has no real response to that either.
As we enter the perfect economic storm, it’s important (though too late) to realize that none of this is an accident. It is all the result of careful long-term planning by our masters on Wall Street and Main Street.
Easy consumer credit, the legalization of usury, the federal deficit, the subprime mess, privatization, the strangling of unions, the collapse of the middle class, deregulation, the lotteries and casinos, the tax code, our nationwide gulag, our broken health care system — these are means to an end.
That end is to reduce all but a few fortunate Americans to debt slavery. It is to make the rest of us into indentured servants, and the process is nearly complete.
Read the whole essay by Thomas Frank from which this comes:
The longing for permanent victory over liberalism is not unique to the west. In country after country, business elites have come up with ingenious ways to limit the public’s political choices. One of the most effective of these has been massive public debt. Naomi Klein has pointed out, in case after case, that the burden of debt has forced democratic countries to accept a laissez-faire system that they find deeply distasteful. Regardless of who borrowed the money, these debts must be repaid — and repaying them, in turn, means that a nation must agree to restructure its economy the way bankers bid: by deregulating, privatizing and cutting spending.
Republicans have ridden to power again and again promising balanced budgets — government debt was “mortgaging our future,” Ronald Reagan admonished in his inaugural address — but once in office they proceed, with a combination of tax cuts and spending increases, to inflate the federal deficit to levels far beyond those reached by their supposedly open-handed liberal rivals. The formal justification is one of the all-time great hoaxes. By cutting taxes, it is said, you will unleash such economic growth that federal revenues will actually increase, so all the additional government spending will be paid for.
Even the theory’s proponents don’t really believe it. David Stockman, the libertarian budget director of the first Reagan administration, did the maths in 1980 and realized it would not rescue the government; it would wreck the government. This is the point where most people would walk away. Instead, Stockman decided it had medicinal value. He realized that with their government brought to the brink of fiscal collapse, the liberals would either have to acquiesce in the reconfiguration of the state or else see the country destroyed. Stockman was candid about this: the left would “have to dismantle [the government’s] bloated, wasteful, and unjust spending enterprises — or risk national ruin.”
This is government-by-sabotage: deficits were a way to smash a liberal state. The Reagan deficits did precisely this. When Reagan took over in 1981, he inherited an annual deficit of $59 billion and a national debt of $914 billion; by the time he and his successor George Bush had finished their work, they had quintupled the deficit and pumped the debt up to more than $3 trillion.
The most important geek news of the week is the court decision (PDF) in the case of Jacobsen v. Katzer, in which a violation of a non-traditional copyright was held to be just like a violation of a traditional copyright, with the same enforcement mechanisms.
The copyright holder in the case is Robert Jacobsen, the lead developer of the Java Model Railroad Interface, a software package used by model railroad enthusiasts. A firm called Kamind Associates downloaded parts of Jacobsen’s project, stripped out the copyright notice and other identifying information, and began redistributing the modified version without Jacobsen’s approval.
Copylefts, as they’re sometimes called, grant more rights to users than traditional publishing or media organizations have. The Creative Commons Attribution license recently added to our sidebar is the “By” license, the loosest level: anyone is free to redistribute, remix, and make commercial use of licensed material, as long as proper attribution is included.
More restrictive options exist as well. It’s possible to prohibit commercial use, or to allow redistribution only if the redistributed work itself carries an equivalent license, for example. If you want to license your website, you can do it in five minutes: first choose the appropriate license at the Creative Commons site, then copy and paste the HTML that’s provided wherever you want it on your web pages.
This is good news for Flickr users and bloggers and other such folks who want to share the products of their imaginations or skills. But it’s particularly great news for the free software community. I’m thinking there were some glum faces in Redmond this week, out of which Bill Gates, as I’ve said before, hauled ass at a propitious moment.
At the personal computer level, free software is today both more powerful and easier to use (and maintain) than corporate software. What keeps the dinosaurs going is control of the hardware environment, and specialized applications. Linux has to work everywhere, with every language and font and screen and central processor and network interface; Windows systems are much more proscribed, and the Mac is another universe. Macs have cool media-creation and -editing apps, for example; Windows programs in that area are improving, but it’s hard to make a quality product in a Windows environment. I’m not kidding; I’ve built apps on Windows, Mac, Unix, and a couple other OSs, and Windows is the least reliable. Mac is probably the quirkiest; a fair amount of it is there just to be different. Unix is superficially the most obscure, but in fact the most sleekly and reliably designed of the three (though DEC’s VAX/VMS far surpassed Unix).
In the classic critical-mass fashion, state-of-the-art media manipulation software hasn’t yet migrated to Linux. But for the more quotidian operations such as browsing the web, doing email, cataloging, watching, and listening to media, fiddling photos, and doing MS Office-style stuff, the Linux tools are superior in function and ease of use. Plus, they’re almost universally faster at the same operations.
This kind of quality has not always been there in open-source software, it’s true; but then commercial software is no walk in the park either.
Generally, open source has an outstanding record of providing reliable and useful software. If you spend the effort to build something, package it, and distribute it for free, you must actually have some ego invested in it. If you care about it enough to maintain it over a period of years, coördinate assistants in that process, and accept contributions and consider requests from users, it becomes something like your child.
This kind of approach tends to create communities. When the original impulse is to solve a problem, and the first contributors all face that problem and are coöperating on solutions, what emerges has passed all the tests that its designers thought of, which means at least it solves the original problems. Things that work well tend to get adapted to other situations rapidly; if your product doesn’t evolve, it was probably a pretty simple idea to begin with. If users are soon thinking of uses you never imagined, that’s a sign of success.
The court ruled in Jacobsen v. Katzer that copylefts are enforceable as copyrights, overruling a lower court decision that this was not a copyright violation but a violation of contract. Copyright laws are much stricter, so this and some prior, more limited, rulings are clear encouragement to the free software community. Work can be done in a non-capitalist fashion, and distributed, used, and relied upon world-wide, without the capitalists either stealing it or shutting it down.
As ours becomes better than theirs, they’ll go under.
Out of the mouths of babes… Bush yesterday, in Ohio:
I’ve worked hard to keep your taxes low. Our energy policy hasn’t done a very good job of keeping your gasoline prices low, and therefore it’s like paying a tax.
For my money William Greider is alone in the top class of writers on the interaction of politics, economics, and society. He produces big-picture analysis from detailed understandings of the consequences to individuals and communities.
Bill Moyers interviewed him last Friday, and I found it both enlightening and uplifting. He likes to quote Wendell Berry, “Be joyful though you have considered all the facts.” He knows the details, the how and why, and he tries to use that knowledge to figure out what will happen and what to do. History must provide useful information about the near future or it’s just antiquarianism; Greider shows the way.
His overall image is kind of quiet: a grandfatherly white guy in a suit, talking with animation and gestures but not at all in your face. But if you listen to what he’s saying, it’s actually pretty radical. Much of his analysis corresponds with far-left people like Chomsky. I once asked him about that in an email. He replied that he thought he might get more notice if he were angrier, but that’s not what he’s going for.
Phill Gramm got it right, says William Greider, or rather half-right. We don’t have an entire nation of whiners, but we do have a very vocal group of them. And they get what they want. To wit, our money.
It is Wall Street — the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington. Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.
When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor “run” that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street’s preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.
Greider is the go-to guy on the social impact of economic events, and particularly on the Fed. His magnificent book Secrets of the Temple: How the Federal Reserve Runs the Country is typically accurate and detailed, yet oriented to the big picture and philosophically consistent. He knows what he’s going for, he doesn’t lose track and wander about, and he’s solid on the details along the way.
Though by no means without hope, Greider doesn’t seem to be optimistic about the near term for the American economy. A good deal of the problem comes from the coöperative relationship between the Democrats and Republicans, leaving no one to advocate for the people against Wall Street.
We are witnessing a momentous event — the great deflation of Wall Street — and it is far from over. The crash of IndyMac is just the beginning. More banks will fail, so will many more debtors. The crisis has the potential to transform American politics because, first it destroys a generation of ideological bromides about free markets, and, second, because it makes visible the ugly power realities of our deformed democracy. Democrats and Republicans are bipartisan in this crisis because they have colluded all along over thirty years in creating the unregulated financial system and mammoth mega-banks that produced the phony valuations and deceitful assurances. The federal government protects the most powerful interests from the consequences of their plundering. It prescribes “market justice” for everyone else.
Deflation is a word that doesn’t get used in conversation very often, so it can sound abstract. But it’s not. Discussing the Fed’s attempts to calm the panic, Greider says:
Bernanke knows the history of the last great deflation in the 1930s — better known as the Great Depression — and so he is determined to intervene swiftly, as the Federal Reserve failed to do in that earlier crisis.
So there’s pain on the way, and the question is how much of it can be off-loaded from the hedge-fund managers and real-estate speculators who caused the problem, and onto the folks who compare prices before choosing a gas station.
Americans should forget about whining; it’s too late for that. People need to get angry — really, really angry — and take it out on both parties.
Isn’t a rudimentary knowledge of the economy required to become a Professor of Business? Well, I suppose it depends on your definition of “knowledge”.
No doubt you got a chuckle out of Phil Gramm’s recent diagnosis of our current financial troubles. After all, the guy credited with such classics as “Has anyone ever noticed that we live in the only country in the world where all the poor people are fat?” and “I have as many guns as I need, but I don’t have as many guns as I want” is bound to have something pithy to contribute.
Sure enough, Gramm thinks it’s all in our heads: “You’ve heard of mental depression; this is a mental recession”, and “We have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline.”
John McCain clearly enjoyed the performance as much as you did.
But there’s apparently a non-zero constituency for the idea that gas is only nearing $5 a gallon in our heads.
“I think the way consumers feel about things is very emotional,” [consumer psychologist Kit] Yarrow told “Good Morning America” today. “Those emotions are trumping reality, creating a snowball, which makes the economy worse. It’s not as bad as consumers feel like it is.”
Yarrow, who is also the Russell T. Sharpe Professor of Business at Golden Gate University, says that lack of consumer confidence has been caused by an negative overreaction to recent economic trends.
“We’ve had great prosperity for the last few years,” Yarrow said. “We had very cheap gas. We’ve had a lot of increase in our home values. We’ve had it really pretty good as the stock market increases. Emotion is always caused by this mismatch between what we perceive and reality. It’s really emotion, the psychology, that’s contributing to our economy right now in a negative way.”
Right, it’s not the foreclosures. There are only projected to be two million families losing their homes over the next two years; and most people won’t be among the 40 million whose homes are projected to lose value. The odds are 5-1 against you being in either of those groups, though of course you’re competing with non-players in the housing market like infants and the imprisoned.
It’s true that IndyMac, which was nationalized on Friday, was “the largest regulated thrift to fail and the second largest financial institution to close in U.S. history”. And that the FDIC estimates the cost to the taxpayers at between $4 billion and $8 billion. And that people are now worrying about mortgage finance companies Fannie Mae and Freddie Mac. And that 300 more banks might fail in the next three years.
But the real problems are not structural, they’re emotional. If consumers will just continue spending more than they take in, the Phil Gramms and Kit Yarrows will be fine.
In the end, Gramm states his position rather clearly.
“I think we’ve become entitled to a sense that we’re going to have continued prosperity, and if we hadn’t had it good for so long, I don’t think there would be this level of emotion that’s causing us to draw back on our spending,” [Yarrow] said. “We expect great growth. Any sort of normal growth is considered a catastrophe now.”
Yarrow told “Good Morning America” that this overreaction could be caused, in part, by the media and the preponderance of the term “crisis.”
“It’s described in anecdotal terms, as well,” Yarrow said, “which causes consumers to be especially fearful.”
In an interview with the Washington Times this week, Gramm agreed.
“We’ve never been more dominant; we’ve never had more natural advantages than we have today. … Misery sells newspapers,” he said. “Thank God the economy is not as bad as you read in the newspaper every day.”
If you’re struck by the gap between reality and Gramm’s “we’ve never been more dominant”, you might try interpreting “we” to mean Gramm’s social circle, whose dominance over us lesser Americans is indeed near the historic peak. An intelligent person recognizes that historic peaks are rarely maintained. Just as historically low interest rates are likely to rise after you sign that ARM, historic peaks of power precede historic diminishments.
Even those with absolutely no interest in computers might have noticed the recent departure, complete with tears, of Bill Gates from his baby, or his monster depending on your viewpoint. He’s leaving Microsoft to concentrate his energies on giving away money.
Or at least that’s the official story. My counterclaim? Well, I never took him for the genius he’s widely reputed to be, but I think he’s smart enough to get out while the gettin’s good. Following years of fortune, the William F. Buckley method of software manufacture faces a future of reduced impact. You’ll recall that on starting the National Review, Buckley said of his magazine, “It stands athwart history, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.”
Indeed. Is this a dark view of human nature, that we can’t help but bring ruin on ourselves? Or is it a contemporary version of the old uneasy-lies-the-head?
Perhaps the only real innovation Gates brought us was his contention that he owned the spirit that lived on the plastic disc he sold. Basically he realized that if he stood athwart the evolution of software, he could charge for each stage of the journey instead of selling the whole thing at once, thus improving profit margins. It was only later that he realized how much money could be made through intentionally poor design and development techniques.
To me this appears to be a Big Con, but he made it work, portioning out to an adoring audience — or at least a continuously spending one — features that were old hat on real computers, followed by fixes for the bugs the features created, all in exchange for a continued income. And what an income!
Gates, in other words, was a pioneer of so-called intellectual property, a concept to which I have too many objections to list at the moment. Protect and encourage innovation with the patent system, to be sure. But as Windows users came to realize, Gates only invented ways to game the system, and there’s plenty of prior art in that area.
Then there’s the poor design and low quality of the Microsoft product fleet. Not to mention the shallow documentation. Or the high prices. Or the ridiculous strategy of security through obscurity. Or the Microsoft attitude that their license is more important than anything related to you. And did I mention how sucky the products are? You really notice it when you start using, for example, Amarok, which destroys any Windows-based media player I ever saw.
In fact there are way more than a tech blog’s “Five Reasons The Intel-Microsoft Duopoly Is Dead”, some of which are offered in the comments to that post. One of the demons (perhaps in this context I should say daemons) in Microsoft’s rear-view mirror has been closing fast so fast it may already be about to pass:
The emergence of free software could be hurting Microsoft’s bottom line. The company said that sales of its Office products among consumers dropped 39% in the most recent quarter. The company blamed most of the decline on the fact that the previous year’s third-quarter results were significantly boosted by revenue that had been deferred under an Office 2007 upgrade program.
Still, consumer sales of Office have shown no growth over the past three quarters, Microsoft said. The problem: Microsoft’s Office revenue typically jumps when a new version is introduced, then quickly tapers off.
With Equipt, Microsoft is hoping to extend the consistent revenue stream provided by commercial Office licensees to the consumer market, and it’s hoping that everyday computer users will see enough value in the offering to forgo free software.
Open-source software is clogging up the works for the folks Bill leaves behind. It’s messing with the business plans of corporations whose income depends on the proprietary nature of their software products. It may even begin to change society. If that sounds silly, remember how it sounded some years back when the geeks were telling us the internet would change everything.
The two most famous pieces of open-source software these days are probably Firefox and Linux, but there are lots of others. OpenOffice.org is a free open-source replacement for Microsoft Office that will be familiar to Office users in look and feel; it has everything most people expect from Office, including the ability to read and write MS file formats as well as many others. I don’t use word processors and spreadsheets and the like very often, but I’ve relied exclusively on OpenOffice.org products for seven or eight years, and have been very happy with them.
Feeling the heat, Microsoft has come up with an offer they think you can’t refuse: only $70 a year for the award-winning Office suite. Or you can use OpenOffice.org for free, and if you feel the need to fork over $70 I’ll send you my PayPal info.
In the big picture, the day of dominance for corporate-behemoth software is passing.
Early on, companies like IBM and DEC made big bucks “pumping iron”. Manufacturing useful and reliable computing hardware has always been a non-trivial job. In those days the few companies around the globe that could muster the necessary technique had a ready market for their hardware.
Given their unique knowledge of how the hardware worked, the manufacturers had a monopoly on the software that ran on that hardware, something like Apple’s current setup but much more restrictive. Every hardware manufacturer followed this strategy, so consumers found their choices limited. In exchange, they often got very high quality products and services, from IBM and DEC for example. By high quality I mean things worked and kept working; oil-service companies bought DEC machines because they’d run for ten years continuously, outside of monthly preventive maintenance stops. Competition was fierce, but rapid growth made room for several competitors to expand concurrently.
Today, scarcity is enforced by the enormous cost of building the manufacturing facilities. When I worked in a job related to the fabrication of semiconductors some years ago, the cost of a new fab was one to two billion. (And that was back when the US dollar kicked global financial butt.) Operating costs are such that you normally have to sell enormous quantities of chips, but our ravenous appetite for intelligence in the objects around us creates the possibility of huge profits. Which is why they’re so cheap we put them in watches and phones, cars and washing machines, pets and pajamas.
Cheap chips give all kinds of people all over the world enough computing power to prompt widespread daydreams of building very large systems entirely without corporate influence. Current versions of Linux prove that such dreams can be realized. Software that’s more reliable, less bug-prone, with more features and easier to use, for free, including continuing updates as they become available: corporations can’t beat that, and even Microsoft can’t buy an organization that doesn’t exist.
Robert Anton Wilson fans will recognize the essence of the Discordian spirit in the open source movement; political types might catch a whiff of anarchism. But it’s hard enough to pinpoint that this one might hope to survive a little longer than similar movements in the past.
The open-source approach is unlikely to take over the entire field; specialization is nearly always the path to the highest profit margins. But in infrastructure areas such as operating systems, compilers, and networks, open source is already the way to go. And today’s add-ons are part of tomorrow’s infrastructure.
To a certain extent the old model depends on people being paid to work long hours fulfilling the dreams of corporate marketing departments for the benefit of executives. Whether that’s exploitation or just the way twenty-first century state capitalism works, it continues the American tradition of great ideals not lived up to. A Louis Kelso-style system would distribute the gains of capitalism, which Greider calls the greatest wealth-creation humanity has yet created, more equitably.
Approaching either of the economic opposites, complete equality of wealth or complete concentration of it, brings conflict; too close an approach can bring revolution. America’s financial system has become skillful at riding that line. How many corporations in recent years have been caught profiting from third-world sweatshops? Not to mention how many are paying no taxes while accepting all the services the community supplies; worse yet, polluting their surroundings and leaving us to suffer from it and pay for its cleanup.
The open source movement is not going to fix the problem of world hunger, at least not directly. But it has finally reached the point where it can encourage people to wean themselves off the corporate teat by offering a tastier product, and that is a classic example of what Chomsky’s Establishment considers the threat of a good example.
An upcoming post will detail my experiences with Linux over the last year. But to emphasize the meaning of events rather than their technical details: I claim that, though it’s still in an early stage, this new model threatens to change social norms as well as corporate boardrooms. In another post I might explore the possible social repercussions of open source, but this one’s already too long.
All in all, I wouldn’t short Microsoft stock yet, but for Gates it’s a good moment to decide to spend more time with the family.
[H/t to Hugh Macleod for the proposed Microsoft business card. His website has a bunch of good stuff.
Also, three extra points to anyone who gets the tilde joke.]
In which I thread some beads of the corruption nibbling at the American dream, nay, inhabiting it with a vengeance. In fact, it’s looking more and more like the approach of Nemesis, who you’ll recall is the goddess who brings havoc to you and your plans in payment for your hubris.
Among chessplayers you often hear that chess is life. In many ways this analogy holds up. In fact it’s really closer than an analogy: chess isn’t like life, it is life.
Life involves making decisions about what to do and what not to do, in situations where you can’t possibly gather all the information. In chess there are estimated to be around 1050 legal positions, with a game-tree size of 10123 (game-tree size is the total number of legal games, counting different move orders arriving at the same position as different games).
For comparison, estimates for the number of atoms in the universe are around 1080.
So you can’t possibly gather all the relevant information; yet you have to make a choice, there’s a clock ticking, and you’ll be stuck with that choice for the rest of the game. You need principles, plus the technique to execute them against resistance.
The decision-making process in chess is so similar to life that it’s a bit scary to consider the implications of machines beating the crap out of the best humanity has produced. But at least it’s a game of rules. Without ignoring the occasional accusations of cheating (by, for example, Kasparov against the Deep Blue team, or by Topalov against Kramnik in the famous World Championship Bathroom Controversy), we expect the outcome of the game to be determined by who played better.
If only life were like chess, and the winners were those who made the best decisions! If we chose our leaders on that basis, our quality of life would be much improved. We’d rid ourselves of servants of the dark side such as Cheney and Greenspan and Kissinger and Albright, and replace them with others like Feingold and Conyers and Kucinich and Waxman, people who find representation of the type envisioned in the Constitution more honorable than playing for Team America in the game of geostrategy.
But no. Corruption and war are profitable; and the war-maker rarely fails to draw greater praise. As Gibbon says:
…as long as mankind shall continue to bestow more liberal applause on their destroyers than on their benefactors, the thirst of military glory will ever be the vice of the most exalted characters.
Perhaps this is another gift George Bush will leave us with: the realization that war has become a business, and not just any business but one central to our way of life; that the military-industrial complex Eisenhower warned us about has taken control of our government by holding the economy hostage.
Perhaps we’ll decide, like the folks in Iain Banks’s Culture novels, that money’s just holding us up. When scarcity is the main problem, money provides a huge leg up. When you could feed everyone if you chose, but it’s not profitable enough so you don’t, you’re in essence killing people for money. And even from the purely economic point of view, if every individual were fed, clothed, housed, educated, and provided with transportation and medical care, how much more productive would we be as a group?
What keeps us from doing this? It’s not exactly corruption; bribes aren’t being paid, either explicitly or implicitly, to those who enforce the status quo. Unless you count the money spent on police, and the more numerous private security folks. Not to mention the various methods of enforcing that unusual system of economic class that Americans have evolved. It’s universal and not at all subtle, yet we often manage to ignore it.
To take a single example: I teach in six elementary schools in four districts each week of the school year. The educational opportunities presented to children differ significantly based on the cost of the house their families live in. That’s rational in our world, but I submit that nearly everyone would be much better off if we educated everyone to the highest standard we can manage. Rather than bombing some Asian village, for example. As Eisenhower said, every bomber we build is a school we don’t build. And bombers were dirt cheap back then.
I claim our socio-economic situation waxes and wanes as our ideas veer now toward and now away from a course parallel to reality. The corollary is that our current troubles are precipitated by a hole in our world-watching filters.
Americans are famous, or perhaps infamous, for their go-it-alone every-man-for-himself attitude. As Lisa said, how rebellious, in a conformist sort of way.
In reality everyone knows Americans love a winner. People who’ve never been to Los Angeles root for the Lakers because they think the Lakers will win (as if). Many people here in northern California root for the Patriots (once the 49ers have safely folded) despite not owning a single garment capable of withstanding the weather on a nice day at a Patriots game.
So when fans learn that their team’s best player is a rapist, or that their team taped competitors’ signals, reactions tend to fall into two groups. Some fans feel they’ve been let down by their stars or teams. Others prefer to ignore the revelations and blame the whole emotional mess on the media, or the InterTubes, or whatever: it’s all lies. This second group, one assumes, votes disproportionately for Bush.
Fortunately, there aren’t enough such people to elect him. Unfortunately, that doesn’t control who wins the elections. And corruption at the highest level of civic life sets a standard. Each new world chess champion initiates a fad for certain openings; each new administration has ripple effects throughout society.
So anyone who’s spent much time watching NBA games cannot be surprised to learn that former referee Tim Donaghy has accused the league of rigging games. Donaghy’s already been convicted of manipulating outcomes and is facing sentencing. In the plea letter his lawyer writes:
“Tim learned from Referee A that Referees A and F wanted to extend the series to seven games. Tim knew Referees A and F to be ‘company men,’ always acting in the interest of the N.B.A., and that night, it was in the N.B.A.’s interest to add another game to the series.”
The game was refereed by three tenured veterans: Dick Bavetta, Ted Bernhardt and Bob Delaney. Bernhardt has retired from the league. Under N.B.A. rules, Bavetta and Delaney are not permitted to speak to the news media. However, Delaney, a former New Jersey state trooper, cast doubt on Donaghy’s claims in an interview with ESPN.
“This is not the first time a known or convicted criminal has lied about me before the judicial system,” Delaney said Wednesday. “I have an extensive law enforcement background, and still train police officers. I have dealt with criminals and informants, and I know full well they are capable of doing and saying anything.”
I’m assuming Delany means this to be reassuring, but somehow I don’t find it so. Are we to consider that NBA referees are no more corrupt than your hometown police force would be if it dealt constantly with the amount of money that circulates in professional sports?
Back in 2001 Milwaukee was playing Philadelphia in the Eastern Conference finals. George Karl, coach of the Bucks, later expressed the view that the league had decided Alan Iverson and his Philly teammates would be a better draw for the finals than the Bucks, so they arranged the calls to make that happen. He was fined $85,000, if memory serves, and got calls from several prominent players stating their agreement. (One of them was Kevin Garnett, as of this writing the best player in the NBA finals.)
The FBI has made inquiries about Bavetta, according to a former N.B.A. referee who was interviewed by federal agents last year.
Hue Hollins, who retired in 2003 and has been outspoken about the N.B.A.’s treatment of referees, said he met for about an hour with two agents from New York before last season.
In addition to asking questions about Donaghy, Hollins said the agents inquired extensively about Bavetta. They asked if he ever noticed that Bavetta “was making sure that the home team would win, and I told them I had no idea because I didn’t work with him a lot.”
Well, try watching a game. Bavetta is not the only one, but he’s one.
The most hilarious comment comes from perennial favorite Mark Cuban, who must know something about basketball; after all, he bought a team.
Mark Cuban, the outspoken Dallas Mavericks owner, who has been a leading critic of the N.B.A.’s officiating program, cast doubt on Donaghy’s claim that league officials had orchestrated anything.
“There’s no way on God’s green Earth that David Stern has ever done anything to influence the outcome of a game,“ Cuban told ESPN.com.
Spoken like a man still hoping to be admitted to the country club, and thus continuing to speak well of it even after being rejected. Nixon would have appreciated the number of outs left in that sentence. Suppose this particular earth isn’t God’s, for example? And besides, did anyone accuse Stern of rigging the games? No, it was the referees who did that; Stern orchestrated it. It’s like Bush and Cheney didn’t actually do the torture themselves, they had other people do it, but they ordered it. They’re not complicit, they’re responsible. Same with Stern, though there was no torture or killing involved (as far as I know).
This, to me, is what makes college basketball preferable, though in principle it shouldn’t be. There are few more amazing athletes in the world than NBA players, and the game they play involves much more useful civic virtues than, say, American football. College teams can reach the NCAA tournament with one or two players who’ll definitely make the NBA; three, and you’re an odds-on favorite for the whole thing. But look at the last four NBA teams standing: Los Angeles, San Antonio, Boston, and Detroit: three great teams and one great media market. The league admitted that the decisive call in the fourth game of the Western Conference final was wrong, but they figured that a Lakers-Celtics series would draw a much larger audience than Spurs-Celtics.
It’s the American way.
In Namibia the cure for poverty has finally been found. It’s a sure-fire cure, one hundred percent effective. It’s money.
“The opponents of Basic Income Grants always have the reasoning that people will become dependent,” says Pastor Wilfred Diergaardt. “In fact, what we are seeing here is really lifting people up out of dependency into becoming human again.”
Claudia Haarman, one of the administrators of the project, agrees. “What makes people dependent is poverty, because they are dependent on other people, they are dependent to beg.”
In all the coverage of the subprime mortgage mess, there has been a key element missing: the sales pitch.
This is where the rubber meets the road, where the actual swindle goes down, where the trap snaps shut and the sucker is held fast till he can be skinned alive. It is the Glengarry Glen Ross moment.
We must understand these moments when we listen to the head hogs — Countrywide, Merrill Lynch, Citicorp, AIG and the other giant loan sharks — as they whine that the whole disaster is all the fault of deadbeat borrowers who should have known better.
And these moments are all committed to paper somewhere, except I don’t know how to get my hands on it. So I’m asking for help. Does anybody out there know somebody who was or is involved with a subprime mortgage outfit?
These moneylenders don’t just send their high-pressure sales force into battle unprepared. Like any other high-pressure sales outfit, mortgage brokers must use work sheets, talking points, training manuals and even scripts. These are to be followed, sometimes word for word. That’s what it means when the voice on the phone says, “This conversation may be recorded for training purposes?”
Every reasonable objection the prospect may raise has been anticipated, and a suitably deceptive answer prepared. Every evasion and obfuscation and misdirection has been scripted. And I’d like to put this stuff on the internet where it belongs — not to expose or embarrass any individual, but to expose the shabby trickery of the foundation upon which the huge banking firms are built.
The most likely source for such documentation, it seems to me, would be a remorseful or disgruntled former employee of a mortage broker who hasn’t bothered to throw out the old scripts and manuals.
Do you know any such person? I would offer him or her, and you, complete anonymity of course. Written backwards, my phone number is 0075793068. In the same way, I can be reached on line here: firstname.lastname@example.org
Buck’s Social Security posting, below, sent me back in the archives first to April of 2003 and from there to a post from the gray, menacing dawn of the Bush misadministration. The latter was titled, Contrary to Published Reports, Social Security is Okay. For whatever historical interest it might have, here goes:
On Monday, March 19 of the year 2001, high officials of the Bush administration made it clear that the Social Security crisis was over.
In fact, as they announced at a press conference, Social Security was in better shape than ever before in its history. And it would be on solid ground until at least 2038, when the first of the baby boomers will be 92. Medicare was in good shape, too: its main trust fund wasn’t expected to run dry until 2029.
The news would have been a huge relief to the tens of millions of Americans who believe that little or no money will be left by the time they reach retirement age. But the information never got to those worried millions, or to anyone else except a few thousand news junkies and policy wonks. Television seems to have ignored the story completely. The major papers ran it, but in such a way that for most readers it remained hidden, like Poe’s purloined letter, in plain sight—
The Boston Globe gave it 658 words; the Chicago Tribune thought it was worth 488. The Washington Post ran it on page 5, the Los Angeles Times on page 9. The New York Times also printed it inside, under the gripping headline: “Trustees Extend Solvency Estimates for 2 Benefits.” The lead sentence in the Wall Street Journal was, “Medicare and Social Security, the big entitlement programs for elderly Americans, are still going broke, though more slowly.”
But here are some other possible leads — bearing an equivalent or greater relation to reality—that might have introduced the neglected little story:
“The public relations campaign to scare Americans into turning Social Security over to Wall Street yesterday had a dangerous and perhaps fatal collision with reality.”
Or, “The Bush administration today scrambled to discredit a report from its own officials that undermined the president’s campaign promise to ‘reform’ Social Security and Medicare. Far from needing reform, etc.”
Or, “Even after loading the dice by using what many economists consider to be overly pessimistic growth projections, the Bush Administration was nonetheless forced to conclude yesterday that both Medicare and Social Security would remain solid at least until the youngest baby boomer reaches retirement age.”
Or, “Record budget surpluses — the major justification for President Bush’s proposed $1.6 trillion tax cut — would disappear if economic predictions used by three of his top cabinet officers are accurate. So would any immediate threat to the stability of Social Security and Medicare.”
All these leads are supported by facts contained in the various stories. And all qualify as news under the dog-bites-man rule: a widespread assumption about the world turns out not to be true after all.
All of the stories were caused by a report from the secretaries of Treasury, Labor, and Health and Human Services, joined by two outside experts. This report and the press conference called to announce it involved federal programs that touch the lives of virtually every American. Widely perceived as on the brink of bankruptcy, Social Security and Medicare prove to be in better shape than ever before — and by a considerable margin, too.
Then why did editors and reporters conclude that the report on the Social Security and Medicare trust funds deserved no better than what amounted to a collective yawn?
Might it have been because the stories were based on the fuzziest of numbers? Although the government may be obliged to pretend it can see decades into the fiscal future, does it follow that responsible journalists are obliged to take the pretense seriously? Of course not.
It would be unkind to dwell on past instances when the press regurgitated equally fuzzy figures with childlike trust, so let’s do it. For more than ten years, the press has been squawking like Chicken-Licken that the sky was about to fall on the whole baby boomer generation. Eventally “more people believed in UFOs than think they will ever receive Social Security.”
The widely-reported quote is from Peter G. Peterson, a former Secretary of Commerce under Richard Nixon and a leader for nearly 30 years in the campaign to destroy public confidence in Social Security. Mr. Peterson’s aim in raising his false alarm was to destroy Social Security. To do this, he proposed to gamble with the fund by diverting billions of dollars away from it and into the stock market. The suckers might win or might lose; the brokers, who would take the house cut off the top, could only win.
So successful had Peterson’s doomsaying been that it still lurks unexamined in the heads of journalists as well as most other economic illiterates. So editors and reporters were reading to believe the latest spin on the old story
After all, that spin was coming from the very people issuing the report. Most of them were members of the Bush cabinet, and it was in their interest to attack the very report they were obliged by law to issue. Like Peterson, Bush wanted Social Security to look broke so he could fix it—by putting billions of dollars from it into the stock market.
One trouble with this plan was that at the moment the thing that appeared to be the most badly broken was the stock market itself. Privatization of Social Security was starting to look about as smart as turning your life savings over to the purser on the Titanic.
Another drawback was that the president, in a striking display of cognitive dissonance, was telling us that the good times were over so we had better cut taxes. The logic was that this would allow us to pay down a little of our credit card debt, while at the same time getting rid of that pesky budget surplus that was looming over the economy. Or something.
At the same time Bush, by arguing for a tax cut spread over ten years, was implicitly predicting that the economy would remain strong enough so that lower taxes would still produce enough revenue to provide needed government services. In other words we could both have our cake and eat it, under the theory that had earlier produced President Reagan’s monumental deficits.
Anyway, Mr. Bush’s cabinet officers were in an uncomfortable position. They really thought — every true conservatives does, in the deep, secret bottom of his soul — that Social Security and Medicare were crackbrained communist schemes that should be terminated at once, and with extreme prejudice. But in a nation of fools, many of them unfortunately voters, wisdom cannot be said aloud. The rabble must be scared into doing what is best for it.
For one thing, the reports in question are an annual affair. The number of years till the projected insolvency of both funds went up last year, too, and had been going up since 1997. This year’s increase, consequently, sounded like old stuff.
In the third place, as the Wall Street Journal pointed out, “when the programs finally reach their insolvency dates the government likely would have to slash benefits — a 30% cut in Social Security alone, according to the report — increase taxes, or both, officials said.” In 37 years, everybody better watchout. Officials say.
And the Journal says, “Many economists believe the programs represent a burden on all Americans that in the long run is untenable.” Many editors probably believe that, too. Certainly most publishers do.
From this point of view, then, the responsible course is to downplay a story which offers only false and temporary hope. The sad but unavoidable truth is that our reckless generosity toward the old, the helpless and the sick will lead, if unchecked, only to ruin. That this hasn’t happened in the 66 years of Social Security’s existence is a miracle that, in the conservative worldview, cannot possibly continue.
Here's a skill we’ve all developed by now, but too often get rusty on: looking for the unsaid.
Take this article in the New! and Improved! Wall Street Journal, “Washington Takes On the Mortgage Mess”. Thank God someone’s doing something.
What started as a slump in home building and rising delinquencies on dodgy mortgages has evolved into a financial crisis and a likely recession. U.S. authorities are scrambling to respond.
Last week, the administration said the Federal Housing Administration may guarantee mortgages for up to 100,000 homeowners, many of whose homes are now worth less than they owe on their mortgages.
In addition, the Senate passed a package of measures including a tax credit for buyers of foreclosed properties, funds to state and local governments to buy and rehabilitate foreclosed homes, and tax breaks for home builders. The bill’s prospects in the House and the White House are uncertain.
Okay, I know I’m not educated in the ways of haute finance, but doesn’t the Senate’s package focus on help for buyers of foreclosed houses and the construction industry? I mean, a hundred thousand mortgages guaranteed when projections mention four million defaults? If so, why are the sellers hurting more than the buyers? They were making out like bandits, you should pardon the expression, during the boom and now they’re not, so the relative gap is significant, that’s certainly true. But they’re not on the street, like the people who fell for the subprime scam.
The Journal, personfully struggling for identity in the Murdoch era, tries to focus the blame on the consumer for borrowing too much, and on the government for not co-signing the loans, with the following questions.
Okay, so an attentive person would have considered that an adjustable-rate mortgage begun at a time of historically low interest rates had essentially only one likely future. Can’t go down, won’t stay here forever, what’s left?
But here we are, and the question now is, who benefits from the public largesse? The less perspicacious who fell for a financial scam? Or the financial corporations who perpetrated that scam?
I’m betting on the latter.