Interesting speculation by Bob Cesca in Salon. Can he be right? Can Fat Donny’s uniformly disastrous economic policies be nothing more than market-rigging for his own profit? The ultimate insider, trading? Why not? It makes sense when no other explanation does, not even stupidity. A total moron would stumble now and then into sound economic policy.
…Worst of all, Trump has clumsily staggered beyond the ludicrous economic policies of the Bush years to further destabilize financial markets, including your 401k accounts and the future security of your employment. Specifically, the president’s trade war of choice against China has turned a steadily rising Dow Jones average, through 2017, into an unstable sawtooth pattern with massive single-day declines that are now tempting a full-on 2008-style collapse.
If you don’t believe me, check out the markets from January to March of 2018, during the months immediately following Trump’s tax cut. Normally, a tax cut would drive the financial markets upward. But in March of 2018, just a few months after the bill was signed, Trump stupidly launched his trade war by announcing 25 percent tariffs on steel and 10 percent tariffs on aluminum, applied to all of our trading partners. From those months onward — including today, as I write this article — the Dow, S&P and Nasdaq have been unstable messes.
At risk of burying the lede, I have a theory that Trump and his cronies may be manipulating and shorting the markets, reaping vast profits off the declines. Every time Trump tweets or blurts new tariff threats or economic bellicosity aimed at China, the market takes a dump. As we all know, Trump hasn’t divested from his business interests. We also know that Trump has manipulated the markets before, based on a massive investigation in the New York Times indicating that Trump engaged in a scheme with his dad, Fred Trump, known as “greenmailing…”
Yesterday C-Span — I am sure you were also glued to the set — featured a talk at the National Press Club given by one Daniel Akerson, departing CEO of General Motors. He was boasting about the (i.e., his) achievement at GM since the US auto bail-out by the federal government prevented his company from going bankrupt. (Note the seeds of conflict there already in his set-up during the talk.)
At one point, he recounted how, early in the company’s difficulties, some European auto executives assured him that the recovery effort was headed for “disaster.” A failure, he then remarked as an aside, that would be as bad as the failure of the health care act (meaning so-called Obamacare). There was weak laughter in the audience, but no boos or hisses were heard. He went on to say that although “it took time” to turn around GM, a few years later some of those Europeans came to work at GM.
Well, here is at least one boo and a hiss for your cheap-shot remark and your blindered arrogance, Mr. Akerson. You would now be managing a mall in Missouri if President Obama’s administration hadn’t valiantly and stubbornly stuck with the GM salvage operation even in the teeth of utter Republican disdain on TV, in the papers, and in ads during the last presidential election.
The Democratic administration’s support was of course driven by concern for your (yuk, union) workers but also for the myriad businesses that feed the GM enterprises — not by concern for you and your over-promoted, over-compensated flunkies at corporate HQ, with their ladder burns.
You say the turn-around “took time?” Well, yes. But might not the Affordable Care Act also benefit, given time? No? You are awfully quick to mock a great effort for Americans’ health that was launched a few days ago, as if you can see into the future. Can you?
Or — this is a real question for you, Sir — are you allowing your snide inner mean-spiritedness and sense of entitlement to come to the fore only now, when the federal government is no longer in possession of GM, and it is safe for you boldly to disparage, on national television and in front of journalists (however captive they may be), a social initiative of far greater value to Americans than the wheeling and dealing at your own secure fief, before you retire to your gated-community mansions bordering golf-courses in Hobe Sound, Idaho, and Hawaii?
Until I hear otherwise, I will think of you as a smirking hairless coward sheathed in a really good suit. I’ll bet your shoes are bespoke, too.
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…)
Last week my daughter told me about her boyfriend’s aunt, uncle and cousin. They are moving to Los Angeles from Texas. Uncle has been out of work for some time. Aunt was recently laid off, and has lost her health care. She is a cancer survivor, so it is a safe bet that she won’t be getting coverage to replace that anytime soon. Cousin has recently graduated from college. She can’t find a job. She can’t afford her rent.
So, Joad-like they are all moving to California. Why, you may ask, do they think it will be better here? I asked that very question of my daughter. Can you guess the answer? I bet you can. I’ll give you a minute....
“They’re going to move in with Tom’s grandfather,” was my daughter’s reply.
I pointed out to my daughter that there is something terribly, horribly wrong with this country when two people in their 40s have absolutely no options but to move in with a parent. And the fact that we were talking about two generations being forced to take refuge like this is that much more appalling.
Turns out I didn’t have to point that out to her. She had already figured it out.
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.
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.
Once again it develops that denial is not just a river in Egypt:
Chris Mozilo, nephew of Angelo R. Mozilo, the former chief executive of Countrywide Financial — a name synonymous with the subprime disaster — recently started a new business, eModifyMyLoan. It sells software that homeowners can use to apply for loan modifications.
Chris Mozilo worked at Countrywide for 16 years. “I’m very proud of my career in mortgage lending,” he said. “We helped millions of people achieve the goal of homeownership.”
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.
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.
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.
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?
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.
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.)
Tom Tomorrow hits the nail on the head about the “Invisible Hand of the Free Market” at This Modern World. Now, if only Stanley Kubrick were alive to make a movie about it. I wonder how HAL would react to the news. I suspect he would say: “Dave, the one true and only terrorist is the invisible hand.”
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.
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.
Here’s part of this week’s dispatch from the Evans-Novak Political Report. Increasingly the GOP’s old-line pundits seem to be filing from Heartbreak Hotel, poor things. Yeah, right.
The picture is as grim for Sen. John McCain and Republicans as it is for the U.S. financial sector. If the election were today, Sen. Barack Obama would win in a blowout, with huge coattails at the Senate and House level…
It's not simply anti-incumbent sentiment dragging down Republicans, either. Vulnerable freshmen House Democrats have seen their poll numbers improve along with Obama's. Democratic House gains, which we predicted last week to be a mere 6 seats, could reach 20 seats if things keep going the way they are now…
Republicans may have made a devastating mistake in nominating McCain, whose lack of clarity, conviction, and understanding on the economy has handed the Democrats a win on this issue, where a more economically savvy Republican could have won the day.
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:
This is the best political news I’ve heard all year, maybe even forever. A friend of mine was taking a cab in Cleveland last week. The driver went on and on about the economy — no jobs, low wages, medical bills, gas prices, foreclosures. At last he said, “You know what, fuck it! I’m voting for the nigger.”
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.
Here’s a spanking rebuke to Henry Paulson by the CEO of a large bank that not only avoided the mortgage crisis, but seems to be a lone wolf crying in the wilderness. But don’t give John Allison too much credit for his staunch criticism of Treasury, he still was the 257th highest payed executive in 2006, as reported by Forbes Magazine. But if the pay for performance theory has any validity, which I’m not so sure of at these prices, Allison would deserve his pay, unlike the many failures on Wall Street and Corporation Street, who take home more. David Millberg at Bloomberg News has more on the full story, a portion of which appears below:
U.S. Treasury Secretary Henry Paulson’s proposed $700 billion bank rescue aims to help “poorly run” companies and the primary beneficiaries would be Goldman Sachs Group Inc. and Morgan Stanley, said BB&T Corp. Chief Executive Officer John Allison in a critique of the plan.
Treasury “is totally dominated by Wall Street investment bankers” and `“cannot be relied on to objectively assess'' the impact of government policy on the financial industry”, Allison wrote in a Sept. 23 letter to Congress. The letter was verified by Bob Denham, a spokesman for BB&T, North Carolina’s third largest bank.
Allison, 60, said Congress should “hear from well-run financial institutions” as lawmakers consider the plan, which seeks to ease the credit crunch by buying troubled mortgage- related assets. Under Allison, Winston-Salem, North Carolina- based BB&T avoided the subprime mortgage market, whose collapse led to the credit crisis. BB&T has risen 26 percent this year, the best showing in the 24-company KBW Bank Index.
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.
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.”
By now, many of you have read that John McCain has suspended his campaign and said he wants to cancel Friday night’s scheduled debate with Obama.
The first polling results are in from SurveyUSA since this news came out and Americans overwhelmingly say: Let the debate go on!
America’s First Reaction: Friday's McCain-Obama Debate Should Still Be Held On Friday, But Perhaps with New Focus: Immediately after John McCain's announcement 3 pm ET today, Wednesday 09/24/08, that he was suspending his campaign and seeking to postpone Friday’s schedule presidential debate, SurveyUSA interviewed 1,000 adults nationwide. Key findings:
A majority of Americans say the debate should be held. Just 10% say the debate should be postponed. A sizable percentage of Americans, 36%, think the focus of the debate should be modified to focus more on the economy. 3 of 4 Americans say the presidential campaign should continue. Just 14% say the presidential campaign should be suspended. If Friday's debate does not take place 46%, of Americans say that would be bad for America.
I don’t usually pay attention to Herr Bush, but I must admit that I’m going to watch to see what kind of fraud he tries to pull over on us tonight. The Republicans must be getting real nervous with the results of the polls Jerry just posted. The election isn’t close enough to steal at this point and they’ll do anything to try to get their “cover up the theft” candidate into office. Watch for the weird to keep happening. We are living in perilous times. Too bad old Cut and Run McCain seems to be trying to avoid this debate. That old soldier seems to have lost his fighting ability.
…there’s a silver lining in that cloud over Wall Street:
WASHINGTON (Reuters) — Democrat Barack Obama has opened a 9-point lead over Republican John McCain in the U.S. presidential race amid turmoil in the financial system and growing pessimism about the economy, according to a Washington Post-ABC News national opinion poll released on Wednesday.
Among likely voters, the poll found Obama now leads McCain by 52 percent to 43 percent. Two weeks ago the race was essentially even, with McCain at 49 percent and Obama at 47 percent, the Post reported…
Former President George W. Bush, who has already made America into an evil, clumsy and stupid clown in the eyes of the world, delivers a farting shot at the United Nations:
Amid a long ode to the importance of continuing the fight against terrorism, [Bush] devoted one paragraph to the rescue plan. “We’ve promoted stability in the markets by preventing the disorderly failure of major companies,” Mr. Bush said. He noted that many were watching how the United States responded because economies were “more closely connected than ever before.”
But for some leaders, the Bush bailout plan seemed hypocritical given the tough course Washington has often advised struggling nations to take.
“What you are seeing here is the letting off of some political steam,” said Mark Malloch Brown, a British cabinet minister and former senior United Nations official. “They are all remembering the very hard, unforgiving advice that they got from American financial institutions” to “deflate your economy, let your banks go to the wall,” he said. “There is a resentment at what they would see as a further evidence of double standards.”
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Sarah Palin today on Bush’s bailout with your dollars of the American International Group:
“Disappointed that taxpayers are called upon to bail out another one. Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful for Americans, so you know the shot that has been called by the Feds — it’s understandable but very, very disappointing that taxpayers are called upon for another one.”
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…
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.
Avedon Carol at The Sideshow had a great link to a video entitled “Meet the Bloggers” which includes an interview with Bernie Sanders. If you too are concerned about the decline and demise of the middle class in America (and the devastation of the poor), don’t miss this video. And you might want to meetthebloggers.org for more interviews to come in the months and years ahead.