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Richard Wolff: Debt Showdown Is Political Theater Burdening Society's Most Vulnerable (Video) Friday 29 July 2011 by: Juan Gonzalez and Richard D. Wolff, Democracy Now! | Interview
House Speaker John Boehner, right, looks on as House Majority leader Eric Cantor speaks to reporters on Capitol Hill in Washington, Thursday, July 28, 2011. (Photo: Stephen Crowley / The New York Times) Republicans have agreed to a vote today on a budget plan they say will cut the deficit $917 billion over 10 years. The move sets the stage for a showdown against unified Democratic opposition in the Senate and threats of a White House veto. To discuss the debt talks and economic austerity worldwide, we’re joined by Richard Wolff, Emeritus Professor of Economics at University of Massachusetts Amherst and author of several books,
including "Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It." "This is political theater in which two parties are posturing for the election coming next year," says Wolff. "To put it in perspective, the number of times the government has raised the debt ceiling since 1940? Ninety, almost twice a year. This is a normal, automatic procedure. Every president, Republican and Democrat, has asked for it."
TRANSCRIPT:
JUAN GONZALEZ: After weeks of infighting, Republicans have agreed to vote today on a budget plan they say will cut the deficit $917 billion over 10 years. The move sets the stage for a [showdown] against unified Democratic opposition in the Senate. Independent Senators Joe Lieberman and Bernie Sanders are promising to block it. White House spokesman James Carney warned yesterday that time is running out to reach a compromise. Carney also said Treasury Department officials may soon have to decide who will get government checks and who won’t, if the Treasury loses borrowing authority.
PRESS SECRETARY JAY CARNEY: Among the many obligations we have, the 80 million checks that the Treasury Department alone issues, payments that it issues every month, of the 1.2 billion payments the federal government makes in a year, those include veterans’ payments, Social Security payments, disability payments. They include the bills to contractors, small businesses, big businesses, that do work with the government, the people who manufacture the ammunition that we send to our troops in Afghanistan. And choices then have to be made. And it’s a Sophie’s choice, right? Who do you save? Who do you pay? That’s an impossible situation that this country has never faced, and should never face, if Congress does what it was elected to do and does its job.
AMY GOODMAN: White House spokesperson Jay Carney.
To discuss the debt talks, we’re joined by Richard Wolff, Professor Emeritus of Economics at University of Massachusetts Amherst, visiting professor here in New York at New School University, also hosts a weekly program on WBAI called Economic Update.
Welcome to Democracy Now!
RICHARD WOLFF: Thank you.
AMY GOODMAN: So we are watching this dance in Washington. The House is going to vote today around the issue of the debt ceiling. The Senate says it’s dead in the water. President Obama is vowing to veto. What does this all mean?
RICHARD WOLFF: Well, basically, your word "dance" is perfect. This is theater. This is political theater in which the two parties are posturing for the election coming next year, using this occasion—to put it in perspective, the number of times the government has raised the debt ceiling since 1940? Ninety, almost twice a year. This is a normal, automatic procedure. Every president, Republican and Democrat, has asked for it. When they ask, typically, the representatives of the other party say, "Well, you’re not managing the government real well," and then they vote for it. And that has happened over and over again. So what you’re seeing is a decision, politically, to make it theatric, out of what otherwise would have been a normal procedure.
A hundred years ago, the Congress said, in order to control the government and not to allow businesses and rich people to be able to invest in government money easily, we’re going to have the government limit how much can be borrowed. That was the idea. Now it became automatic, as we became a debt society—excuse me—and so, suddenly, the Republicans basically decided to make theater, to run their campaign a little early this year, and to slow it all down and make a big to-do.
The world expects that this will have to be undone in a few days or weeks. They’re kind of amazed to see it being stretched like this, this old, normal procedure. And the assumption is that the politics in the United States has become as dysfunctional as our economic situation. And so, that’s the danger, that this rigmarole, this theater, is really a sign that normal life in the United States has been disrupted on a scale that people haven’t seen before.
JUAN GONZALEZ: But when you say that the Republicans decided to make theater out of it, it seems to me that the Democrats also have participated in the process by making this seem like it’s—Armageddon will occur unless we get this done by August 2nd. And in essence, at times it seems almost like the Obama administration is seeking this deadline to start moving in a more centrist direction economically that it has wanted to do, but has been absent the type of crisis that it would be able to convince the American public that it needs to do.
RICHARD WOLFF: There are certainly signs of that. And they’re very troubling to many of us who are economists, right, left and center, because basically, the Democrats have said, "We will do massive cuts. They just won’t be as massive as the Republicans want." And then they will appeal to the American people in the hope that Americans will choose the lesser evil: the Democrats who won’t cut so terribly compared to the Republicans.
And the Republicans are appealing to folks that are very upset by the economic situation, don’t know who to be angry at. In the American way, they get angry at the government. It’s a little bit amazing, if you take a step back. The overwhelming majority of people who’ve lost our jobs in this crisis have been fired by private employers. The overwhelming majority of people who have been thrown out of their homes have been—have had that happen because a private bank has gone to court to get that to happen. And yet, the American people have this tendency, built into our culture, to leap right over the person who’s actually done you the damage and to blame the government. And so, the government, in general, and the particular government of Mr. Obama, is the target, and the Republicans are playing on this. And that’s their ploy.
And the Democrats are saying, "Well, we’re not so bad. We’re going to tax the rich, just a little, and the corporations a little less. And that’s something the Republicans won’t do. And we will protect your Social Security, at least more than..."
But you’re right. In the process, everything moves over to massive cutting. And besides the morals of that, it’s economically crazy. In an economic situation where recovery is very poor, very uneven, to have the government cut back, the way that spokesman for the White House just told us, is to make an economic situation that’s bad worse. So you see a kind of political game being played at the cost of worsening the underlying economic situation. And for the world, that suggests a society that’s not working.
AMY GOODMAN: Let’s go to President Obama on Monday night, when he addressed the nation, reiterating his call for what he described as a "balanced approach" to deficit reduction involving spending cuts and tax increases on the wealthy.
PRESIDENT BARACK OBAMA: The first approach says, let’s live within our means by making serious historic cuts in government spending; let’s cut domestic spending to the lowest level it’s been since Dwight Eisenhower was president; let’s cut defense spending at the Pentagon by hundreds of billions of dollars; let’s cut out waste and fraud in healthcare programs like Medicare, and at the same time, let’s make modest adjustments so that Medicare is still there for future generations; finally, let’s ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions. This balanced approach asks everyone to give a little, without requiring anyone to sacrifice too much. It would reduce the deficit by around $4 trillion and put us on a path to pay down our debt. And the cuts wouldn’t happen so abruptly that they’d be a drag on our economy or prevent us from helping small businesses and middle-class families get back on their feet right now.
JUAN GONZALEZ: Shortly after the President addressed the nation on the budget crisis Monday night, House Speaker John Boehner responded in a televised address.
SPEAKER JOHN BOEHNER: The President is adamant that we cannot make fundamental changes to our entitlement programs. As the father of two daughters, I know these programs won’t be there for them and their kids unless significant action is taken now. And the sad truth is that the President wanted a blank check six months ago, and he wants a blank check today. This is just not going to happen.
AMY GOODMAN: Richard Wolff, economist, author, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It, I did actually hear the reference to war by President Obama, but it’s rarely, rarely raised by Democrats or Republicans. One of your colleagues, Joe Stiglitz, said, over time, the wars in Iraq and Afghanistan will cost $5 trillion.
RICHARD WOLFF: There are a number of things that are not on the table. And frankly, I’m amazed that the President refers to what he does as a "balanced approach." First of all, the war and its enormous costs, off the table in any serious way. Going back to a serious taxation of corporations and of the rich in America, just, for example, at the scale that they were taxed in the ’50s, ’60s and ’70s, off the table.
Basically what’s being done is to suggest that now, after a "recovery," in quotations, that has only recovered the stock market and corporate profits and bank reserves, that has done nothing about unemployment and foreclosure—we haven’t had a balanced economic arrangement in this country for years. So, suddenly we’re going to be balanced in what’s coming next. That’s a strange kind of logic. Why is there not facing up to the war, the fact that you’re not taxing the rich? And perhaps the worst, we’re at a crisis because we have an economic system that hasn’t worked well, and the government bailed out banks and corporations by using public money. That was done to help them. It hasn’t helped many other folks. So now is not the time to do balance. Now is the time to correct the imbalance that has built up over all these years. And I think that would be where the President really ought to start.
JUAN GONZALEZ: But you do argue, contrary to some other liberal economists like Paul Krugman, that the deficits are a major problem and that the increasing deficit spending of the U.S. government has to be brought under control. So that would seem to indicate that your main push would be to obviously cut war spending, but also to raise taxes significantly.
RICHARD WOLFF: The most amazing thing to me is that we talk about fixing a government budget that’s in trouble, and we don’t talk about the revenue side in a serious way. That is an amazing thing. If you look at what happened to the American budget over the last 20 or 30 years, the culprit is obvious. We have dropped corporate taxes. We have dropped taxes on the rich.
Let me give you a couple of examples to drive it home. If you go back to the 1940s, here’s what you discover, that the federal government got 50 percent more money year after year from corporations than it did from individuals. For every dollar that individuals paid in income tax, corporations paid $1.50. If you compare that to today, here are the numbers. For every dollar that individuals pay to the federal government, corporations pay 25 cents. That is a dramatic change that has no parallel in the rest of our tax code.
Another example. In the ’50s and ’60s, the top bracket, the income tax rate that the richest people had to pay, for example the ’50s and ’60s, it was 91 percent. Every dollar over $100,000 that a rich person earned, he or she had to give 91 cents to Washington and kept nine. And the rationale for that was, we had come out of a Great Depression, we had come out of a great war, we had to rebuild our society, we were in a crisis, and the rich had the capacity to pay, and they ought to pay. Republicans voted for that. Democrats voted for that. What do we have today? Ninety-one percent? No. The top rate for rich people today, 35 percent. Again, nobody else in this society—not the middle, not the poor—have had anything like this consequence.
So, over the last 30, 40 years, a shift from corporate income tax to individual income tax, and among individuals, from the rich to everybody else. To deal with our budget problem without discussing that, putting that front and center, making that part of the story, that’s just a service to the rich and the corporations. There’s no polite way to say otherwise. And there’s something shameful about keeping all of that away and focusing on how we’re going to take out our budget problems by cutting back benefits to old people, to people who have medical needs. There’s something bizarre, and the world sees that, in a society that has done what it has done and now proposes to fix it on the backs of the majority.
AMY GOODMAN: And the argument that you give the money to the corporations and to the banks, and they will help people? They are the generator of jobs?
RICHARD WOLFF: The Republicans say it, and President Obama has said it repeatedly. He is going to provide incentives, he said, for years now. He is going to provide inducements and support for the private sector to put people back to work. We have a 9.2 percent unemployment rate. That’s what it’s been for the last two years. That policy has not worked. If corporations were going to do what the President gave them incentives to do, they would have done it. They’re not doing it. There’s no sign they’re going to do it. You have to face: that policy didn’t work.
What’s the alternative? Well, we don’t have to look far. Roosevelt, in the 1930s, the last time we faced this kind of situation, went on the radio in 1933 and 1934, and he gave speeches. And in those speeches, he said the following: if the private sector either cannot or will not provide work for millions of our citizens, ready, able and willing to work, then the government has to do it. And between 1934 and 1941, the federal government created and filled 11 million jobs.
The most amazing thing in the United States is not that we are not doing it. The most amazing thing is, there’s no bill to do it, there’s no discussion to do it. The president of the country never refers to it, keeps telling us—and the Republicans do the same—that the private sector is where we should focus our expectations. The private sector has answered: "We are not going to hire people here. We’re either going to hire no one, because we don’t like the way the economy looks, or we’re going to hire people in other countries, because they pay lower wages there." That’s a response of the private sector taking care of itself. It’s not a responsible way to run a society.
JUAN GONZALEZ: And one issue that you raised, in terms of how the corporations and bank profits have recovered tremendously, but—and many of these companies are sitting on huge piles of cash, that rather than invest in new machinery or bring in new workers, they’re just sitting on their money, and presumably investing it, because they’re not going to put it in at the bank rates or CD rates, so they’re obviously investing the money that they have, rather than create those jobs.
RICHARD WOLFF: Well, even more interesting, and maybe a bit of a shock to folks who don’t follow this, what the corporations are doing when they hold back the money—because it’s not profitable for them to hire—in large part, is they lend it to the United States government to fund these deficits. The United States government refuses to tax corporations and the rich. It then runs a deficit. It spends more than it takes in, because it’s not taxing them. And here comes the punchline. It then turns around to the people it didn’t tax—corporations and the rich—and borrows the money from them, paying them interest and paying them back. If the United States wanted to stimulate our economy in an effective way—
AMY GOODMAN: Pay even tax-deductible interest.
RICHARD WOLFF: Right, also. But if the government really wanted to do something, go get the money from them, stimulate, which will help them, and if you tax them to do it, you wouldn’t have a national debt. You wouldn’t run a deficit. We’re running a deficit because the people who run this society would like us to deal with our economic problems, not by taxing those who have it, the way we used to, but instead by endlessly borrowing them. And now the ultimate irony, we’ve borrowed so much as a nation from the rich and the corporations, they now are not so sure they want to continue to lend to us, because we’re so deeply in debt. And they want us instead to go stick it to poor people and sick people instead. It’s an extraordinary moment in our history as a nation.
AMY GOODMAN: We have to break, but we’re going to come back. Lots of people are sending us questions. They’re tweeting them in. They’re sending it to us on Facebook. You can go to facebook.com/democracynow or twitter.com/democracynow. We want to hear from you. We’re talking to Richard Wolff, who’s at New School University here in New York. His new book is _Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It." Stay with us.
[break]
AMY GOODMAN: Our guest, Richard Wolff. His book, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It. And people are sending us in questions. There is, as Richard Wolff says, an enormous hunger to understand all this. Eli Rivers on Facebook asks, "Given how the masses are getting continually and increasingly financially punished for events they had little or nothing to have caused, is it reasonable to assume that there will be major political upheavals in the near future? It seems we are almost at a breaking point." Professor Wolff?
RICHARD WOLFF: Yes, I think the—in a sense, that’s coming here in the United States, your previous guest explaining the gaps in wealth among the people, becoming more and more extreme. The signs are everywhere of a society like ours polarizing in a way that is going to undercut assumptions about what it means to be an American, expectations about realizing an American Dream. Those things are falling away, and people have to face that, and they’re upset. I think part of what we call the Tea Party is simply an expression, not so much of this or that ideological persuasion, but of a level of upset about economics and the future for their own children, that makes people look somewhere for something.
Europe also, I think, shows us the future. In Europe, where people are more organized, in trade unions, in socialist, communist and other political parties, there are vehicles that these institutions provide for public anger and public disagreement to be voiced in a reasonable and consistent way. In all the major countries of Europe, not just Greece, Portugal, Ireland and those that are in trouble, but in France and Germany and so on, there have been massive public actions in the streets showing that people do not want, to use one of the slogans in France, do not want the costs of an economic crisis to be borne by the mass of people who didn’t cause it and who have already suffered from it, and that has to stop. And that is shifting European politics. And while we don’t have the level of organization of people in this country that they do, I do think we will build them again, we will rebuild them from what they were before, because there has to be a change from the very direction that the questioner asks. And I’m sure that’s coming.
JUAN GONZALEZ: But in Europe, you have the remarkable situation that the more conservative parties are being pressured by the street to adopt more conciliatory policies in terms of dealing with the crisis, whereas in the United States—
RICHARD WOLFF: Going the other way.
JUAN GONZALEZ: —the more liberal parties are being—are seeing no pressure from the street, are increasingly moving to the right, in terms of how they see the need to deal with the crisis.
RICHARD WOLFF: It’s a wonderful case study. The German example is probably the best one—the biggest economy in Europe, the most important, run by a woman now named Angela Merkel, who runs that society. She did a remarkable thing over the last two months. She said there will be no bailout of Greece, unless banks are made to pay a part of the cost. Other governments in Europe didn’t have the courage. Why is this woman, a conservative, wanting to make sure the banks pay? Because she lost the last three bi-elections, and the critics of her are saying, "Your political career is over if you don’t stop making everyone in the society pay, except those who, A, caused this crisis, and, B, have been bailed out by the government to this point." So she actually changes. And I think that’s a sign that the pushback from masses of people, which will take many different forms, is already underway there and will come here.
AMY GOODMAN: Why are the people in the United States so different?
RICHARD WOLFF: I think it’s the question of organization. Over the last 50 years, we, the collective American people, have let the organizations that express mass concerns about economics atrophy. We’re at the end of a 50-year decline of our trade union movement. We don’t have the kinds of political parties we used to have in this country and that were very powerful in this country. And so, we don’t have the vehicles to articulate, express and bring political force to the way people feel. And so they go wherever there’s a little bit of organization—Tea Party—even if it’s a little strange and a little outside their frame, because it’s something. I think the message of other people will be, if we can form the kinds of organizations that articulate these positions, there are a lot of people out there ready, willing and able to become part of that.
AMY GOODMAN: This is another question from Facebook. Steve Cipolla asks, "Does it continue to make sense to refer to U.S. economic policy in isolation? Isn’t the real long-term threat to economic (and political) stability the persistence of increasing global income inequality?"
RICHARD WOLFF: Yes, but we are still dealing with corporations that have their bases, most of them, here in the United States. Are they more global than ever? Yes. Is that a serious problem? Absolutely. You know, 30, 40 years ago, we spoke about corporations moving production jobs out of the United States. Ten or 15 years ago, we began to talk about outsourcing, moving white-collar jobs out. The most recent addition to that is the decision of corporations, as they look around the world, to say, you know, the growth of our market, the growth of demand, it’s in Asia, it’s in Latin America, it’s in parts of—it’s not here. The American people are exhausted. Their wages are going nowhere. We have high unemployment. And the fact is, no one is going to lend them much more money because they’re tapped out. So they’re not a growing market.
So you see American corporations literally focused, for production and for consumption, elsewhere. That means they’re going to take care of themselves in the world. And if we don’t want to be left behind, if we don’t want the United States to become a backwater, then the freedom of corporations to do what they want has to be reined in. And that’s a difficult issue for Americans to confront and deal with. And we live in an ideology in which we’re supposed to believe that what corporations choose to do will magically be the best for all of us. It hasn’t worked that way. That’s why we are where we are. Basic change is the order of the day.
JUAN GONZALEZ: And in other regions of the world, that change is occurring. We’ve covered quite extensively here on Democracy Now! the changes in Latin America, where actually the income and the wealth gap is shrinking in the past decade for the first time in the memory of the political establishment of Latin America as a result of all of the socially oriented governments that have come to power.
RICHARD WOLFF: Right.
JUAN GONZALEZ: It’s a completely different path from what’s going on here in the United States.
RICHARD WOLFF: And I think it also speaks to our situation, because before that happened, before you had Evo Morales, before you had Chávez, before you had—and whatever you think of their particular policies, you had an upswelling of people saying the status quo that has got us into this dead end is not tolerable. And they developed new organizations. They rebuilt old organizations. And suddenly, basic changes in policy, which reined in the power of private enterprise, which said that capitalist enterprises are not the be-all and end-all of how to run a society, those kinds of movements attracted millions of people, gained political power. And there really is no reason to believe that our society is immune or unable to do, in its own way and its own traditions, something similar.
JUAN GONZALEZ: Well, I want to ask you about another question Brian Clifford asks on our Facebook page. "In the current moment, people in liberal democratic states seem to have internalized capitalism as a natural and unquestionable order. How does the left rupture such subjectivities?"
RICHARD WOLFF: Good question. You know, again, it’s our history. For 50 years, it has been unacceptable politically in the United States to ask what is basically a straightforward question. We have a particular economic system. It’s called capitalism. We have every right as a society to ask of that system, is it working? Is it working for us? Do the benefits and the costs balance themselves out in a way that says we want to keep the system, or that says we want to change the system, or that says we ought to look for an alternative system? We’ve been afraid to ask that question. We’ve been afraid to have public debates. That’s the legacy of the Cold War. We can’t afford anymore to not do that. We have to do as the questioner says: raise the question.
As it is put in a very powerful slogan in Germany by a new party that now gets 12 percent of the national vote, here’s their slogan—it’s in Germany: Can Germany do better than capitalism? And their answer is yes. And that has forced a conversation about this system, its limits, its strengths and weaknesses. That’s long overdue in the United States. And one of the results of this crisis, and now of this governmental paralysis, is to give a strong impetus to asking those questions. And that doesn’t mean accepting the alternatives of the past. The old efforts of going beyond capitalism had strength, but they also had horrible weaknesses. We will learn from that, as human beings always have. And we can forge a country out of an opening of the debate about this economic system. And I want to be part of that, and I think the American people are ready and interested in doing it, as well.
AMY GOODMAN: I want to thank you very much for being with us. Richard Wolff, an economist, just back actually from Europe, but teaches here in New York at New School University. His book is called Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It.
This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.
YouTube
freedombase:
the Tea Party will defeat you muslim terrorist Jew Killing Socialist thugs and this Bartlett is nothing but a TRAITOR like Benedict Arnold
@wittumy
Bartlett is a Anti American bastard who backs the Muslim terrorist Obama and Hates Capitalism.
Reagan would have told this Bartlett that he was nothing but a TRAITORthe man is a Kooky liberal who backs Nazi Anti Semite High taxes and Hates America
YouTube
HeymanisthVery good series, he also wrote many good books my favorite which was titled money which told many amusing story of monetary abuse. The collapse of 2009 would have made another predictably amusing chapter in the book. He was ignored by the "establishment' due to his views in which he encouraged the comforting of the inflicted and the inflicting the comfortable. He saw the world as it really was, spoke openly of corruption, greed and spoke his mind irregardless of who he pissed off.
Thanks to whoever uploaded the nine episodes of the series.
As time passes, more admirable Galbraith seems to me. I like the irony that he uses to expose the inconsistencies of neoliberal economic thinking. We are so fortunate that Galbraith has been an author so prolific. Life goes on but the fact remains. Enric
Daily Kos
The New York Times reports:After a year of clashing with Washington over new financial reforms, the country’s most powerful bankers have found common ground with regulators in the hard-fought effort to lift the debt ceiling and avoid a default.Wall Street is no longer watching from the sidelines as the most polarizing political fight in years plays out on Capitol Hill. In the last few days, top executives have been in close contact with Washington in a last-ditch attempt to prod lawmakers toward a compromise by Tuesday, the administration’s deadline to reach a deal
Mission accomplished (query: do Plouffe and Obama understand this). Time to wind this down and go home.
It's pretty discouraging to see Democrats trying to sell such a large defeat as a victory (we only lost half the farm!). anne:anne:http://krugman.blogs.nytimes.com/2011/07/30/very-serious-suckers/
July 30, 2011
Very Serious Suckers
By Paul KrugmanJonathan Chait has an excellent piece * documenting the way in which what he calls the establishment, and I call Very Serious People, misjudged the way the debt ceiling thing would play out:
"The failure to understand the crisis we were entering was widely shared among centrist types. When Republicans first proposed tying a debt ceiling hike to a measure to reduce the deficit, President Obama instead proposed a traditional, clean debt ceiling hike. He found this position politically untenable for many reasons, one of them being that deficit scolds insisted that using the debt ceiling to force a fiscal adjustment was a terrific idea, and that connecting the deficit debate to a potentially cataclysmic financial event was the mark of seriousness."
He then goes on to show how the usual suspects — the WaPo editorial page, the Committee for a Responsible Federal Budget, the Concord Coalition, etc. welcomed a crisis over the debt ceiling in the belief that it would lead to fiscal goodness.
This was terrible policy, even if it had worked: now is not the time for fiscal austerity, and the way the VSPs have shifted the whole conversation away from jobs and toward deficits is a major reason we’re stuck in the Lesser Depression.
But it also showed awesome political naivete. As Chait says, the first thing you need to understand is that modern Republicans don’t care about deficits. They only pretend to care when they believe that deficit hawkery can be used to dismantle social programs; as soon as the conversation turns to taxes, or anything else that would require them and their friends to make even the smallest sacrifice, deficits don’t matter at all.
I can’t help but notice that Chait’s list of chumps is basically the same as the list of people who puffed up Paul Ryan and gave him an award for fiscal responsibility. Enough said.
What’s really awesome here is the blindness. Anyone reading the newspapers with an open mind had a pretty good idea of what would happen in the debt fight; only Washington insiders managed to fool themselves.
But they’re Very Serious.
http://krugman.blogs.nytimes.com/2011/07/30/the-corrosion-of-the-conservative-economic-mind/July 30, 2011
The Corrosion of the Conservative Economic Mind
By Paul KrugmanFirst Michael Boskin, * now John Taylor: ** there seems be an epidemic of politically conservative economists who used to be technically competent repeating the obviously wrong falsehood that Reagan ushered in an era of “unprecedented” growth.
No matter what measure you use, it just ain’t so — and I thought every macroeconomist in America knew it wasn’t so. Here’s one measure that the Bureau of Labor Statistics happens to have put in a convenient chart, *** so that I’m not choosing the dates, they are:
[Multifactor productivity growth, average annual percent change over selected periods from 1948 to 2010]
This shows what everyone was supposed to know: we had an awesome performance in the generation following the war (despite very high tax rates on the rich and a very strong union movement); we had a long period of poor productivity performance that spanned the Ford, Carter, Reagan, and Bush I administrations; we then had a revival during the Clinton administration, but even so not up to postwar standards. By the way, I don’t give Clinton credit for that revival; it was about learning to use technology. But in any case, there is no hint of a Reagan miracle in the data.
So what on earth is going on with people like Boskin and Taylor? It’s not hard to guess; but as Dan Quayle said, a mind is a terrible thing to lose.
* http://krugman.blogs.nytimes.com/2011/07/18/reaganite-delusions/
** http://unsettledaccount.com/2011/07/21/john-taylor-does-not-understand-the-word-unprecedented/
July 31, 2011 | naked capitalism (Cross posted from MacroBusiness)
Exactly how did we get into this mess with the capital markets? A situation where the global stock of derivatives is over $US600 trillion, which is about twice the capital stock of the world. A situation where high frequency trading is over two thirds of the transactions on the NYSE and about the same in the stock markets of the UK and Europe. Likewise they are over half the action in foreign exchange markets and they are rapidly becoming dominant in the futures market. Andrew Haldane from the Bank of England is arguing against allowing high frequency trading — algorithms chasing algorithms chasing algorithms — from being allowed to proliferate pointing at volatility as the problem:
Speed increases the risk of feasts and famines in market liquidity. HFT [high-frequency traders] contribute to the feast through lower bid-ask spreads. But they also contribute to the famine if their liquidity provision is fickle in situations of stress.
Haldane noted that relative to gross domestic product, the equity market capitalisation of the US, Europe and Asia had not grown since 2000, suggesting that “the contribution of equity markets to economic growth … has been static”.
Little wonder, when you consider that companies are putting themselves in the hands of algorithms.
I think this conclusion, which many come to, is to some extent a blind alley. Because the volume of transactions is higher — when it is claimed that it adds liquidity this is a circular argument, like saying “the more we trade the more we trade” — it should mean that “volatility” at least on basic measures, is lower. The trades are made around normative models so they will tend to re-inforce those norms. Right up until the moment when the market does not behave with regard to norms, and then they suddenly start doing weird things, such as the so called “Flash Crash”. So it is probably correct to say that there is less volatility. It is also beside the point.
A better question is: Why do we think liquidity is a good thing?” Answer, because it facilitates trade around the exchange of information. “Information about what?” one might then ask. “The company in which the investment is being made,” is the answer. Does algorithmic trading exchange information about the performance of the company? No, it is only working off information about trading behaviour. Ergo, it may increase “liquidity” but it is not fulfilling the purpose of liquidity.
That kind of shift to traders working mostly off what traders do, rather than assessing the value of what is being traded, has become an absolute plague. It has taken over most Western financial markets. Hedging, for example, used to be all about hedging bets to protect the underling exchanges (usually wheat, or pork bellies or physical things). Now, hedging is all about reading behaviour, which then leads to other hedging strategies that are based on reading the hedging behaviour, and so on.
So the disappearing point is part of the problem. In our “anthrosphere” we are increasingly staring at each other’s navels in the financial markets, trying to make money and sustainable wealth out of ether. That is part of the problem. Regulators forgetting what the PURPOSE of financial markets is and instead just trying to stay faithful to the technical explications of that purpose, or utility. A colossal abrogation of responsibility, in other words, fuelled by thoughtlessness or intellectual laziness (Haldane is a notable exception).
But I think there is another problem. A growing mismatch in TIME between financial markets and commerce or economic activity. I can remember in the currency meltdowns of the last 20 years how the explanations in retrospect for why Russia or Thailand or Mexico or Indonesia “deserved” what they got. They were always plausible enough, if usually circular arguments.
But then you looked at what happened to those economies that had experienced crises and the impact was completely out of alignment. In a matter of weeks, there would be a massive re-rating of the currencies. No economy changes that fast. The problems, if there were problems and sometimes it was just a trading fiction, had usually accumulated for years. After the crises, the economies would take years to recover from the shock. It seemed to me that the misalignment in time is what is fundamentally wrong with this kind of financial behaviour.
The misalignment is even more extreme with high frequency trading, where micro-seconds are the basic unit. How can the exchange of information about a stock occur in such small periods? Obviously they can’t. There is a mismatch. Money should be aligned with what it is supposed to be representing, and that includes aligned in its temporal structure. For at least two decades, that alignment has been progressively picked apart, and now it is reaching endemic proportions.
In terms of its intellectual origins, this has a lot to do with the quasi-scientific methods used by economists and financiers. In science, time is just a dimension of space. The point of creating scientific “rules” is to say that every TIME the rule applies. Time, in other words, has to be eliminated as a problem.
Which is why science applies so poorly to human behaviour, because humans are always changing in time. It is why scientific models have extremely limited application to markets, because every time things are different — at least in their timing. For instance, I may reasonably conclude that the $A will fall, and be right because it will probably revert back t a norm. But what I need to know to make money is the time it will happen.
What one notices about all the fundamental analyses is that, while persuasive, they are extremely limited because they don’t tell you when the predicted events will occur. Those traders who sniff “the times” often do much better.
Time, in other words, cannot be eliminated from human behaviour, it is front and centre.
Which is why I would submit that the misalignment in time between financial market instruments and that which they are supposed to represent is not just extremely dangerous, it is fundamentally inhuman.
Foppe:
But then you looked at what happened to those economies that had experienced crises and the impact was completely out of alignment. In a matter of weeks, there would be a massive re-rating of the currencies. No economy changes that fast. The problems, if there were problems and sometimes it was just a trading fiction, had usually accumulated for years. After the crises, the economies would take years to recover from the shock. It seemed to me that the misalignment in time is what is fundamentally wrong with this kind of financial behaviour.
A very nice point.
One wonders what would be against executing all trades simultaneously once every second or few seconds. The stock exchanges wouldn’t like it, obviously, as they could no longer earn money by selling colocated server space, and neither would the banks, but it seems nice to fantasize about stuff like that sometimes.
Mark P:
“Andrew Haldane from the Bank of England is arguing against allowing high frequency trading … from being allowed to proliferate pointing at volatility as the problem.”
Well, sure, HFT has meant volatility problems, and it allows trading absolutely detached from market fundamentals — and if that’s true, what’s the point of such a stock market?
Most perniciously, however, HFT has allowed the creation of a Potemkin stock market over the last three years, which has in turn enabled many MSM business outlets to continually sell a ‘recovering’ U.S. economy where very large numbers of Americans aren’t going to the wall, though in reality the wall is exactly where those Americans are going.
http://en.wikipedia.org/wiki/Potemkin_village
Washington and Wall Street have colluded happily on what would be recognized — if this iteration of the technologies and techniques involved weren’t ahead of the grasp of most folks and of the regulators’ brief — as market manipulation on a massive scale. The Zero Hedge crowd may be wacked out about many things, but on this particular score they are right. They are right. They are right.
And it’s very telling that this administration in DC seems perfectly okay with the fact that, in return for helping to provide a (relatively) happy-face Potemkin market, the financial industry gets to use HFT as, effectively, another financial industry tax on real trading, skimming millions every day from regular pension fund and mom-and-pop investors, etc.
As the article above notes, the main argument HFT defenders offer is that it brings vastly greater liquidity to the market.But what kind of liquidity? The article has vague complaints about HFT creating ‘structural mismatches’ and being ‘fundamentally inhuman.’ No, it’s worse than that. The liquidity HFT provides is the kind that, if it were healthcare insurance, would be healthcare insurance set up so that just when you suffer an illness or injury and need it is precisely when it disappears.
Here’s an interview with as an establishment figure as you can get, a former Nasdaq Stock Market president and thirty-year veteran of the industry called Alfred R. Berkeley III: -
Berkeley: A recent TABB Group report said that 73 percent of trading is attributed to high-frequency traders.… We have optimized our market for hedge funds to make money. How do they make money? They front-run institutional trades. Traditional long-only traders have had to go into defensive mode.’
Interviewer: ‘Does high-frequency trading have an impact on the quality of liquidity in the market?’
Berkeley: ‘Of course it does. The best way to see that is to look at the size at the inside and see how many orders are canceled when it looks like momentum is going from the buyer to the seller. And the average trade size is just lousy.…’
Got that? The money quote is ‘see how many orders are canceled when it looks like momentum is going from the buyer to the seller.’ Better to think of this so-called liquidity as churn.
What sort of churn is it, though? Clearly, much of the ‘liquidity’ high frequency traders are adding to the mix is simply to match trades created by other HFT traders.
Furthermore, there’s no way that Goldman Sachs’s Sigma X, or any of the other HFT players can absolutely ensure that their algorithms are not trading with themselves.
Really, how can GS ensure it’s not trading with itself — for example, either a different arm of GS or another batch of computers running another algorithm?
In fact, insider esimates are internal order matching happens all the time in dark pools. With Sigma X estimates being around 50 percent when I looked in 2009.
And this is legal —
Rule 17A-7: “Exemption of Certain Purchase or Sale Transactions Between an Investment Company and Certain Affiliated Persons Thereof.”. http://www.law.uc.edu/CCL/InvCoRls/rule17a-7.html
Effectively, then, HFT players could just split their prop. desks into two or more groups and then trade a single stock back and forth. As long as the desired result is achieved — that is, off-loading the artificially ramped-up shares onto third parties at the end of the day — they don’t need to care. It’s the ultimate churn machine.
John Merryman
This is really just late stage cancer. The problem starts with interest rates set lower than market appreciation that creates speculative feedback loops pumping up the amount of money borrowed into existence in order to gamble, rather than invest. Now it’s just the tail wagging the dog, as this enormous amount of leverage overwhelms all other political and economic functions.JessicaThere are two deep factors at work.
- The advances in data processing and communication have made this kind of hyper-speed trading possible. It is also in its nature very desirable for those involved. Profits over time are a function of how much you make doing something divided by how long it takes you. If you can make money in microseconds, even tiny amounts multiply out to huge amounts because they can be repeated so many times. There is no way to make that much money doing anything practical in the real world, so capital will tend to flow to this hyper-speed trading.
- The elites in the most advanced economies have disintegrated in place over the past few decades. They are still there, but they no longer act in a coherent manner as elites as a whole. The different fragments act on their own, for their own.
This also means that they are defaulting on any and all social contracts (explicit or implicit) because there is no one there to hold up there end of the bargain. I believe that the root cause of this is that the economy has long needed to transition to centering on knowledge production (in a very broad sense), but we do not yet know how to organize a society for that purpose*. And much of the “social technology” that we have that did work in the industrial phase just gets in the way now. The challenge we face is so fundamental and demands qualities so different from those our societies developed during the industrial era that we do not even realize that we are stuck in a cul-de-sac. *
To run a knowledge-centered economy, we must do two things simultaneously: turn the knowledge loose and appropriately motivate (compensate) those who produce, maintain, and distribute it.
We can do one at a time, but not both. From this perspective, much of what we now have of intellectual production is dependent on the creation of artificial knowledge scarcity, ie ignorance.
For any Tolkien geeks, we live in an era run by orcs. What I am pointing is the world of elves that our orcs are the poor, twisted imitation of. There is no Sauron. It is orcs all the way to the top. We just need to re-elf.
Jessica:
Oh, and we live under a vile enchantment that makes many of us wonder why our elites seem to act like orcs not elves and somehow not be able to see that it is because they _are_ orcs.
Paul Tioxon:
Mozillo Underwritin'I get to use my 2 favorite quotes.
Today’s scientists have substituted mathematics for experiments, and they wander off through equation after equation, and eventually build a structure which has no relation to reality. – Nikola Tesla
The problems are solved, not by giving new information, but by arranging what we have already known. Philosophy is a battle against the bewitchment of our intelligence by means of language. – Ludwig Wittgenstein PHILOSOPHICAL INVESTIGATIONS Part I, Aphorism 109, 3rd Edition, G.E.M. Anscombe Translation.
Needless to say, algorithms are a unnatural language, but language none the less, which has now, through technological instrumentation, not only bewitched our intelligence, but our economic productivity. We have confused the ink on the page with meaning and truth.
Technology has already saved all of us, daily. Algorithms can be used as weapons if we’ve allow it, that’s what we should see here – not overwhelming complexity, but a high speed shell game. Goldman Fuchs is on the phone to the FBI to keep their proprietary tool hidden in the corporate coffer. Consider DRM, consider all the other information hoarding aggression from Wall Street, look at the laws they want to keep their control, ’tis yet another sign o’ the times.SleeperWell, the article is not really too suprising but I wonder if the relatively narrow range that the stock market has traded in 1,000 to 1,200 points or there abouts is due to the HFT skimming the profits from the market. After all if we are to believe the the averages the market overall should grow by some 8% per year. (And really folks let’s not let the 8% be a sticking point it could be 2% or 5% or some other number.) And since the market has a relatively narrow trading range the money has to go somewhere.iThe article is spot on. The “wisdom of crowds” works when each individual is out independently gathering their own information. When the information comes not from independent research, but only from gathering the opinions of others (or inferring opinion from behavior), feedback distortion takes over and information becomes increasingly unreliable.This more or less describes the markets today (Thanks, internet!). Worse, we’ve automated the process of feedback distortion with computer algorithms. The stock market, for example, no longer represents underlying value of companies in any meaningful sense of the word.
It looks like Robert Raigh does not get that this is end of growth.
July 28, 2011A friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?”
It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth.
The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government.
In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money.
Nor is there any economic imperative to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway.
Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II – when it reached 120 percent of the economy’s total output.
If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery – the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate.
Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
And the best way to get jobs and growth back is for the federal government to spend more right now, not less – for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on.
But what happens next week if Congress can’t or won’t deliver the President a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it.
One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: Honor them.
How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States.
The wild card is what the three big credit-rating agencies will do. As long as the Fed keeps honoring the nation’s IOUs, America’s credit should be deemed sound. We’re not Greece or Portugal, after all. We’ll still be the richest nation in the world, whose currency is the basis for most business transactions in the world.
Standard & Poor’s has warned it will downgrade the nation’s debt from a triple-A to a double-A rating if we don’t tend to the long-term deficit. But, as I’ve noted, S&P has no business meddling in American politics – especially since its own non-feasance was partly responsible for the current size of the federal debt (had it done its job the debt and housing bubbles wouldn’t have precipitated the terrible recession, and the federal outlays it required).
As long as we pay our debts on time, our global creditors should be satisfied. And if they’re satisfied, S&P, Moody’s, and Fitch should be, too.
Repeat after me: The federal deficit is not the nation’s biggest problem. The anemic recovery, huge unemployment, falling wages, and declining home prices are bigger problems. We don’t have a budget crisis. We have a jobs and growth crisis.
The GOP has manufactured a budget crisis out of the Republicans’ extortionate demands over raising the debt limit. They have succeeded in hoodwinking the public, including my friend.
July 30th, 2011
sailorman
BynocerosI often agree with Paul Krugman, but totally disagree with his statements that our debt is not as great, proportionally, as at the end of WWII and we had no trouble paying that back.
While the first part of the statement is true, there is no comparison to the US economics of today with the end of WWII. After WWII, almost all the manufacturing capacity of Europe and Japan had been destroyed by the war. China did not have much back then, so the US was the major manufacturer for all the worlds goods for many years. There was low personal debt and the war factories easily converted back to producing consumer goods. We had no trouble paying off the debt because our GDP grew in leaps and bounds.
Today the situation is completely reversed: we have next to no manufacturing, we have a giant and bloated financial service sector that sucks the blood out of the rest of the economy and doesn’t pay its fair share of taxes. Not to mention that we are fighting two wars and never raised taxes to pay for them.
There is no way we can pay it back without severe disruptions to the lifestyle of our citizens unless we decide we can no longer afford the current military budget.
Mike in Nola“Isn’t 21 grand per household of government benefits enough?”
Well, actually, no: $1.2T in Medicare/Social Security, $600B in Defense, and $400B in interest expense doesn’t leave a lot of money for schools, roads, unemployment assistance, Medicaid, veterans benefits, etc.
Mark E HofferSee no link to Rosie’s whole statements to see if there really is a contradiction. To the extent there is, I think they are just looking at it from two different aspects. Yes, there has been a huge increase in government spending over the past decade, but a large percentage has been for disastrous wars, the military-industrial complex, and bailouts. At the same time, the bottom half of the population have seen incomes decrease, accounting for recent increases in expenditures on top of the prior increases. Since the rich (remember Rosie hears a lot from wealthy clientes) aren’t benefiting from the social safety net, and, god-fobid, they may have to pay taxes to support it, the increase has suddenly become important.
Invictus: There is no link to Rosie’s work; it’s now paid subscription (since around March) and unavailable for linkage.
constantnormalInvictus,
just, to 2x-check, the oft-heralded ‘Social Security “Trust Fund”‘ has been looted, yes?
point being, Why? concern yourself with senseless, pututive, dichotomies (Rosie v. Krugman) when there are serious ‘nuts and bolts’ Questions that need to be answered -– to get a grasp on how far down the chute We’ve, already, been shoved..
dead hoboNone of this matters any longer. Regardless of whether the Teahadists are removed from control of this sorry situation, we are now embarked on our next step over the Japanese waterfall, with another wave of unemployment looming ahead, which will drive another (additional) wave of mortgage failures (there are not many outside the ranks of the wealthy who can service a mortgage without paychecks), which will rejuvenate our slumbering financial crisis — and if the goobermint is in or near a state of default, how can we bail out the banksters again?
The die is cast, the Great Roulette Wheel of Karma is in motion. Place your bets.
Joel826Sorry, at this point I don’t care much. I whined loudly and for years about Uncle Stupid and a host of miserable, horrible, incompetent, and hate inspired laws and regulations that allowed and still allow thieves to steal at will. Nothing happened except my writing skills improved immensely. If the tea party learned the concept of nuance, they would own the government since virtually everyone except the recipients of govt incompetence see both Dems and the GOP as wretched self serving lumps of human waste on legs.
That being said, to paraphrase a criticized quote, “do you want to be right or do you want to make money?”
I closed out my govt bond index fund for a couple of percent gain. I have no idea what will happen next week but the current bond flight to safety is a little too weird for my cash to be involved with. I expected it to be funded with stock money, not end of the world money. Will rates rise or will the US govt go Japanese with respect to long term rates? Beats me, but I chose to bail out with a gain and wait for a better re-entry point. Stocks are still a sucker bet at this time.
My guess, at this time, is that rates will rise when the current mess is settled. Stocks will rise but stay in the range because nobody wants to run for the hills and lose commission, yet nobody is stupid enough to actually buy to hold in this economy. Greece will finally collapse and this will provide a nice bond gain. Rates may recover again and, then, we will see the stock flight to safety.
call me ahabKrugman has repeatedly pointed out that “denominators matter” as a key way that those that which to point to anything compared to GDP can be exaggerated.
Search of Krugman Blog and this one in particular, Special Bulletin: Fractions Have Denominators.
The fact is that government spending as a p% of GDP has been hovering around 20% +/- 2% for decades. Recently, spending has increased not due to any new huge federal programs but because of the economic downturn.
However, and to judge the two, Rosenberg is simply wrong when he wrote, “Government spending, in the United States, is simply out of control.” Krugman points out that most of that ‘out of control spending’ is in the social safety net. What should we do to ”control’ those costs, cut unemployment benefits in this time of severe unemployment? Or should we decrease spending on Medicaid, causing the unemployed, who lost their employer provided health care, to flock to the emergence rooms for primary care?
No, the solution is to spend as much as needed to reverse this high unemployment so that these workers get jobs and start paying taxes again, while GDP rises.
In the longer term, the largest challenge is health care costs. Unless HC costs can be brought down to at least the level of inflation, both government and private spending will rise.
dead hobo“No, the solution is to spend as much as needed”
talk about brilliant,
let’s don’t stop now, let’s put the pedal to the metal and see just how fast we can get this bitch movin’
plenty more trillions to spend
techyI said:
My guess, at this time, is that rates will rise when the current mess is settled. Stocks will rise but stay in the range because nobody wants to run for the hills and lose commission, yet nobody is stupid enough to actually buy to hold in this economy. Greece will finally collapse and this will provide a nice bond gain. Rates may recover again and, then, we will see the stock flight to safety.
addendum:
—————
Which brings us to the XMAS season and holiday cheer, and maybe some form of QE3 under the tree.Petey Wheatstrawanybody who says government is spending is not needed right now, but still thought that unwanted war was needed, and still gets angry that the unemployment keeps growing because the governments(predominantly states) keep laying off people and still thinks that the tax on a billionaire making money from his capital should be less than a hard working man….
oh well only in america…thanks to the religious propaganda..
call me ahabStrange that we (“we” in the interpersonal communications sense, not in the broader talking-head media/political propaganda circus sense), argue over both the debt we have taken on, governmentally, and the size to which government has grown, but somehow completely avoid talking about exactly where all of this money went/is going, or if the expansion of government bureaucracy and safety-net programs, alone, could possibly account for all of the spending.
I imagine the addition of DHS and other expensive programs, such as our unfunded wars, might cause a spike, but I suspect that more of the money is being funneled into well-connected private/corporate hands than we’re aware of (to private contractors in the case of the wars, or private security firms contracted to DHS, for example).
I’m not as concerned as much about how much money we’re “spending,” as I am in finding out exactly where it’s all going. It is obviously not making its way into broad circulation. Government spending — debt-based, or not — no longer benefits the average American. If it did, our schools, infrastructure, social security programs, publicly-funded and owned R&D (sciences and technology), and general economic situation would not be in such a sorry-assed and obviously lopsided condition.
As Deep Throat allegedly advised Bob Woodward during the Watergate scandal: if you want to find out who is operating outside the law, you have to follow the money. If you follow the money since 2000, or so, it would seem we’ve been stealth privatized.
The complete absence of investigation, probative, civil, or criminal, into our recent and current status as an international deadbeat beggar — despite our huge stock of national wealth — in itself is an indication that the looting continues, apace.
By the time tis is over, the US government will be an LLC, incorporated in Delaware and dollars will represent voting stock.
techy = genius
he’s not sophomoric, or one with intelligence a bit left of the bell curve, or one who throws out red herrings as arguments, is he?
FT Alphaville
Deus Ex Macchiato also points to an intriguing “third way” however.
It’s a paper — handily titled “The liquidation of government debt” — from economist Carmen Reinhart and her colleague M. Belen Sbrancia. Picked up by the Financial Times’ Gillian Tett this week, it’s all about subtler ways in which governments can claw back money from the financial sector.
From the abstract:
Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of “financial repression.” Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.
‘Twas a theme that’s been pointed out elsewhere recently. A Finnish politician labeled it a “symbiosis” which had developed between banks and governments, “where political leaders borrow ever more money to pay off the banks, which return the favor by lending ever more money back to our governments.” We used to call it ‘bank bondage‘ but now it’s got a new less-S&M-ish phrase.
As Peter Atwater, president of Financial Insyghts, told us:
On your “symbiosis” point, I would remind you of the regulators call for the banking industry to hold more liquidity during the banking crisis. While perceived by the market as a strength builder, in fact it was a great “repression” trade (to borrow from [Gillian Tett's] commentary from earlier this week) as banks bought government bonds. In fact, I’d argue that the preferential treatment of sovereign debt under the Basel rules is both a great example of the repression trade and also a contributing factor to the sovereign debt crisis…
One wonders what risks our new (financially repressed) future might hold.
Although a technical default is highly unlikely a downgrade will still hurt a great deal, argue Buiter and Rahbari.
The consequences of a moderate downgrade are likely to be far less damaging than those of a default. But they will still be substantial, including increasing funding costs for the US sovereign, many related public entities and many related or unrelated private companies. A downgrade would also further reduce faith in the US dollar as an international currency and store of value and in US Treasuries as an international risk-free asset. It is hard to see how the US can overcome the unavoidable fiscal challenges without either experiencing a sovereign debt and US dollar crisis or a recession caused by significant fiscal tightening, or both.
The authors go on to analyse the impact of their central scenario, a small (less than $2,000bn) debt ceiling deal followed by a downgrade by S&P. They estimate that short-term spending cuts of up to $200bn would, assuming a fiscal multiplier of 0.5, reduce GDP by somewhere between 0.2 and 0.7 per cent. That’s only part of the story, they add, citing some of the other potential knock-on effects of a downgrade. (Declines in sentiment, confidence, real assets, investment, the dollar, and so on, in gory detail.) The result — QE3:
A recession may be avoided, but two consecutive quarters of below-potential GDP growth and the associated increase in unemployment would make it likely for the Fed to shift its focus towards stimulus again, turning to QE3 eventually, maybe starting in 2012 Q1 or Q2.
Of course, this isn’t inevitable; FT Alphaville is more sceptical of this outcome than the esteemed Citi duo. The report’s rhetoric often overshadows its analysis. But it’s hard to disagree with its assertion that the US isn’t going to adopt the optimal policy mix.
How we get to a package that is large, backloaded, well-designed and credible [DN: Scenario 5, above] is something of a mystery to us. In Tokugawa, Japan, the leading families used to leave one significant family member as hostage for good behaviour in the shogun’s palace. An equivalent 21st century commitment device is not easily come by.
This isn’t the end of the bad news. The fiscal correction required by the US is not only less likely but also larger than commonly assumed, according to the authors. They estimate that the US requires a “permanent” fiscal tightening of 6.2 per cent — higher than estimates made by the IMF (5.65 per cent) and plans made by lawmakers. In wonkish terms, they estimate that the structural deficit, the bit that remains once growth returns to trend, is bigger than assumed.
As ever, this is to do with different assumptions: the authors do not discount for inflation and are more sceptical of growth forecasts. Unlike most Washington plans, it doesn’t use the rosy CBO baseline scenario, which optimistically assumes the Bush tax cuts will be phased out as scheduled at the end of 2012. Buiter and Rahbari also have a bigger definition of the US government than others, including states, localities and agencies such as the GSEs.
We’re not sure this makes for a more accurate overall estimate but at the very least it’s an important reminder that the long-term fiscal picture depends a lot on decisions made now and the growth rate over the next few years. The perverse political theatre taking place in Washington only serves to distract from that.
But with only a one per cent chance of Congress and the White House reaching an optimal solution, what else can be done? Well, write Buiter and Rahbari, tongues perhaps firmly in figurative cheeks, there’s always inflation and a spot of financial repression. Here the authors discuss what happened the last time the US significantly reduced its debt, in the 1940s and 1950s:
The last time the US sovereign radically lowered the ratio of public debt to GDP was between 1946 (the all-time high for the Federal debt burden at 121.20 percent) and 1974 (its post-World War II low at 31.67 percent). Arithmetically, of the 89.53 percentage points reduction in the Federal debt burden, inflation accounted for 52.63pp and real GDP growth accounted for 55.86 pp. Federal surpluses accounted for minus 20.51pp.
…
Longer average maturity and occasionally sharp bursts of inflation helped erode the real burden of the Federal debt between 1946 and 1974, but so did financial repression – ceilings on nominal interest rates. When the ceiling binds, higher inflation, regardless of whether it is anticipated or unanticipated, turns nominal debt into currency as regards its impact on real rates of return. Until the TreasuryFederal Reserve Accord of March 1951, the Federal Reserve System was formally committed to maintaining a low interest rate peg on Treasury bonds – a practice introduced in 1942 when the Fed pegged the interest rate on Treasury bills at 0.375 percent. This practice was continued after the war despite a 14 percent rate of CPI inflation in 1947 and an 8 percent rate in 1948. The rate on 3-month Treasury Bills remained at 0.375 percent until June 1947 and did not reach 1.40 percent until March 1951.
Even after the Treasury-Federal Reserve Accord, there remained financial repression in the form of ceilings on bank lending and borrowing rates like Regulation Q, which prohibited the payment of interest on demand deposits. Without financial repression and with a relatively short average debt maturity, it would take high US rates of (unanticipated) inflation to bring down the burden of the debt appreciably
I've been avoiding writing anything about the whole debt ceiling situation, because it just depresses me too much...not just because a U.S. default/downgrade will have a seriously negative impact on my upcoming job search, but because it represents the final nail in the coffin of American exceptionalism, and I am a very strong nationalist.
At this point, it matters a bit, but only a bit, whether a deal is cobbled together, whether Obama uses the constitutional option, or whether we mint a bunch of huge platinum coins. Much of the real damage has, it seems to me, already been done. The interest rates at which a nation can borrow are an inverse function of the strength of bond investors' belief that the nation will pay the money back. And the events of f in the creditworthiness of the U.S. government.
In particular, one piece of information is crucial above all others. This is the fact that the Republican Party is willing to seriously entertain the option of a sovereign default.
Before this crisis, it seems to me that most people believed the Republican Party to be the "party of business" - that is, that corporations and businesspeople held ultimate sway over the party's decisions. Whatever happens with the debt ceiling, it is now clear, as Brad DeLong points out, that the GOP is not the "party of business." They are the party of Someone Else (more on this later).
This fact is not precisely "new information." There were many, many warning signs. Most recently, there was the rebellion of the House Republicans against the TARP bailout. Before that, there were the massive deficits run up by the Bush 2 and Reagan administrations - deficits that the Nixon or Eisenhower (or Coolidge, or Harding, or Hoover) administrations would never have contemplated. Yet despite these troubling signs, a bedrock belief in the "party of business" label persisted. Conservatives and liberals alike believed that Republican tax cuts were rewarding today's rich people rather than penalizing tomorrow's rich people.
Now that people are finally starting to question the political priorities of the Republican Party, the U.S. Treasury market, and a bunch of other markets that use the Treasury as the risk-free benchmark, are going to be disrupted, platinum coins or no platinum coins. Whether we default this week or in five or ten years, the bond markets now know that it will be the GOP that pulls the trigger.
Without patting myself on the back, I have to say that I always strongly suspected that the Republicans were not the "party of business." This is not because of any knowledge of political theory on my part, but because I grew up in College Station, Texas, one of America's most conservative towns (and the home of Texas A&M, which is sort of a feeder school for the Republican Party). College Station has a few businesspeople, but they tend to be pretty moderate. The real movers and shakers in local politics are "social conservatives."
This has national-level implications. Social conservatives dominate the South, and the South dominates the GOP. Since 1992, the Republicans have won 21 percent of the electoral votes outside of the South. You heard that right: one fifth. The GOP lives and dies not by the campaign contributions of CEOs and investment bankers, but by the votes of Southern white middle- and working-class social conservatives. This is a fact that the world, and bond markets, are just now beginning to understand.
I haven't looked at the names of the House Republican rebels who are blocking John Boehner's attempts to cut a deal on the debt ceiling, but I'm willing to bet dinner that they are even more Southern than the GOP as a whole. I have some evidence to this effect, so you probably shouldn't take the bet.
And this is why we have a debt crisis.
Which leaves one big question: Why are Southern white middle- and working-class social conservatives so eager to embrace a debt default? The effects on the real economy of a U.S. debt downgrade would hit every Southerner in the pocketbook. I suppose this is generally the case in debt default situations - the same working-class populists who think a default represents "free money" end up being the people who lose their jobs. But usually this only happens in poor countries with sclerotic political systems - Latin America, etc.
It seems to me - and this part is a guess and a supposition - that white Southern conservatives just don't have a lot of nationalism - at least, not for the nation they currently inhabit. They seem to feel, instinctively, that the United States of America is only "their country" when one of their own is in power. As soon as a liberal takes office, off come the U.S. flag bumper stickers, and on go the Confederate flag bumper stickers. When Southern white conservatives talk about the "real America," or cry "I want my America back!", my instinct says that they are talking about an America that the United States has never been - a white racial nation. That America did exist, briefly, before it got stomped by the United States. But its flag still flies, and now it is getting its revenge.
Like I said...just a hunch. But do you have a better explanation why 60 house Republicans are dead-set on ending America's status as the center of the global economy?
Anonymous
How is the US South not a set of "poor countries with sclerotic political systems"?
Anonymous:
agree with you, Dr. Smith (trying to encourage you to finish your dissertation - from a Buckeye PhD to a Wolverine PhD candidate)...
I'm a black man. I was laid off by a bigot, shortly after Obama was elected. A guy who read the Drudge Report every morning at his desk, first thing. Militantly proud Christian conservative. He seemed offended that I'm also a Christian, as if I didn't deserve to claim it for myself. I'm guessing you know what that means; I certainly do.
What's been happening since 11/08 is what I've called "the Obama backlash," and I compare it to the aftermath of the period known as Reconstruction following the Civil War.
I also recently commented that this fight is akin to the fight over slavery that became the Civil War. That fight prompted the formation of the Republican Party, and the election of its first President, who opposed slavery. It was the Confederates who fired the first shot - at Fort Sumter. And that fight was, from their perspective, not about morality but about economics.
John Nichols observed in his recent book, "The S-Word," that the issue was originally economic: in the philosophical struggle between capital and labor, on the side of those who believed in the superiority of capital, was the position that capital can literally own its labor - that's slavery. Extreme to its opponents; business as usual, literally, to its advocates, and extreme only in the extent to which they would go to hold onto it.
As you suggest without being more explicit, that kind of belief is again prominent, prompted by the election of a black president. History is in some respects repeating itself.
Post-racial America? Not from where I sit. Quite the contrary.
Anonymous
The electoral vote count doesn't make much sense since it is a "winner-take-all" system. Looking at the popular vote, Republicans still garnered ~42% of the popular vote outside of the south. And that's just the presidency, to get a majority of house members voters outside the south must have sent Republicans to congress.
Also recall that Democrats ramped up spending but then failed to increase the debt ceiling on purpose. From Reuters:
“Let the Republicans have some buy-in on the debt. They’re going to have a majority in the House,” said Reid. “I don’t think it should be when we have a heavily Democratic Senate, heavily Democratic House and a Democratic president.”
Defaulting is a terrible, terrible idea but it's not surprising we're having this battle when the 2010 elections were a referendum on government profligacy. Remember, none of the freshman house members voted on the spending increases! Tying it to the south and some sort of racial politics is a bit absurd.
Anonymous
"This is the fact that the Republican Party is willing to seriously entertain the option of a sovereign default."
Obama threatened to veto the current (albeit struggling) Republican plan . They aren't the only ones willing to entertain that option.
Statements like the above, exhibiting polarizing willful blindness, are really annoying.
Anonymous:
It's a valid line of thought, and being foreign I don't know enough to dispute the line of logic. I'm gonna suggest, however, that the causality might also be going the other way. The party's existing policy interests might dictate where it seeks it's votes.
Whatever the GOP could be standing for (businesses, wealth, banks) that does not really benefit the majority of common people, the "cheapest" votes to get (in terms of real policy concessions) are the votes of people who are easily swayed by some random immigrant/gay/atheist/muslim crap and disregard actual policy that hurts them.
DM
Anonymous:
A. Lincoln is usually considered to our greatest President because he saved the Union.
Is it possible that's wrong? What if we had let the South separate? Eventually, slavery would have ended through international pressure...just as in South Africa.
The South would now probably be a less developed country on border. The North might have a social safety net on par with Europe. It might be really cheap to vacation in Florida....
SteveT:
Anonymous said at 2:07 p.m. ". . . but it's not surprising we're having this battle when the 2010 elections were a referendum on government profligacy."
Reading the polls, it actually looks like the far-far-Right Teaparty Republicans were swept into office on a wave of misinformation.
Large numbers of voters were voting to repudiate the Democrats for "nationalizing" the health care system (they didn't), for increasing their taxes (they cut almost everyone's taxes), for "doubling" the national debt (not even close) and for nominating a president who was a terrorist-loving, secretly-Muslim, fascio-communist, illegal alien.
What can be done when a significant portion of the electorate lives in an alternate-reality bubble?
8:46 AM Mike the Mad Biologist said... I think there's a related phenomenon: government and government spending are seen by modern Republicans as helping the 'other': 'real' Americans don't receive government aid (even though they do). That is part ideology and part bigotry and separatism.
Monday 27 June 2011by: Jack Rasmus, Truthout | News Analysis
The current offensive underway against Medicare by Paul Ryan and the House Republican majority is well known. Less well known is the somewhat hidden undermining of Medicare in the 2010 Obama health bill that will take effect in a few more years and cost retirees a significant increase in out-of-pocket costs and caps on benefits. In contrast to Medicare, Social Security retirement and disability programs were, according to the Washington political consensus, to be delayed from cuts until after the November 2012 elections. But there is new evidence that the growing coziness between Obama and mainstream Republicans, on the one hand, and corporate interests on the other is about to result in a new offensive against Social Security before the 2012 elections. What this means is that the "old age retirement" benefits fund as well as the "disability insurance" fund programs of Social Security are now, like Medicare, about to become prime targets for cuts in the 2012 budget this fall.
The assault on the disability fund is already well underway. Disability benefits administrative law judges, who decide on granting long-term disability benefits under Social Security, have recently come under intense attack for being "too generous" in granting permanent benefits to the disabled. The new offensive was initiated in the wake of a May 19 Wall Street Journal editorial attacking disability administrative judge, David Daugherty. In the wake of the Journal opening salvo, Republicans and Democrats in the House quickly joined forces calling for an investigation of disability benefits judges in general. In response to the House investigation, the offensive quickly turned even more aggressive. It has now taken on the character of a criminal probe. All this, no doubt, will have a "chilling effect" on decisions to grant benefits by judges. The cost cutting has already begun.
The disability benefits trust fund is a prime and easy target from which to attack Social Security across the board. The disability fund pays out $124 billion in benefits to 10.2 million in 2010. That's a juicy cost-cutting plum.
Rumors abounded that Obama's "golf summit" with House Majority Republican Leader John Boehner would discuss Social Security cuts as part of a larger "understanding" of broad federal budget cutting in the 2012 budget, starting next October. Obama is clearly willing to use Social Security as a bargaining chip now, instead of waiting for a second term.
Obama's new "soft" position on Social Security in general was evident in his last December 2010 decision to reduce the payroll tax by 2 percent for workers. That resulted in more than $100 billion shortfall in revenue for Social Security this year alone, when the chronic jobless problem - 24 million still out of work - for three years now has already meant a major falloff in Social Security revenues for its various funds for the first time in decades. The 2 percent cut in the payroll tax was supposed to boost consumption, but it hasn't. Estimates are that 60 percent of the 2 percent payroll tax cut last December has already been absorbed by oil companies to pay for $4 a gallon gasoline.
Not deterred by this fact, the Obama administration, nonetheless, in recent weeks has begun floating the idea of cutting the employers' 6.2 percent share of the payroll tax, giving yet more income to business that has been sitting on a cash hoard of $2 trillion and not investing in the US and creating jobs. The logic of why corporations need still more cash from a payroll tax cut in order to invest is unconvincing. This second cut will drive the Social Security retirement and disability funds further in the red, making it even more convenient for those who argue for cuts now instead of after 2012.
With the imminent new offensive against Social Security "in the air," groups like the American Association of Retired Persons (AARP) last week did an about-face. AARP led the defense against Bush Jr.'s attempts to privatize Social Security last decade. Now, however, they are jumping on the cut Social Security retirement benefits bandwagon. As the Wall St. Journal recently gleefully noted, AARP "is dropping its long standing opposition to cutting Social Security benefits, a move that could rock Washington's debate over how to revamp the nation's entitlement programs." Does anyone believe AARP hasn't discussed this already with the Obama team, that some kind of new consensus to cut early and deep is being formed?
The most recent report by the Trustees of the Social Security program stated that the retirement benefits trust would run out of revenue to provide full benefits to retirees in 2038, when only 77 percent of benefit levels could be paid. The Medicare trust will run out of funds for full benefits earlier, in 2018.
The Obama-Republican-Corporate Solutions
Republicans, Obama and Corporate interests are proposing to "solve" the Social Security retirement/disability benefits and Medicare benefits problems with the following measures:
- Raise the retirement age to 70, which would cover 28 percent of the projected shortfall.
- Eliminate the annual cost-of-living benefit increases for retirement benefits, which would cover another 23 percent.
- Make new state and local government workers go into the Social Security system instead of receiving negotiated state-local pension plans, saving another 7 percent.
- Reduce benefits for middle-income retirees and significantly for higher income retirees, raising another 39 percent.
Those four measures would amount to 97 percent of the projected shortfall and make the retirement benefits trust fund "solvent" past mid-century.
For Medicare, their proposals are not to maintain benefits, but to reduce them by various measures while raising the costs for the reduced benefits. These include:
- Cap government payments while prices are allowed to rise. Or, as in the Ryan plan, give retirees vouchers to buy insurance that is "capped" as well while insurance rates rise.
- Raise the amount of monthly premiums by double or more. Currently, retirees must pay between $95-$115 for doctors' costs coverage and an additional amount per month to cover only part of prescription drugs. Combined premiums will, thus, rise to $250-$300 per month. And that's not counting higher deductibles and copays for doctors and drugs.
The Real Causes of the Social Security-Medicare Funding "Crisis"
The shortfall in the Social Security retirement benefits fund and disability fund are due first and foremost to the chronic lack of job creation and, thus, payroll tax revenue generation, for more than a decade now. Today, fewer are employed in the US than in 2000. The 2001 recession resulted in loss of jobs followed by weak job creation for the following four years. The 2007-11 recessions resulted in 24-27 million lost jobs and continuing weak job creation for more than three years now. These cyclical job losses were combined with chronic structural job losses at the same time: multinational corporations created three million jobs offshore and reduced 2.4 million jobs in the US. In addition, for those with jobs, wage gains have been lagging for a decade as well. That adds up to less payroll tax revenue as well. Then on top if it all, Obama cuts the payroll tax and is about to propose even more cuts in the payroll tax.
As for Medicare's shortfall in funding, the problem has several dimensions. First, the same payroll tax of 1.45 percent for the employee and for employer is ridiculously low. Where else are 47 million recipients of medical care covered for so small a tax? The typical employer-provided health insurance in contrast costs more than 20-24 percent, the equivalent of a typical worker's monthly paycheck. That's ten times more expensive. And the benefit coverage is often far less. The other major problem with the Medicare fund's shortfall is rising health insurance premiums and other health care costs for the past 15 years. And there's no solution to rising health costs in Obama's 2010 health care bill whatsoever.
Alternative Solutions to the Social Security-Medicare Funding "Crisis"
Solving either of the funding shortfalls, for Social Security retirement-disability or for Medicare, is not very difficult.
- Eliminate the current cap of $106,800 on earnings for the 12.4 percent. This would raise revenue to cover 86 percent of the projected shortfall for the next 75 years.
- Raise the payroll tax rate by 1 percent more, both for employee and employer, to 14.4 percent, in stages over the next 20 years. That would cover another 63 percent of the shortfall. That's just under 150 percent of what is needed.
- Use the excess 50 percent funding to reduce the retirement age to 65 for everyone, instead of the current 67. That would open up more jobs for young workers, who are suffering the worst unemployment as more older workers are forced by economic conditions to continue working past 67 or are forced to re-enter the labor force just to pay their bills.
- The Medicare shortfall can be solved simply by raising the 2.9 percent Medicare payroll tax by 0.25 percent for workers and employers each for the next ten years, then another 0.25 percent each for the second decade. That's 0.5 percent now and another 0.5 percent ten years from now.
- To sum up, what this amounts to is a simple 1 percent more each, employee and employer, for Social Security retirement, and another immediate 0.5 percent each for Medicare, applied to all "earned" incomes (wages and salary = "earned"). In short, make all earned incomes pay the same - and the so-called "great crisis" in entitlement funding disappears. These estimates, by the way, are from the Social Security administration's own calculations.
- Better and simpler yet, make everyone pay the 14.4 percent and 3.4 percent, not just those "earning" wages and salaries. Make all forms of capital incomes (capital gains, dividends, interest, rents etc.) pay the 14.4 percent and 3.4 percent - and you not only solve the so-called "entitlement funding crisis" for the remainder of this century, but you have now raised enough revenue to pay for single-payer health care for all as well.
But you won't hear these ideas and solutions coming off the "golf course summit" between Obama and Boehner this week.
July 28, 2011 | Truthdig
This phony debt crisis has now passed through the looking glass into the realm where madness reigns. What should have been an uneventful moment in which lawmakers make good on the nation's contractual obligations has instead been seized upon by Republican hypocrites as a moment to settle ideological scores that have nothing to do with the debt.
Hypocrites, because their radical free market ideology, and the resulting total deregulation of the financial markets, is what caused the debt to spiral out of control this last decade. That and the wars George W. Bush launched but didn't have the integrity to responsibly finance. The consequence was a banking bubble and crash leading to a 50 percent run-up of the debt that has nothing to do with the "entitlements" that those same Republicans have always wanted to destroy.
Even Barack Obama has put cuts in those programs into play, warning ominously that a failure to lift the debt ceiling could cause the government to stop sending out Social Security checks. Why, when the Social Security trust fund is fully funded for the next quarter-century and is owed money by the U.S. Treasury rather than the other way around? Why would we pay foreign creditors before American seniors?
The answer, offered as conventional wisdom by leaders of both parties, is that we cannot endanger our credit by failing to back our bonds, even though the Republicans have aroused the alarm of the main U.S. credit rating agencies by their brinkmanship on the debt.
What a topsy-turvy world when the same credit rating agencies that gave the thumbs up to the bankers' toxic mortgage-backed securities and credit default swaps now threaten the AAA rating of U.S. Treasury bonds. According to them, it will not be enough to merely lift the debt ceiling -- what had been assumed by both Republican and Democratic presidents to be a routine act.
In addition to that, as the credit agency Standard & Poor's has insisted, more than $4 trillion has to be cut from programs that mostly benefit the victims of the banking meltdown. Otherwise the agencies will downgrade the U.S. credit rating, leading to higher interest rates that will destroy what remains of the U.S. housing market, dim the prospect for any improvement in employment and further enrich the Chinese government and other holders of U.S. debt.
Obama and the Senate Democratic leadership are clearly poised to cave in to those demands in the spirit of "compromise," Obama's favorite word, but the Republicans keep upping the ante. The GOP is shameless: Speaker John Boehner has sanctimoniously responded to Obama's plea for a bargain that gives up almost everything to the right wing by rebuffing the president on the grounds that the Republican Party is the last line of defense against big government.
Boehner dared blame Obama for "the largest spending binge in American history," which he attributed to the health care reform, most of which has yet to be enacted, and a stimulus program that was an underfunded effort to save American jobs. Not a word from Boehner or the other Republicans about the banking collapse that resulted from their deregulatory policies, the real cause of the inflated debt.
Boehner's slogan, "I've always believed, the bigger government, the smaller the people," is downright bizarre coming from someone who supported the Bush tax cuts for the rich, the banking bailout and the highest war spending since World War II, all of which is what caused government to get this big. Was it job stimulus spending that kept GM jobs in this country that made people smaller, or the loss of their homes and jobs as a result of the policies that are at the core of the Republican program?
What is at stake is a radical Republican agenda to totally reverse the progress in economic justice that began with the great reforms of Franklin Roosevelt and his New Deal. Consider the direct consequence of the economic crisis that unfettered Wall Street greed has wrought, particularly in reversing the gains made by the most underprivileged sectors of the population. As The Wall Street Journal reported, based on a Pew Research Center study from 2005 to 2009, "The wealth gap between whites and each of the nation's two largest minorities -- Hispanics and blacks -- has widened to unprecedented levels amid the housing crisis and the recession. ... The disparities are the greatest since the government began tracking such data a quarter-century ago. "
Mark S:
But there is plenty of suffering to go around as a result of the deep recession. The wealth of whites in that period declined by 16 percent, not to mention the ever-greater chasm between the top 2 percent and everyone else. That's the same 2 percent whose tax cuts the Republicans are determined to preserve.
If those Teabagging, neo-fascist bastards try to rip me off of the mandatory contributions I've made for 40 years, I want to see Egypt in the streets of America. I want to see the 1960s all over again, only worse. I want to see insurrection and revolution, and I will do everything I can do to help encourage same.
Richard Wolff: Debt Showdown Is Political Theater Burdening Society's Most Vulnerable (Video) Friday 29 July 2011 by: Juan Gonzalez and Richard D. Wolff, Democracy Now! | Interview
House Speaker John Boehner, right, looks on as House Majority leader Eric Cantor speaks to reporters on Capitol Hill in Washington, Thursday, July 28, 2011. (Photo: Stephen Crowley / The New York Times) Republicans have agreed to a vote today on a budget plan they say will cut the deficit $917 billion over 10 years. The move sets the stage for a showdown against unified Democratic opposition in the Senate and threats of a White House veto. To discuss the debt talks and economic austerity worldwide, we’re joined by Richard Wolff, Emeritus Professor of Economics at University of Massachusetts Amherst and author of several books,
including "Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It." "This is political theater in which two parties are posturing for the election coming next year," says Wolff. "To put it in perspective, the number of times the government has raised the debt ceiling since 1940? Ninety, almost twice a year. This is a normal, automatic procedure. Every president, Republican and Democrat, has asked for it."
TRANSCRIPT:
JUAN GONZALEZ: After weeks of infighting, Republicans have agreed to vote today on a budget plan they say will cut the deficit $917 billion over 10 years. The move sets the stage for a [showdown] against unified Democratic opposition in the Senate. Independent Senators Joe Lieberman and Bernie Sanders are promising to block it. White House spokesman James Carney warned yesterday that time is running out to reach a compromise. Carney also said Treasury Department officials may soon have to decide who will get government checks and who won’t, if the Treasury loses borrowing authority.
PRESS SECRETARY JAY CARNEY: Among the many obligations we have, the 80 million checks that the Treasury Department alone issues, payments that it issues every month, of the 1.2 billion payments the federal government makes in a year, those include veterans’ payments, Social Security payments, disability payments. They include the bills to contractors, small businesses, big businesses, that do work with the government, the people who manufacture the ammunition that we send to our troops in Afghanistan. And choices then have to be made. And it’s a Sophie’s choice, right? Who do you save? Who do you pay? That’s an impossible situation that this country has never faced, and should never face, if Congress does what it was elected to do and does its job.
AMY GOODMAN: White House spokesperson Jay Carney.
To discuss the debt talks, we’re joined by Richard Wolff, Professor Emeritus of Economics at University of Massachusetts Amherst, visiting professor here in New York at New School University, also hosts a weekly program on WBAI called Economic Update.
Welcome to Democracy Now!
RICHARD WOLFF: Thank you.
AMY GOODMAN: So we are watching this dance in Washington. The House is going to vote today around the issue of the debt ceiling. The Senate says it’s dead in the water. President Obama is vowing to veto. What does this all mean?
RICHARD WOLFF: Well, basically, your word "dance" is perfect. This is theater. This is political theater in which the two parties are posturing for the election coming next year, using this occasion—to put it in perspective, the number of times the government has raised the debt ceiling since 1940? Ninety, almost twice a year. This is a normal, automatic procedure. Every president, Republican and Democrat, has asked for it. When they ask, typically, the representatives of the other party say, "Well, you’re not managing the government real well," and then they vote for it. And that has happened over and over again. So what you’re seeing is a decision, politically, to make it theatric, out of what otherwise would have been a normal procedure.
A hundred years ago, the Congress said, in order to control the government and not to allow businesses and rich people to be able to invest in government money easily, we’re going to have the government limit how much can be borrowed. That was the idea. Now it became automatic, as we became a debt society—excuse me—and so, suddenly, the Republicans basically decided to make theater, to run their campaign a little early this year, and to slow it all down and make a big to-do.
The world expects that this will have to be undone in a few days or weeks. They’re kind of amazed to see it being stretched like this, this old, normal procedure. And the assumption is that the politics in the United States has become as dysfunctional as our economic situation. And so, that’s the danger, that this rigmarole, this theater, is really a sign that normal life in the United States has been disrupted on a scale that people haven’t seen before.
JUAN GONZALEZ: But when you say that the Republicans decided to make theater out of it, it seems to me that the Democrats also have participated in the process by making this seem like it’s—Armageddon will occur unless we get this done by August 2nd. And in essence, at times it seems almost like the Obama administration is seeking this deadline to start moving in a more centrist direction economically that it has wanted to do, but has been absent the type of crisis that it would be able to convince the American public that it needs to do.
RICHARD WOLFF: There are certainly signs of that. And they’re very troubling to many of us who are economists, right, left and center, because basically, the Democrats have said, "We will do massive cuts. They just won’t be as massive as the Republicans want." And then they will appeal to the American people in the hope that Americans will choose the lesser evil: the Democrats who won’t cut so terribly compared to the Republicans.
And the Republicans are appealing to folks that are very upset by the economic situation, don’t know who to be angry at. In the American way, they get angry at the government. It’s a little bit amazing, if you take a step back. The overwhelming majority of people who’ve lost our jobs in this crisis have been fired by private employers. The overwhelming majority of people who have been thrown out of their homes have been—have had that happen because a private bank has gone to court to get that to happen. And yet, the American people have this tendency, built into our culture, to leap right over the person who’s actually done you the damage and to blame the government. And so, the government, in general, and the particular government of Mr. Obama, is the target, and the Republicans are playing on this. And that’s their ploy.
And the Democrats are saying, "Well, we’re not so bad. We’re going to tax the rich, just a little, and the corporations a little less. And that’s something the Republicans won’t do. And we will protect your Social Security, at least more than..."
But you’re right. In the process, everything moves over to massive cutting. And besides the morals of that, it’s economically crazy. In an economic situation where recovery is very poor, very uneven, to have the government cut back, the way that spokesman for the White House just told us, is to make an economic situation that’s bad worse. So you see a kind of political game being played at the cost of worsening the underlying economic situation. And for the world, that suggests a society that’s not working.
AMY GOODMAN: Let’s go to President Obama on Monday night, when he addressed the nation, reiterating his call for what he described as a "balanced approach" to deficit reduction involving spending cuts and tax increases on the wealthy.
PRESIDENT BARACK OBAMA: The first approach says, let’s live within our means by making serious historic cuts in government spending; let’s cut domestic spending to the lowest level it’s been since Dwight Eisenhower was president; let’s cut defense spending at the Pentagon by hundreds of billions of dollars; let’s cut out waste and fraud in healthcare programs like Medicare, and at the same time, let’s make modest adjustments so that Medicare is still there for future generations; finally, let’s ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions. This balanced approach asks everyone to give a little, without requiring anyone to sacrifice too much. It would reduce the deficit by around $4 trillion and put us on a path to pay down our debt. And the cuts wouldn’t happen so abruptly that they’d be a drag on our economy or prevent us from helping small businesses and middle-class families get back on their feet right now.
JUAN GONZALEZ: Shortly after the President addressed the nation on the budget crisis Monday night, House Speaker John Boehner responded in a televised address.
SPEAKER JOHN BOEHNER: The President is adamant that we cannot make fundamental changes to our entitlement programs. As the father of two daughters, I know these programs won’t be there for them and their kids unless significant action is taken now. And the sad truth is that the President wanted a blank check six months ago, and he wants a blank check today. This is just not going to happen.
AMY GOODMAN: Richard Wolff, economist, author, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It, I did actually hear the reference to war by President Obama, but it’s rarely, rarely raised by Democrats or Republicans. One of your colleagues, Joe Stiglitz, said, over time, the wars in Iraq and Afghanistan will cost $5 trillion.
RICHARD WOLFF: There are a number of things that are not on the table. And frankly, I’m amazed that the President refers to what he does as a "balanced approach." First of all, the war and its enormous costs, off the table in any serious way. Going back to a serious taxation of corporations and of the rich in America, just, for example, at the scale that they were taxed in the ’50s, ’60s and ’70s, off the table.
Basically what’s being done is to suggest that now, after a "recovery," in quotations, that has only recovered the stock market and corporate profits and bank reserves, that has done nothing about unemployment and foreclosure—we haven’t had a balanced economic arrangement in this country for years. So, suddenly we’re going to be balanced in what’s coming next. That’s a strange kind of logic. Why is there not facing up to the war, the fact that you’re not taxing the rich? And perhaps the worst, we’re at a crisis because we have an economic system that hasn’t worked well, and the government bailed out banks and corporations by using public money. That was done to help them. It hasn’t helped many other folks. So now is not the time to do balance. Now is the time to correct the imbalance that has built up over all these years. And I think that would be where the President really ought to start.
JUAN GONZALEZ: But you do argue, contrary to some other liberal economists like Paul Krugman, that the deficits are a major problem and that the increasing deficit spending of the U.S. government has to be brought under control. So that would seem to indicate that your main push would be to obviously cut war spending, but also to raise taxes significantly.
RICHARD WOLFF: The most amazing thing to me is that we talk about fixing a government budget that’s in trouble, and we don’t talk about the revenue side in a serious way. That is an amazing thing. If you look at what happened to the American budget over the last 20 or 30 years, the culprit is obvious. We have dropped corporate taxes. We have dropped taxes on the rich.
Let me give you a couple of examples to drive it home. If you go back to the 1940s, here’s what you discover, that the federal government got 50 percent more money year after year from corporations than it did from individuals. For every dollar that individuals paid in income tax, corporations paid $1.50. If you compare that to today, here are the numbers. For every dollar that individuals pay to the federal government, corporations pay 25 cents. That is a dramatic change that has no parallel in the rest of our tax code.
Another example. In the ’50s and ’60s, the top bracket, the income tax rate that the richest people had to pay, for example the ’50s and ’60s, it was 91 percent. Every dollar over $100,000 that a rich person earned, he or she had to give 91 cents to Washington and kept nine. And the rationale for that was, we had come out of a Great Depression, we had come out of a great war, we had to rebuild our society, we were in a crisis, and the rich had the capacity to pay, and they ought to pay. Republicans voted for that. Democrats voted for that. What do we have today? Ninety-one percent? No. The top rate for rich people today, 35 percent. Again, nobody else in this society—not the middle, not the poor—have had anything like this consequence.
So, over the last 30, 40 years, a shift from corporate income tax to individual income tax, and among individuals, from the rich to everybody else. To deal with our budget problem without discussing that, putting that front and center, making that part of the story, that’s just a service to the rich and the corporations. There’s no polite way to say otherwise. And there’s something shameful about keeping all of that away and focusing on how we’re going to take out our budget problems by cutting back benefits to old people, to people who have medical needs. There’s something bizarre, and the world sees that, in a society that has done what it has done and now proposes to fix it on the backs of the majority.
AMY GOODMAN: And the argument that you give the money to the corporations and to the banks, and they will help people? They are the generator of jobs?
RICHARD WOLFF: The Republicans say it, and President Obama has said it repeatedly. He is going to provide incentives, he said, for years now. He is going to provide inducements and support for the private sector to put people back to work. We have a 9.2 percent unemployment rate. That’s what it’s been for the last two years. That policy has not worked. If corporations were going to do what the President gave them incentives to do, they would have done it. They’re not doing it. There’s no sign they’re going to do it. You have to face: that policy didn’t work.
What’s the alternative? Well, we don’t have to look far. Roosevelt, in the 1930s, the last time we faced this kind of situation, went on the radio in 1933 and 1934, and he gave speeches. And in those speeches, he said the following: if the private sector either cannot or will not provide work for millions of our citizens, ready, able and willing to work, then the government has to do it. And between 1934 and 1941, the federal government created and filled 11 million jobs.
The most amazing thing in the United States is not that we are not doing it. The most amazing thing is, there’s no bill to do it, there’s no discussion to do it. The president of the country never refers to it, keeps telling us—and the Republicans do the same—that the private sector is where we should focus our expectations. The private sector has answered: "We are not going to hire people here. We’re either going to hire no one, because we don’t like the way the economy looks, or we’re going to hire people in other countries, because they pay lower wages there." That’s a response of the private sector taking care of itself. It’s not a responsible way to run a society.
JUAN GONZALEZ: And one issue that you raised, in terms of how the corporations and bank profits have recovered tremendously, but—and many of these companies are sitting on huge piles of cash, that rather than invest in new machinery or bring in new workers, they’re just sitting on their money, and presumably investing it, because they’re not going to put it in at the bank rates or CD rates, so they’re obviously investing the money that they have, rather than create those jobs.
RICHARD WOLFF: Well, even more interesting, and maybe a bit of a shock to folks who don’t follow this, what the corporations are doing when they hold back the money—because it’s not profitable for them to hire—in large part, is they lend it to the United States government to fund these deficits. The United States government refuses to tax corporations and the rich. It then runs a deficit. It spends more than it takes in, because it’s not taxing them. And here comes the punchline. It then turns around to the people it didn’t tax—corporations and the rich—and borrows the money from them, paying them interest and paying them back. If the United States wanted to stimulate our economy in an effective way—
AMY GOODMAN: Pay even tax-deductible interest.
RICHARD WOLFF: Right, also. But if the government really wanted to do something, go get the money from them, stimulate, which will help them, and if you tax them to do it, you wouldn’t have a national debt. You wouldn’t run a deficit. We’re running a deficit because the people who run this society would like us to deal with our economic problems, not by taxing those who have it, the way we used to, but instead by endlessly borrowing them. And now the ultimate irony, we’ve borrowed so much as a nation from the rich and the corporations, they now are not so sure they want to continue to lend to us, because we’re so deeply in debt. And they want us instead to go stick it to poor people and sick people instead. It’s an extraordinary moment in our history as a nation.
AMY GOODMAN: We have to break, but we’re going to come back. Lots of people are sending us questions. They’re tweeting them in. They’re sending it to us on Facebook. You can go to facebook.com/democracynow or twitter.com/democracynow. We want to hear from you. We’re talking to Richard Wolff, who’s at New School University here in New York. His new book is _Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It." Stay with us.
[break]
AMY GOODMAN: Our guest, Richard Wolff. His book, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It. And people are sending us in questions. There is, as Richard Wolff says, an enormous hunger to understand all this. Eli Rivers on Facebook asks, "Given how the masses are getting continually and increasingly financially punished for events they had little or nothing to have caused, is it reasonable to assume that there will be major political upheavals in the near future? It seems we are almost at a breaking point." Professor Wolff?
RICHARD WOLFF: Yes, I think the—in a sense, that’s coming here in the United States, your previous guest explaining the gaps in wealth among the people, becoming more and more extreme. The signs are everywhere of a society like ours polarizing in a way that is going to undercut assumptions about what it means to be an American, expectations about realizing an American Dream. Those things are falling away, and people have to face that, and they’re upset. I think part of what we call the Tea Party is simply an expression, not so much of this or that ideological persuasion, but of a level of upset about economics and the future for their own children, that makes people look somewhere for something.
Europe also, I think, shows us the future. In Europe, where people are more organized, in trade unions, in socialist, communist and other political parties, there are vehicles that these institutions provide for public anger and public disagreement to be voiced in a reasonable and consistent way. In all the major countries of Europe, not just Greece, Portugal, Ireland and those that are in trouble, but in France and Germany and so on, there have been massive public actions in the streets showing that people do not want, to use one of the slogans in France, do not want the costs of an economic crisis to be borne by the mass of people who didn’t cause it and who have already suffered from it, and that has to stop. And that is shifting European politics. And while we don’t have the level of organization of people in this country that they do, I do think we will build them again, we will rebuild them from what they were before, because there has to be a change from the very direction that the questioner asks. And I’m sure that’s coming.
JUAN GONZALEZ: But in Europe, you have the remarkable situation that the more conservative parties are being pressured by the street to adopt more conciliatory policies in terms of dealing with the crisis, whereas in the United States—
RICHARD WOLFF: Going the other way.
JUAN GONZALEZ: —the more liberal parties are being—are seeing no pressure from the street, are increasingly moving to the right, in terms of how they see the need to deal with the crisis.
RICHARD WOLFF: It’s a wonderful case study. The German example is probably the best one—the biggest economy in Europe, the most important, run by a woman now named Angela Merkel, who runs that society. She did a remarkable thing over the last two months. She said there will be no bailout of Greece, unless banks are made to pay a part of the cost. Other governments in Europe didn’t have the courage. Why is this woman, a conservative, wanting to make sure the banks pay? Because she lost the last three bi-elections, and the critics of her are saying, "Your political career is over if you don’t stop making everyone in the society pay, except those who, A, caused this crisis, and, B, have been bailed out by the government to this point." So she actually changes. And I think that’s a sign that the pushback from masses of people, which will take many different forms, is already underway there and will come here.
AMY GOODMAN: Why are the people in the United States so different?
RICHARD WOLFF: I think it’s the question of organization. Over the last 50 years, we, the collective American people, have let the organizations that express mass concerns about economics atrophy. We’re at the end of a 50-year decline of our trade union movement. We don’t have the kinds of political parties we used to have in this country and that were very powerful in this country. And so, we don’t have the vehicles to articulate, express and bring political force to the way people feel. And so they go wherever there’s a little bit of organization—Tea Party—even if it’s a little strange and a little outside their frame, because it’s something. I think the message of other people will be, if we can form the kinds of organizations that articulate these positions, there are a lot of people out there ready, willing and able to become part of that.
AMY GOODMAN: This is another question from Facebook. Steve Cipolla asks, "Does it continue to make sense to refer to U.S. economic policy in isolation? Isn’t the real long-term threat to economic (and political) stability the persistence of increasing global income inequality?"
RICHARD WOLFF: Yes, but we are still dealing with corporations that have their bases, most of them, here in the United States. Are they more global than ever? Yes. Is that a serious problem? Absolutely. You know, 30, 40 years ago, we spoke about corporations moving production jobs out of the United States. Ten or 15 years ago, we began to talk about outsourcing, moving white-collar jobs out. The most recent addition to that is the decision of corporations, as they look around the world, to say, you know, the growth of our market, the growth of demand, it’s in Asia, it’s in Latin America, it’s in parts of—it’s not here. The American people are exhausted. Their wages are going nowhere. We have high unemployment. And the fact is, no one is going to lend them much more money because they’re tapped out. So they’re not a growing market.
So you see American corporations literally focused, for production and for consumption, elsewhere. That means they’re going to take care of themselves in the world. And if we don’t want to be left behind, if we don’t want the United States to become a backwater, then the freedom of corporations to do what they want has to be reined in. And that’s a difficult issue for Americans to confront and deal with. And we live in an ideology in which we’re supposed to believe that what corporations choose to do will magically be the best for all of us. It hasn’t worked that way. That’s why we are where we are. Basic change is the order of the day.
JUAN GONZALEZ: And in other regions of the world, that change is occurring. We’ve covered quite extensively here on Democracy Now! the changes in Latin America, where actually the income and the wealth gap is shrinking in the past decade for the first time in the memory of the political establishment of Latin America as a result of all of the socially oriented governments that have come to power.
RICHARD WOLFF: Right.
JUAN GONZALEZ: It’s a completely different path from what’s going on here in the United States.
RICHARD WOLFF: And I think it also speaks to our situation, because before that happened, before you had Evo Morales, before you had Chávez, before you had—and whatever you think of their particular policies, you had an upswelling of people saying the status quo that has got us into this dead end is not tolerable. And they developed new organizations. They rebuilt old organizations. And suddenly, basic changes in policy, which reined in the power of private enterprise, which said that capitalist enterprises are not the be-all and end-all of how to run a society, those kinds of movements attracted millions of people, gained political power. And there really is no reason to believe that our society is immune or unable to do, in its own way and its own traditions, something similar.
JUAN GONZALEZ: Well, I want to ask you about another question Brian Clifford asks on our Facebook page. "In the current moment, people in liberal democratic states seem to have internalized capitalism as a natural and unquestionable order. How does the left rupture such subjectivities?"
RICHARD WOLFF: Good question. You know, again, it’s our history. For 50 years, it has been unacceptable politically in the United States to ask what is basically a straightforward question. We have a particular economic system. It’s called capitalism. We have every right as a society to ask of that system, is it working? Is it working for us? Do the benefits and the costs balance themselves out in a way that says we want to keep the system, or that says we want to change the system, or that says we ought to look for an alternative system? We’ve been afraid to ask that question. We’ve been afraid to have public debates. That’s the legacy of the Cold War. We can’t afford anymore to not do that. We have to do as the questioner says: raise the question.
As it is put in a very powerful slogan in Germany by a new party that now gets 12 percent of the national vote, here’s their slogan—it’s in Germany: Can Germany do better than capitalism? And their answer is yes. And that has forced a conversation about this system, its limits, its strengths and weaknesses. That’s long overdue in the United States. And one of the results of this crisis, and now of this governmental paralysis, is to give a strong impetus to asking those questions. And that doesn’t mean accepting the alternatives of the past. The old efforts of going beyond capitalism had strength, but they also had horrible weaknesses. We will learn from that, as human beings always have. And we can forge a country out of an opening of the debate about this economic system. And I want to be part of that, and I think the American people are ready and interested in doing it, as well.
AMY GOODMAN: I want to thank you very much for being with us. Richard Wolff, an economist, just back actually from Europe, but teaches here in New York at New School University. His book is called Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It.
This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License. .
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freedombase:
the Tea Party will defeat you muslim terrorist Jew Killing Socialist thugs and this Bartlett is nothing but a TRAITOR like Benedict Arnold
@wittumy
Bartlett is a Anti American bastard who backs the Muslim terrorist Obama and Hates Capitalism.
Reagan would have told this Bartlett that he was nothing but a TRAITORthe man is a Kooky liberal who backs Nazi Anti Semite High taxes and Hates America
At first glance, the US growth figures are a horror story. Activity in the world's biggest economy grew much more slowly than expected in the three months, with consumer spending particularly weak.
Nor does the data get much better on second reading. Washington has revised down its estimates for growth not just in late 2010 and early 2011 but during 2008 and 2009 when the country was in the middle of its most serious downturn since John Steinbeck was writing the Grapes of Wrath. The peak to trough fall in ouptut is now put at 5.1% against the 4.1% previously estimated. Wall Street trembled when it heard the news that in the first six months of this year the US grew by just 0.4%, slower even than austerity Britain.
There is, possibly, a silver lining to the cloud. News that the US economy is in much poorer shape than anybody imagined ought to concentrate the minds of Republicans and Democrats wrangling over whether to raise the US debt ceiling. Even before the announcement of the GDP figures, it was clear the US could ill afford a protracted stalemate over budgetary policy. The risks of messing with the credit rating agencies are even greater now than they were yesterday.
Whether there will now be an outbreak of bipartisan harmony in the face of looming economic disaster remains to be seen. On past form, it is possible that the warring factions will simply dig themselves deeper into their entrenched positions. Democrats will look at the growth figures and point to the depressed state of consumer spending, flat over the quarter, and the negative contribution made by government spending. They will argue that it would be foolish to tighten fiscal policy now, and that Obama's real mistake was not to have been braver with his stimulus packages.
Republicans will say that there is no point in continuing with a policy that has so palpably failed. In response to the recession, the Federal Reserve has cut interest rates to zero, pursued a policy of benign neglect towards the dollar and had two big bouts of quantitative easing. The US Treasury has raised spending and cut taxes, causing the budget deficit to balloon and national debt to rise towards 100% of GDP. The return on the cocktail of stimulus measures has been miserable, mainly because consumers are debt saturated and wallowing in negative equity.
What can we conclude from the growth figures? Firstly, that monetary policy will remain loose for a prolonged period. Not only will interest rates remain low, but there will be speculation of a third dose of QE. Secondly, the Obama regime should be able to fend off demands for short-term action to tighten fiscal policy. Finally, that there needs to be a long-term plan for deficit reduction that commands the confidence of the markets and the credit rating agencies. America is in a deep hole and in those circumstances it is as well to recall the advice of Denis Healey. The first thing you do is stop digging.
Boehner hadn’t realized at first that he’d have so many Republican defectors—fifty-four—who voted against the continuing resolution he’d negotiated with Obama in early April, on the ground that it didn’t cut spending enough, though Boehner had, in effect, taken Obama to the cleaners. This established in both Democrats’ and Republicans’ minds the thought that Obama was a weak negotiator—a “pushover.” He was more widely seen among Democrats and other close observers as having a strategy of starting near where he thinks the Republicans are—at the fifty-yard line—and then moving closer to their position.
... ... ...
Boehner and Cantor, and also Boehner and McConnell, have had their political differences and conflicting political exigencies. Boehner of course wants to retain Republican control of the House—it’s not inconceivable that the Democrats could pick up the necessary twenty-four seats to recover it. Therefore, Boehner didn’t want his flock to have to cast a controversial vote anytime close to the election. On the other hand, with twenty-three Democratic senators up for reelection, McConnell has had his eye on a Republican takeover of the Senate. His party would need to pick up only four seats. Therefore, he was looking for a way to force a controversial vote closer to the election.
In early July, when Obama suddenly injected Medicare, Social Security, and Medicaid into the deficit and debt negotiations, many, perhaps most, Democrats were dismayed. They believed that the President was offering up the poor and the needy as a negotiating gambit. (His position was that if the Republicans would give on taxes, he’d give on entitlements.) A bewildered Pelosi said after that meeting, “He calls this a Grand Bargain?” And she came down firmly against any changes in those programs that would hurt beneficiaries.
Moreover, the Democrats had their own political reasons for opposing reductions in Medicare benefits. They had had great success in campaigning against Paul Ryan’s bizarre proposal, adopted by the House (despite even Boehner’s expressed misgivings), that would turn Medicare into a voucher system. According to Ryan’s plan the government would give future eligible Medicare recipients $6,000 and let them shop for private insurance. (Good luck.)
Having made Ryan’s proposal the centerpiece of the campaign, the Democrats had recently won a special election in a New York district that had been held by the Republicans since the 1950s. The Democrats believed they were onto a good thing.
The Fed's most irrelevant report, the Beige Book, is out. Here is the gist
- Fed Beige Book Says U.S. Economy Slowed in Eight of 12 Regions
- Droughts, flooding adversely affected seven regions
- Wage pressures ‘subdued,’’ inflation pressures ‘‘weakened”
- Spending in majority of regions saw modest growth of nonauto retail sales
- Inventories still lean due to Japanese supply chain disruptions.
- Manufacturing was steady or slowed in many regions
- Most of residential real estate market still weak
We get it: it's all the weather and Japan's fault. Also, somehow Japan is to blame for "lean" inventories which somehow have increased for 2 years running.
07/27/2011The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else. The idea has a sleek quasi-free-market sheen, as it borrows the market's "invisible hand" and applies it to social, fiscal and environmental policies. That is a magical-thinking fantasy. If I pursued only my own self-interest, I would dump the toxic effluent from my factory right into the river ( a la China's very laissez faire economy) while I lived far away in an exclusive community far from the stench and poisons. Why pay for costly remediation when the "free" river beckons? After all, it all works out wonderfully if we each pursue our own self-interest with methodical, nay maniacal, single-mindedness. (Recall that rivers in America caught fire in the 1960s, before environmental regulations limited corporate self-interest.) "The good of the nation" is now a code-phrase for "good for me, and to heck with the country at large." Every self-serving fiefdom, every self-serving cartel and every self-serving constituency (a.k.a. special interest) claims that its pathetically obvious self-serving lobbying "serves the national interest." It's all lies, blatant emotional manipulation of the vilest, crassest sort. Yet we as a nation have sunk so low that the entire notion of a national interest which doesn't benefit a powerful lobby or constituency has been lost. We are now a nation of self-interested pygmies, blind to any national interest that isn't devoted to enriching us personally
Telegraph
The switchboard at Congress almost crashed as Americans voiced their anger at the stalemate in Washington over raising the country's $14.3 trillion (£8 trillion) debt ceiling.
... ... ...
The relative lack of nerves may also be because some on Wall Street believe that the US Treasury will have sufficient revenue to be able to keep paying its bills beyond August 2. After analysing Treasury receipts so far for July, analysts at Barclays Capital, for example, estimate the actual deadline is August 10.
However, US money market funds are reported to be stockpiling cash in case no deal is reached.
"A good deal needs to stabilise the medium-term trajectory for the deficit," said Michael Hanson, an economist at Bank of America Merrill Lynch. "But there's a trade-off with preserving growth." Figures due on Friday are expected to show that the US growth slowed to just 1.6pc in the second quarter from 1.9pc in the first.
... ... ...
With less than a week until the August 2 deadline, Christine Lagarde, the head of the International Monetary Fund, added her voice to calls for an urgent agreement. "The clock is ticking," she said. "An adverse shock in the US could have serious spillovers on the rest of the world."
Following the collapse late last week of talks between Mr Obama and Mr Boehner, Republicans and Democrats are currently pursuing separate plans through the House of Representatives and the Senate.
princesschipchop
The problem is both sides are acting like lunatics and both sides have huge vested interests causing them to do so.
The Republicans are just vile, calling for social security to be cut at a time when 44 million Americans are on food stamps whilst wanting to protect tax breaks and loopholes for the ultra, ultra wealthy - i''s nothing short of saying 'let them eat cake.'
But the democrats are just as bad as they never had any intentions of carrying out any real fiscal policy. Nothing was done that was the equivalent of Roosevelts New Deal. No new infrastructure (which is badly needed actually) has been financed on any real scale - creating jobs and therefore growth. That's because all the Democrats have done is a lot of QE - pure monetary policy that hasn't really impacted on the real economy and just makes things look shinier because Wall st. holds up. They're protecting the assets of the wealthy, particularly those in finance (who are huge backers of Obama).
So ordinary Americans need to wake up and smell the coffee. The Tea Party are not their friends and neither are the Democrats. All these guys are bought and paid for. The US elite are literally driving their country into the ground by letting the economy be hollowed out, jobs exported, military spending go through the roof on pointless wars and normal salaries atrophy, whilst those at the top get richer by the second. Seventy years is a short time for an empire to last but I can't see the US getting out of this decline, short of a revolution against the parasitic elites who run the country for their benefit now.
1) Our social programs need to be reformed to fit the times we live in. They are not "working just fine." It takes a year or two in order for people who are disabled to get a hearing in front of a judge. Meanwhile, they can't work and the bills are piling up. Oh - it takes longer if you have to appeal your case to another judge.
A lot of people are invested in the current system because it grants them power while doing next to nothing for the population that they are supposed to serve.
One of the service agencies in my town received a grant to feed and shelter the homeless in our area. Instead, they bought uber-expensive lamps, chairs and tables for their offices. And just a small fraction of the money given was actually used to help the homeless.
I think we can all agree that we want the money we give to the needy to actually help the needy.
There are improvements that need to be made in these systems and it's irresponsible to turn a blind eye because it threatens administrator/political power bases.
2) Ordinary Americans are waking up and that's why the Tea Parties exist.
Establishment Republicans wish they'd go away and the Dems don't like them either. There are people who wish to co-opt the movement, but the people who run the local organizations are furiously independent.
If you actually attended a Tea Party meeting and you met the people involved, then you'd have a clue about who's actually in the movement and what they are trying to accomplish. These people are passionate and angry. They love America and fear the growing elitism in our country.
And to my progressive friends, there are issues that we could agree on if you could stop yelling "Tea-bagger" long enough to actually listen to people in the Tea Party. A lot of us are very anti-elitist, libertarian, and want to find real solutions to our problems - not what politicians call solutions (which is the same lip-service we've been given for years now).
If you are getting your ideas about the Tea Party from the media, then you are missing big chucks of the entire picture.
Benjamin Turner:
They get confused with raising tax and removing ludicrous tax breaks. Believing them to be the same thing.
The Republican stance of no tax rises, is simply a way of defending the unfair, inequitable tax breaks given to the oil and gas industry, to hedge fund managers and other assorted tax treats for the super-rich. It isn't out of a desire to protect the masses from higher tax bills.
princesschipchops
They're just protecting their own - or as Bush called them - his 'base.'
whatsinaname
Indeed, no one ever thought the Republicans were altruists
destroyerofworlds:
Lets make one thing absolutely clear.
It is not the politicians who have created the terrible mess we now find ourselves in, it is the INTERNATIONAL BANKERS WHO ARE RESPONSIBLE.
They are they ones who worked to corrupt our goverments over a long period of time, and who now direct them from behind the scenes.
They are the ones who also worked to remove all of the backing from our currencies, in order to allow them to more easily manufacture the boom and bust cycles so that they could rob the masses.
And finally, they are the ones who pocket all of the profits that they make, but who make damn sure that any loses are socialised.
The banking system is now nothing less than a pyramid of nothingness.
A PONZI SCHEME of the highest order.
Andy.
teabag:
i agree to a certain extent, i must say that i never, ever saw someone being pushed in to a bank at gun point to borrow more money, have a credit card or buy a house 125% of the value of it's mkt price.
i know you are a bright guy and did not do any of the above. the bankers gave money to idiots as they knew they would get money for lending and were too big to fail.
we should all withdraw our money and stand back whilst panic sets in. .............. how interesting, but it won't happen.
Saucy Mugwump:
teabag wrote: " i must say that i never, ever saw someone being pushed in to a bank at gun point to borrow more money, have a credit card or buy a house 125% of the value of it's mkt price."
Maybe you can do some actual research before making assumptions. Teabaggers like to assume that people taking out loans they could not afford were the only cause of the banking crash, but it simply isn't true. The securitization of loans, albeit mostly subprime, was a major trigger, along with derivatives.
And if you do not understand the problem with derivatives, dwell on this. There are approximately $600 trillion worth of derivatives in the world today. Compare that to the GDP of the top 20 countries combined: $60 trillion. See the problem now?
peopledestroyerofworlds:
"it is the INTERNATIONAL BANKERS WHO ARE RESPONSIBLE"
And who allowed them to operate the way they did? Mostly Republican politicians, along with a good number of Democrats, who deregulated Wall Street. Read a few books on the subject: "All the Devils Are Here," "It Takes a Pillage," and "13 Bankers."
And instead of society paying land rent and tribute to conquerors, we pay the bankers. Just as access to the land was a precondition for families to feed themselves under feudalism, one needs access to credit, to water, medical care, pensions or Social Security and other basic needs today – and must pay interest, fees and monopoly rent to the neo-feudal oligarchy that is now making its deft move from the United States to Ireland and Greece.
The U.S. Government has spent $13 trillion in financial bailouts since Lehman Bros. failed in September 2008. But Mr. Obama warns that thirty years from now, the Social Security fund may run a $1 trillion deficit. It is to ward it off that he urges dismantling the plans for such payments now.
It seems that the $13 trillion used up all the money the government really has. The banks and Wall Street firms have taken the money and run. There is not enough to pay for Social Security, Medicare or other social spending that the Blue Dog Democrats and Republicans now plan to cut.
Not right away. The plan will be to “paper over” the current crisis by delegating the plans to a “Deficit Reduction Commission #2,” appointed from Congressional members.
Finally, we have “Change we can believe in.” Real change is always surprising, after all.
Relevant descriptions:‘ The “war on terror” has created a culture of fear in America. The Bush administration’s elevation of these three words into a national mantra has had a pernicious impact on American democracy, on America’s psyche and on U.S. standing in the world ‘ – Zbigniew Brzezinski
“Culture of fear is a term used by certain scholars, writers, journalists and politicians who believe that some in society incite fear in the general public to achieve political goals” -wikipedia
Carlomagno:
“Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. ”
That’s not how I understand it The “Social Security Trust Fund” (I use quotes because there isn’t a single fund with such a name; it’s a little more complicated but that’s another story) doesn’t hold marketable securities, but non-negotiable securities that represent claims on the US Treasury, i.e. they can only be sold back to the Treasury – which wouldn’t have the funds necessary to redeem them if it is up against the debt limit.
July 26, 2011
Valissa:
Suggest reading “The Creature from Jekyll Island: A Second Look at the Federal Reserve” by G. Edward Griffin. You don’t even need to read the whole thing to understand what the bankers behind the Federal Reserve are up to, the first 85 pages or so is enough to get the basics. This debt drama and bailout game has been played many times before. Each time the US borrows more money, the banks behind the Federal Reserve and their owners make a tidy pile of money off of the interest. Follow the money!
Another place to get started… behind the kabuki of the political drama are some serious money and power games.
The Federal Reserve Cartel: The Eight Families http://www.globalresearch.ca/index.php?context=va&aid=25080
Zarepheth:
Our whole monetary and economic system, along with how our society divides wealth and resources between public and private needs to change.
So long as land, natural resources, and public privileges are monopolized by private parties, those private parties will have unearned, economic advantages over everyone else. For the past 100+ years they have been using their advantages to unduly influence our government, getting our laws set up to favor themselves.
The power to create money, is a public privilege. Handing it over to private parties without requiring them to fully compensate the community for the value they have received, harms the community. Likewise with parcels of land, minerals rights, logging rights, and so on. If it was not created by human labor or it was created only through the community as a whole – it should be owned by the community and leased for full market value to private individuals and organizations. That way, the community as a whole will benefit from private use of these public resources.
Such a change in ownership, or setting tax/fee rates to equal the full market rent on those assets, would provide government with more wealth than it could legimately spend serving the public. At that point, it would have a fiduciary duty to evenly distribute the excess wealth to every resident and citizen. Further, there would be no need for taxes on economic transactions involving real goods and service – no sales tax, no value added taxes, no wage taxes.
Under such a system, everyone would keep for themselves the products of their own labor – after repaying society for the use of communal resources. And if anyone received unearned income from the community, everyone would receive the same amount of unearned income. Basically a “national dividend”.
Consider the many kabukis at work in the global economy today. America's debt ceiling debate--largely artificial, a product of gamesmanship, totally divorced from America's larger social, human, and infrastructural challenges. Have we seen this script played out before? Many times--last but not least during the 90s (twice). Or the quarterly dance of corporate earnings--guidance issued, analysts called, numbers published. The script plays itself out like clockwork, over and over again--yet, while corporate profits have boomed straight to breaking point (a crash is around the corner), little real prosperity has resulted.There's plenty more examples. Credit ratings downgrades, jobs numbers, elections, and bailouts, to name just a few. All are examples of kabukis: elaborate sets of ritualized steps each side takes, with the (largely meaningless) outcome known in advance to the players of the game. It's what you might call "prosperity theater"--drama and spectacle, instead of the real thing.
I could go on, but here's my point. Policy-making has devolved to what economists call cheap talk--noise bereft of signal, threats and bluffs issued solely for strategic reasons. Here's a simple definition: "In game theory, cheap talk is communication between players which does not directly affect the payoffs of the game".
And that's exactly what's happening at the tops of today's institutions. Lots of talk--but none that meaningfully affects the payoffs of people around the globe.
Our challenges are vast--and loom not distant, but close. Playing out the empty steps of ritualized dances won't solve them. Hence, a tiny conclusion: perhaps it's time for the audience to desert the performance.
The great shift the global economy must make is from a paradigm of opulence to one of eudaimonic prosperity. Endlessly repeating yesterday's dilemma-ridden debates--to the point of ritualizing them--isn't good enough to get us there.
Jul 22, 2011 | Telegraph
But as we have surveyed the Murdoch scandal of the past fortnight, few could deny that it has revealed how an international company has bullied and bought its way to control of party leaderships, police forces and regulatory processes. David Cameron, escaping skilfully from the tight corner into which he had got himself, admitted as much. Mr Murdoch himself, like a tired old Godfather, told the House of Commons media committee on Tuesday that he was so often courted by prime ministers that he wished they would leave him alone.
... ... ...
The Left was right that the power of Rupert Murdoch had become an anti-social force. The Right (in which, for these purposes, one must include the New Labour of Tony Blair and Gordon Brown) was too slow to see this, partly because it confused populism and democracy. One of Mr Murdoch’s biggest arguments for getting what he wanted in the expansion of his multi-media empire was the backing of “our readers”. But the News of the World and the Sun went out of the way in recent years to give their readers far too little information to form political judgments. His papers were tools for his power, not for that of his readers. When they learnt at last the methods by which the News of the World operated, they withdrew their support.
It has surprised me to read fellow defenders of the free press saying how sad they are that the News of the World closed. In its stupidity, narrowness and cruelty, and in its methods, the paper was a disgrace to the free press. No one should ever have banned it, of course, but nor should anyone mourn its passing. It is rather as if supporters of parliamentary democracy were to lament the collapse of the BNP. It was a great day for newspapers when, 25 years ago, Mr Murdoch beat the print unions at Wapping, but much of what he chose to print on those presses has been a great disappointment to those of us who believe in free markets because they emancipate people. The Right has done itself harm by covering up for so much brutality.
The credit crunch has exposed a similar process of how emancipation can be hijacked. The greater freedom to borrow which began in the 1980s was good for most people. A society in which credit is very restricted is one in which new people cannot rise. How many small businesses could start or first homes be bought without a loan? But when loans become the means by which millions finance mere consumption, that is different.And when the banks that look after our money take it away, lose it and then, because of government guarantee, are not punished themselves, something much worse happens. It turns out – as the Left always claims – that a system purporting to advance the many has been perverted in order to enrich the few. The global banking system is an adventure playground for the participants, complete with spongy, health-and-safety approved flooring so that they bounce when they fall off. The role of the rest of us is simply to pay.
July 24th, 2011 | The Big Picture
Bubble Trouble: This week’s Barron’s cover story by Mike Santoli proclaims “Yes, its a bubble.”Before we delve into the article, recognize that 1) This is not your mainstream publication, so it has no validity as a contrary indicator; 2) the definition of social is rather stretched, including Pandora and Zillow, which are not really pure social plays.
That said, let’s look at Barron’s:
Depending on how you carve up the industry, eight leading companies that have either gone public, filed plans for an initial stock offering or are widely expected to do so by the end of next year are now estimated to be worth a combined $200 billion. Together, these eight companies—Facebook, Groupon, Zynga, LivingSocial, Twitter, LinkedIn (ticker: LNKD), Pandora Media (P) and Zillow (Z)—collected $3.5 billion in 2010 revenue. That’s $1 billion less than, say, Washington Post (WPO), whose market value is $3.4 billion. Leaving aside Facebook, which seems to have the best shot at supporting its hypothetical $100 billion value through its market position, growth and profit margins, the rest have negligible profits at this point.”
JimRino:
Tax Cuts for the Rich create Bubbles. They INFLATE the Stock Market, making shares expensive.
overanout:
The bubble is not the IPO’s themselves since their history is so short nothing much can be said about their prospects other then good luck. Its the FED’s continued pushing of equity markets to force some measure of economic growth that fosters these IPO’s which always results at least here in SV in a rush to buy whatever is available in expensive high end RE . The best neighborhoods were attacked this Spring as new and improved millionaires hunted for their trophy home along with various second and third vacation get away’s. Hopefully our educational process will produce something more then good traders as business MBA’s, PhD’s continued to be pushed out into the real world.
Jeff Sachs wonders why military spending isn't a large part of the budget talks:
Obama could have cut hundreds of billions of dollars in spending that has been wasted on America's disastrous wars in Afghanistan, Iraq, Libya, and Yemen, but here too it's been all bait and switch. Obama is either afraid to stand up to the Pentagon or is part of the same neoconservative outlook as his predecessor. The real cause hardly matters since the outcome is the same: America is more militarily engaged under Obama than even under Bush. Amazing but true. ... The American people ... have said repeatedly that they want a budget that sharply cuts the military, ends the wars, raises taxes on the rich, protects the poor and the middle class, and invests in America's futureI've been wondering the same thing. Military spending has hardly been mentioned in the budget debate.
He's pretty hard on both Republicans and Democrats, e.g.:
The Republicans also misrepresent the costs and benefits of closing the deficit through higher taxes on the rich. Americans wants the rich to pay more, and for good reason. Super-rich Americans have walked away with the prize in America. Our country is run by millionaires and billionaires, and for millionaires and billionaires, the rest of the country be damned. Yet the Republicans and their propaganda mouthpieces like Rupert Murdoch's media empire, claim with sheer audacity that taxing the rich would kill economic growth. This trickle-down, voodoo, supply-side economics is the fig leaf of uncontrolled greed among the right-wing rich.And:
at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits; he refused to limit in a serious way the bankers' mega-bonuses even when the bonuses were financed by taxpayer bailouts; and he even refused to stand up against extending the Bush tax cuts for the rich last December, though 60 percent of the electorate repeatedly and consistently demanded that the Bush tax cuts at the top should be ended. It's not hard to understand why. Obama and Democratic Party politicians rely on Wall Street and the super-rich for campaign contributions the same way that the Republicans rely on oil and coal. In America today, only the rich have political power.I've been hoping to help to change the course that Democrats have been on recently, and frustrated at every turn. Jeff Sachs seems to have given up. In his view, a third party is the only answer:
America needs a third-party movement to break the hammerlock of the financial elites. Until that happens, the political class and the media conglomerates will continue to spew lies, American militarism will continue to destabilize a growing swath of the world, and the country will continue its economic decline.I'm not quite there yet (and I should note that I don't agree with everything he says in the article). I worry a fractured party would open the door to GOP control (though it could fracture both parties?), but what do you think? Is he correct?
bob mcmanus:
A third party would have little to no positive electoral effect, but is a useful and legal way to organize, and somewhat harder for the government to oppress when the serious authoritarianism begins.
"I've been wondering the same thing. Military spending has hardly been mentioned in the budget debate."
...is answered by...
"Our country is run by millionaires and billionaires, and for millionaires and billionaires, the rest of the country be damned."
when you understand that the oligarchy is now completely global. Saudi and Chinese and Russian billionaires have much input into US military policy. This was clear by 1991.
bakho:
The problem is that progressives are not even 20 percent of the electorate. Third party would make the less influential, not more.
People should get involved in party activities first hand before thinking about third parties. Being involved gives you some access to candidates and an opportunity to voice your concern and form caucuses.
A progressive caucus needs to form within the Dem Party to counter the DLC. In 2008, Obama managed to charm the progressive wing and then told them to go home.
FRauncher :
There is already a Progressive caucus in the House, with about 70 members. Obviously if they split now, the Democrats might well lose in 2012. If so, and if President Romney does not veer strongly to the left, the US will be ready for revolution or a third party in 2016. Is everyone ready to suffer for six more years to realign the the political landscape? If not, be ready to descend for the rest of the century into the lumpen proletariat.
This is obviously a moment of enormous social disruption not only in the USA but in the world. In such moments the US has always responded with a new political party, or a profound realignment. Remember that Fremont lost in 1856, but the momentum continued to build, and the new Republicans won with Lincoln in 1860.
So enough of this chickenshit response. Fight and hang tough for six more years.
Mark A. Sadowski:
Thanks for the reminder that there really is a Congressional Progressive Caucus. In fact here is their FY 2012 budget proposal:
The People's Budget
"The People’s Budget eliminates the deficit in 10 years, puts Americans back to work and restores our economic competitiveness. The People’s Budget recognizes that in order to compete, our nation needs every American to be productive, and in order to be productive we need to raise our skills to meet modern needs.
Our Budget Eliminates the Deficit and Raises a $31 Billion Surplus In Ten Years Our budget protects Social Security, Medicare and Medicaid and responsibly eliminates the deficit by targeting its main drivers: the Bush Tax Cuts, the wars overseas, and the causes and effects of the recent recession.
Our Budget Puts America Back to Work & Restores America’s Competitiveness • Trains teachers and restores schools; rebuilds roads and bridges and ensures that users help pay for them • Invests in job creation, clean energy and broadband infrastructure, housing and R&D programs
Our Budget Creates a Fairer Tax System • Ends the recently passed upper-income tax cuts and lets Bush-era tax cuts expire at the end of 2012 • Extends tax credits for the middle class, families, and students • Creates new tax brackets that range from 45% starting at $1 million to 49% for $1 billion or more • Implements a progressive estate tax • Eliminates corporate welfare for oil, gas, and coal companies; closes loopholes for multinational corporations • Enacts a financial crisis responsibility fee and a financial speculation tax on derivatives and foreign exchange
Our Budget Protects Health • Enacts a health care public option and negotiates prescription payments with pharmaceutical companies • Prevents any cuts to Medicare physician payments for a decade
Our Budget Safeguards Social Security for the Next 75 Years • Eliminates the individual Social Security payroll cap to make sure upper income earners pay their fair share • Increases benefits based on higher contributions on the employee side
Our Budget Brings Our Troops Home • Responsibly ends our wars in Iraq and Afghanistan to leave America more secure both home and abroad • Cuts defense spending by reducing conventional forces, procurement, and costly R&D programs
Our Budget’s Bottom Line • Deficit reduction of $5.6 trillion • Spending cuts of $1.7 trillion • Revenue increase of $3.9 trillion • Public investment $1.7 trillion"
http://cpc.grijalva.house.gov/index.cfm?sectionid=70§iontree=5,70
I don't recommend forming a third party. But I do recommend a determined, radically experimentive and outspoken (salty tongued if necessary, as people remember it better) challenge to Obama from the left (a la Huey Long).
PeakVT:
"America needs a third-party movement to break the hammerlock of the financial elites."
No, it doesn't. Given America's FPTP voting system, all it would do is split one side, because no party could position itself so perfectly as to draw equally from the two existing parties. Also, to the extent that it is actually something new (which isn't all that much), the third party movement called "The Tea Party" has made things worse in this country. So a third party isn't by itself a panacea. Of course Sachs is fantasizing about a third party that defers to elite pundits like Jeffrey Sachs for all of its policy positions, not a third party that could actually be formed in the real world.
If Sachs wants to help the public debate, he should instead figure out what side is worse (that's not hard) and apply pressure accordingly, instead of blathering on about a deus ex machina like a third party.
Fred C. Dobbs:
Military spending is 'not mentioned' because National Security is one issue that both parties ostensibly agree on. Woe betide the political party that is soft on Defense. Plus, lots of congressional districts do quite well on this, $$$-wise.
One area where 'Made in U.S.A.' is a pretty strict requirement is manufacturing-for- the-military. (A mere vestige of what got US out of the Great Depression. The last one, that is.)
Lee A. Arnold:
Third party would be an electoral disaster. It splits your field, and the opposition wins. Look at how the Republican Party may now disintegrate, because the Tea Party is such a coherent force within them!
Multiple parties leads to the sort of coalition politics we see in most other countries. Look at the Israeli Knesset. It is a crooked mess. When this approach ever starts solving problems any better than a two-party system, let us know.
The real solution is to understand that Washington is already a perfectly serviceable system, a mechanical chess game, a puppet-show whose strings YOU can pull, too. Advance the interests of a party to keep power, as you advance your own interests.
We are now over half the way there on universal healthcare; it is an inevitability if we can prevent its reversal. The hijacking of the debt-ceiling by the right to prevent tax hikes on the wealthy (up to only Clinton levels!) is almost defeated. It's a slow process, but so what?
If you really want to change politics in the United States, then change what people believe.
There is a complete, across-the-board rhetorical intellectual failure on the left. What the hell is going on? Why is there no simple, complete formulation of means and ends in public economics? I don't mean a string of mathematical models, I mean a synoptic prose presentation for the general public. Why is there no simple, complete explanation of how debt can jumpstart an economy and then be paid back afterward, without harm? Where is the material that the public should have access to? Why does everyone think it is sufficient to toss off snarky generalities?
Teach real principles of economics. Most people still don't know this stuff:
(1) Government spending on non-market necessities cannot hurt the market economy.
(2) Tax cuts aren't the only thing that causes economic growth.
(3) Rich people don't create most of the jobs -- most jobs are created by little people with good ideas and access to credit (and healthcare).
(4) There is no such thing as a free lunch, but innovations and institutions BOTH can make it cheaper.
(5) Short-term and long-term are different discussions.
(6) Politicians either can be believed or not be believed, but partisans can't have it both ways. And guess what: a new third party won't solve that.
July 22, 2011
nonclassical:
..philosophically, if we know “how” it was perpetrated (meltdown) we know “why”. It’s much more important to know how-this is not semantics.
Yves has done a great job of linking “securitized” mortgages, dealing with issues regarding what banksters wanted more “securities”=mortgages to do (to an extent). She has answered the reason banks split up mortgages into tranches, combined with student debt, car loans, credit card debt, etc…then falsely “rated”.
But the really big issue here is to follow the $$$$…Kevin Phillips, Nixon’s quasi-economist-editorialist stated in at least 2 recent books that “derivatives” valued $880 Billion circa 2001, but by 2006-2007 valued $600 Trillion-this from designated Senate Banking Chairman Robert Johnson-30 pages, when brought before combined Senate-House he was cut off:
http://www.newdeal20.org/wp-content/uploads/2009/10/raj-revised-testimony1.pdf
Question of what banks actually did links between “securitized mortgages” used as “leverage”=collateral to BORROW AGAINST…then disregarding anti-trust, colluding to monopolize commodities and derivative markets internationally. It began with Bush-Cheney run-up in OIL FUTURES…and was being perpetrated in commodities such as rice, which quadrupled in 4 years, driving starvation.
Wheat, corn, also involved. Hedge Funds, “Private Equity”, but mostly “investment banks”-Johnson notes that the largest 6 remaining U.S. “investment banks” control 95% of worlwide derivatives. Let’s remember the U.S. economy values $6.5 Trillion per year, the world economy, $16.5 trillion…
Gore Vidal forecast accurately IMO; “It will take 20 years (for banks to “clear” their books of bogus “tranches” associated..
Let’s also remember that computerized trading at millisecond levels largely in “emerging markets”, given enough $$$$, can move entire national markets... which is the reason Hedge Funds are known as “the locusts” internationally…
When looking for the “reasons” government is not interested in real fixes, we can only view capture of government by $$$, such as this article suggests:
http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/
Ignim Brites:
The thing to remember is that Obama was educated at Columbia and Harvard. In these institutions the FED is an object of veneration, the pinnacle of the technocratic elite. So it was not his manhood that was at stake. If anything was at stake, it was is reputation for intelligence, for being a reliable member of the meritocracy. But the truth of the matter is that with his circles reappointing Bernanke was the obvious choice, just as Giethner was the obvious choice for Treasury. There was nothing at stake of Obama in these appointments. Which brings us back to the possibility that maybe he has just been educated to stupidity.
Anonymous:
I think this is an essential, too-rarely made point. Outside the hard sciences and the arts, and maybe a few others (the crafts, so to speak), pedagogy at our schools, especially the big name schools, is very poor. Listening to politicians and policy-makers like the president, Bernanke, and the rest, talk about policy is painful, and often shocking. In a litany of cases, they genuinely do not understand basic things about how markets and the US government work. The same is true for the careerists who manage US big business. I think this incompetence explains the poor decision-making from the federal government and many bulge bracket companies more than ideology, corruption, or any other single cause.
Michael Hudson, the University of Missouri academic, said on Friday’s Democracy Now episode that the president really does ‘believe in’ this trickle-down ‘economics’ bullshit. I think he’s absolutely right. The president, and most of the rest of these clowns, really are just that fucking dumb.
Jackrabbit:
I guess you’re both right in a way.
After being talked into nominating him by Summers and Geithner, Obama felt compelled to follow thru.
His education gave him a deep respect for elites (NOT reverence for the Fed). That made it easy(-ier) for him to hand over economic policy making to the “experts” Summers and Geithner.
Also, Obama was focused on healthcare. He needed the “experts” to take care of the economic problems so that he could be free to deliver on his healhcare agenda. He felt much more confident about his ability to get healthcare done (and sooo wanted to trump Hilary) than about fixing the economy. Healthcare was to be the centerpiece of his promised “change you can believe in.”
Lastly, he doesn’t seem to perceive himself to be a leader but a “change agent” (interestingly, George W. Bush was also loath to lead, calling himself “the decider”). He brings people to the table, calls for input, listens to experts, etc. but has no strongly held views himself. This mindset may be perfect for a politician but it makes him slow to react to changing circumstances (and subject to manipulation by trusted “experts”).
It was just three short months ago that Jeremy Grantham was spewing Malthusian fire and brimstone. He did so, however, from a broadly generalist perspective. Today, the head of GMO has released his second follow up in the "peak everything" series which is sure to provoke yet another round of bickering and debate between the disciples and nemeses of the logarithmic function and its applications in the real world. Among the key topic dissected this time are ongoing resource depletion and soil erosion. To wit:"As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially, fertilizer.
Our global agriculture, though, will clearly bear the greatest stresses. It may have the responsibility for feeding an extra two to three billion mouths, an increase of 30% to 40% in just 40 years. The availability of the highest quality land will almost certainly continue to shrink slowly, and the quality of typical arable soil will continue to slowly decline globally due to erosion despite increased efforts to prevent it. This puts a huge burden on increasing productivity...Here, the discussion is about the pain and time involved in getting to long-term sustainability as well as trying to separate the merely irritating from the real, often surreptitious, threats to the long-term viability of our current affluent but reckless society.
The moral however, is clear. As Jim Rogers likes to say: be a farmer not a banker – the world needs good farmers!"
naked capitalism
ambrit:
...If ‘they’ put the same ‘gang that couldn’t shoot straight’ in charge as they did in Iraq, we’re in for a very bumpy ride. Snark says: “I’m in Awe of the American Shock Doctrine.”
Cugel:
..give them a few extra weeks and they’ll come to agreement over the corpse of the New Deal.
Robert Asher:
We can speculate until it all comes down. What we do know is that most elites do not have the broad perspective that Keynes had. Each elite business cares only about its own welfare. So the sum total of their actions could be destructive.
Remember 2008. Remember Sorkin’s Too Big to Fail (should have been entitled How Goldman Sachs used the Fed and Secretary of the Treasury to get Lehman and drag the economy down. Does anyone think these people are smarter now in understanding the big picture. Look at the reluctance of the European narco dealers (I mean banks of course) who are unwilling to take a loss after the people they addicted cannot afford more drugs.
Important post from my good friend Tom Day at SunGard. Tom is former OTS, very smart guy. He should write a book -- ChrisRegulatory Compliance: Regulatory Capture: A Trip Down Memory Lane
Tom Day
http://riskmanagementcommunity.com/community/banking/risk_management/regulation/regulatory_compliance/blog/2011/07/20/regulatory-capture-a-trip-down-memory-lane
[The below is a letter I recently found in my "examiner friends" archives that I thought was worth sharing. This was written in 2005 by an anonymous former Federal Reserve examiner. As a former bank supervisor myself, the accuracy should challenge us all to pay more attention to those in the trenches doing the actual work (whether bank supervisors or in your own firm; management by walking around, as Tom Peters used to quip). To say the below is insightful is an understatement. I have always been a strong believer that the "blame" that Dodd-Frank and others try to lay on the regulators is misplaced. The examiners that actually do the work are correct 99% of the time. What happens, often, is that the examiners get "trumped" by "leaders" within the agencies and, then, bad things happen. Unfortunately, it is not the leaders that usually pay the price.
A good current example might be Acting Comptroller Walsh who made some quite biased statements to London audience on June 21, 2011.
This speech prompted Senator Sherrod Brown of Ohio to write to Geithner asking for Waslh's immediate replacement. What the letter didn't recommend, as it should've, is that he should not only be replaced, but banned from Supervision, as should others that, for example, inappropriately tried to steer TARP funds to troubled banks - yet still remain employed by the regulatory agencies. The letter begins directly below. Give me your thoughts.]
To Congress:
I would like to invoke whistleblower protections and remain anonymous.
The June 22, 2005 article on BSA/AML printed in the American Banker that alleges influence peddling on the part of Wells Fargo, and that accuses the OCC of bending to the will of the large, complex banking organizations that subsidize the OCC’s operations, has motivated me to speak up in defense of the Examiner-In-Charge (EIC) of Wells Fargo as well as for all of the other white-collar professional bank examiners that attempt to do their job with professionalism and honor every day of their lives. My motivation in writing is also girded by a belief that our current financial supervisory system is flawed and needs corrective legislative action by our national lawmakers.
I do not know the EIC of Wells Fargo, but I am in a unique position to recognize clearly the political pressures that are documented in the letter sent to Congress by the anonymous source. While Mr. Garsson of the OCC might deny the accusation that the OCC has been unduly influenced in dishonest and unethical ways by their large bank charges, let me assure you that he is simply wrong. To be fair, let me also note that it is not only the OCC but other financial regulators who are also “captured” by the institutions they are required to supervise. This capturing is similar to the situation faced by public accounting firms that in the past provided consulting services, along with core accounting service, to their clients. This unfortunate and under-publicized situation is a result of the perverse “competitive” incentives that exist within the bank supervision universe, an arcane topic to be sure but one of critical importance to the health and welfare of our financial system. Today’s tacit incentive structure pitches battle between state-bank supervisors, the Federal Reserve System supervisors, and the OCC in ways that encourage lax supervisory programs, rough-shod bank examination work, fear on the part of examiner to “do the right thing”, and the sweeping of issues “under-the-rug”, so to speak. I have participated in bank examinations in which we had 1-week to look at a process, at a $650 billion company, that would take literally 4-6-weeks to perform adequately.
In order to “survive” as a bank regulatory agency, many of these regulatory entities obviously depend on the number of banks that fall under their particular domain. Even where fees are not assessed, as in the case of the Federal Reserve, the number of State Member Banks (SMBs) under its domain remains a critical “head-count” issue and one that can have dramatic impact on how the System operates. For example, with the recent conversion of JP Morgan to a National Charter, the entire FRB System has had to re-think its internal supervisory function and is, at the present time, considering porting all large bank supervision into the NY Federal Reserve Bank, which will then – in theory - directly, but in reality indirectly, report to the Board of Governors. To some this provides evidence that the System “works”. To those that know how the system “really works”, we plainly see that JPM has purchased, through its conversion to a national charter, better access to influence of their examination process, politically and monetarily. While JP Morgan might argue it simply wants access to “national” laws, it is hard not to see this as hypocrisy given that they have been operating as a SMB for decades and that the FRB and NY State Banking Department, along with the Conference of State Bank Supervisors, have done a yeoman’s job dealing with JPM. Something else must be at work, but what? In one word: influence. The real issue facing the bank supervisors is that, given the “slow” adjustment of supervisory overhead but the “immediate” reduction in revenue if and when banks either 1) change supervisors or 2) consolidate, the incentive is to “keep the client happy” – the same issue faced by David Duncan as lead auditor for Anderson during his tenure at Enron.
For example, Banc of America pays over $30 million to the OCC in assessment fees; however, the on-site supervisory program only costs around $6 million. The additional $24 million subsidizes other OCC work. If, prior to the recent conversion of JP Morgan to a national charter, BAC were to “flip” its charter to State Member Bank (SMB), the OCC wouldn’t have been able to function. This represents a clear and present danger to sound supervision, as the mere threat of taking something “to D.C.” or “flipping a charter” can result in outcomes that are clearly advantageous to the financial institution, while compromising fairness, equitable treatment across organizations, and employee morale. Colonial National in Montgomery, a bank that recently “flipped” to a national charter, is another example wherein a bank tried to influence the exam process through “charter threats”. The only reason it didn’t work is that the FRB is far less sensitive to this “threat” given that they are not dependent on assessments in support of its bank examiner staff. Other examples, which requires some historical knowledge, includes AmSouth’s conversion to a SMB in the early 1990’s. The reason? The OCC was pushing “too hard” on the issue of Fair Lending. As a result, C. Dowd Ritter decided it was time to “change tents”. A similar decision was made at SouthTrust, although in that instance it was purely economic: Wallace Malone, renowned for being “cheap”, simply couldn’t stand paying money to the OCC for what amounted to fairly poor examination work, even though he did hire his ex-CPC under circumstances that should’ve been investigated; however, this was before Riggs, so I guess it was o.k. back then.
Other examples include the OCC’s “over-looking” of Bank of America’s improper booking of mortgage-servicing rights (MSRs) for years and, thus, circumvention of FAS 133 requirements. This issue was raised time and again by FRB Board Staff (in particular Mr. Kerns, now with PNC). That is, BAC didn’t have to comply since everything was allegedly market-to-market, although none of the originated MSRs held were truly marketable and no other financial firm received similar treatment (i.e., they had “special” certificates from FNMA and FHLMC saying the MSRs were “certificated”, an outright lie, regardless of all the attorney opinions you can muster). Additional examples would also include PNCs “Enron-eske” use of special-purpose vehicles (SPVs), an issue that wouldn’t have seen the light of day had it not been for a diligent FRB examiner who, due to the OCC’s unwillingness to investigate issues and allow FRM participation on exams, went about the “problem” through the “back-door”, so to speak.
The on-going battle I am trying to describe has been captured, in part, by some of the recent comments from FDIC Chairman Powell in his June 3rd address before the Annual Conference of State Bank Supervisors, although at much smaller level than the reality that actually exists. That is, it is terribly difficult to express to you, in a reasonable span of time through and via a letter, the level and degree of conflicts of interest that are present within the financial system’s supervisory structure. I realize full well that there are many who would advise that it is not pernicious and that the issues can self-correct, and have self-corrected, over the past decades; however, we live in a much different world today than in the past where financial institutions are not held back by legal entity definitions and restrictions, while the regulators are, in fact, held back by these legal entities, definitions, and restrictions. A good current issue is the unregulated growth and leverage of hedge funds (note: didn’t we learn the last time with LTCM?). It is an un-level playing field to begin with, much more so given our antiquated regulatory and bank supervisory regime(s). These unfortunate incentives have been made more manifest by on-going industry consolidation that is coupled with “fee-based” examinations that constitute the revenue stream of the OCC. The unfortunate reality is that while we have a financial services system and an industry that has modernized, we are still saddled with a regulatory system that was designed in the 1930’s.
As to the EIC of Wells Fargo and the American Banker article, I want to relate a personal experience that I feel has bearing on the conflicts that she was, and is, faced with. While different in some respects, the bottom-line is the same: “superiors” at the regulatory agency cow-towing to the bank’s political pressure and failing to listen to and follow the advice of certified and commissioned bank examiners. My desire is that you hold this in the strictest of confidence.
For reference, I know, as a personal friend, the former Central Point of Contact (CPC) for the Federal Reserve System of a large regional financial company. She worked for the Federal Reserve for around a decade. The bank she supervised possessed management that was considered quite average and the bank was increasing in complexity. The exam program reflected this higher risk. However, the bank felt as though the exam program was “too tough”. Precipitating their complaint, however, had less to do with the scale and scope of the exam program in general and was more the fact that the organization got hit with an informal, non-public Memorandum of Understanding (MOU) for failure to comply with the Bank Secrecy Act and its Anti-money Laundering Provisions, as delineated under the recently issued PATRIOT ACT.
Federal Reserve Board Staff in Washington D.C. had been pushing for a public Cease and Desist (C&D) order, similar to the one AmSouth got hit with in 2004; however, the lead-examiner on the BSA exam, a recognized national expert, and my friend as then-acting CPC, believed that 1) given the newness of the PATRIOT ACT and 2) credible and on-going evidence that the bank would be in full compliance with the newer enhanced due-diligence (EDD) provisions of the law within the coming 6-months, we opted for a “wait-and-see” approach that included returning to the organization in 6-months and, if not in compliance, the execution of a formal, public C&D against the firm. This course of action was agreed to by the bank, by the exam team, by the State Bank CPC, by my friend (the FRB’s CPC), and by management of both the regional FRB bank and the management team at the State Bank Supervisory Authority.
FRB Board staff, for reasons they characterized as “…having no tolerance for any actual or perceived weakness in this area due to the political nature of the topic”, decided to pursue an alternative route; Board staff decided to push for a C&D “now” in order to “…make an example…” and set a precedence for their “no tolerance” policy. In hindsight, it is clear that this is precisely what these politicized bureaucrats wanted to do: witness the monumental fine of $50 million paid by AmSouth for failure to comply with portions of the Bank Secrecy Act. In addition to the formal C&D Board staff was REQUIRING (it’s actually in the legal document that was executed) a forensic review of prior CTRs and other accounts to “retro-file” SARs where appropriate. That is, FRB Board staff was asking the organization to reinvent history and send more SARs to FinCEN.
Although Board Staff might deny, the truth is that FRB Board Staff doesn’t “trust” local staff supervision, although certified to conduct examinations by the Chairman of the FRB System and the National head of Supervision, and believes that many CPC’s are “captured” by their assigned institutions. For evidence of this “attitude” of distrust you would simply need to have private and candid conversations with CPCs from around the System. My colleague (and I) vehemently would disagree with Board staff on this point and, rather, we would characterize the situation as Board staff being reactionary, politicized, and not understanding the need to prioritize issues relative to actual, on-the-ground risks. It's not the examiners and on-site bank supervisors that need to be taken to school, it is the politicized leadership of many within our supervisory agencies.
As CPC, my colleague disagreed with the C&D approach given that the bank had committed to full compliance within 6-months and all parties had agreed to a C&D if, in fact, there were still material weaknesses by October of 2003. Moreover, this firm is not well known for international finance or significant money services business, the two highest red-flags for money laundering; if you want to make an example of someone, try to match the profile of the organization with the risks of the actual business, and it helps to actually have violations of law – which it sounds like Wells Fargo actually did have such violations.
Board Staff did lower their recommendation from a public C&D to an informal MOU; however, it was this MOU written and signed in July of 2003 that caused the firm to decide to “make a statement”. That is, the firm believed, and it is something I would agree with them on, that pushing an MOU in July of 2003 rather than giving them 4-months – until October 2003 – to finalize their program and process was unreasonable. At the time, the firm's executives were unaware of the fact that Board Staff wanted to execute a C&D and apply Civil Money Penalities (CMPs) against the organization.
The “statement” that the firm made was the aforementioned “invitation” to William “Bill” Estes to come and visit the company. At this visitation, although non-public and no minutes were kept, the firm presented a case for the “too tough” examination schedule relative to peers. Subsequent to the visit by William Estes, all examination work for the remainder of 2003 was cancelled. Imagine that. All bank supervision work was cancelled due to strong-arm tactics by the bank the FRB was legally obligated to supervise. This would be similar to dismissing your auditors because you didn’t like the fact they gave you a “qualified” opinion. [Update: A subsequent operations review in 2008/2009 found major weaknesses to the FRBA’s supervisory program and William Estes was shown the door, but the damage was done.]
Since that time, various “threats” have been made by the firm to switch charters, most recently subsequent to a recent acquisition. However, the exam program has been scaled back in order to appease the organization; in fact, the current CPC [note: recall, this is 2005] now lives in Detroit and the local exam staff in Atlanta. As a result of all of the pressure, virtually all of the original exam team was re-assigned, The former CPC moved on to another role, the AVP in charge of supervision was re-assigned (i.e., demoted), and other “shake-ups” occurred. While some of the change was justified, the one person that really needed to be “re-assigned” still continues to hold his post (William Estes) [See above] Moreover, the message communicated to staff was that financial organizations can and do have access to internal staff issues at the Federal Reserve and that “D.C”, not local expertise, rules the day. Tensions mounted with the State Banking authorities and, around this same time, Colonial switched charters, for reasons similar to the above (i.e., exam work that was “too tough”). Colonial will fail at some point. Its internal control is weak beyond compare and its CEO arrogant without measure. [note: emphasis added. Colonial did in fact fail in 2009]
While true the FRB Board has delegated exam authority, the truth is they have delegated with recourse, even when the recourse sought has less to do with risk and much more to do with DC politics. For its part, the Atlanta FRB has been “captured” by the banks as their exam strategies continue to be weak and banks continue to ply their craft of influence peddling, and the watchwords are "consult" and "bring best-practice advice to the firms".
There is no easy solution to the problems that plague our financial supervisory system. A partial and relatively easy solution to this problem is to remove assessments paid by national banks and publicly fund the OCC. A perhaps better and more long-term solution to the many issues confronted by the “system” would be to cut through the regulatory special-interest groups and finally create a unified approach to supervision of financial conglomerates, similar to structures such as the FSA in England. Such an approach would require folding the FRB, OCC, FDIC, OTS, state banking examiners, and state insurance examiners into one Agency. Obviously the transition would be longer-term, but authority needs to be centralized. It is a myth that our system is truly “dependent” on a dual-banking structure. Coincident with such a move would be the need to fully reconsider our existing regulatory reporting systems and processes, better align SEC, NASD, and PCAOB objectives with this new agency, and undertake a major re-haul of information technology systems and market discipline and monitoring techniques.
I hope this note is, if nothing else, informative and assists in illuminating some of the challenges faced by our supervisory system. It is interesting that with all of the talk and action on reform in public accounting, there has been no discussion of the reforms needed within those agencies that perform a like function for the public welfare. To the degree that these agencies are compromised and/or conflicted, it is unavoidable that at some point in the future a crisis of confidence will present itself, most likely in the form of one of the largest banks in the United States (or a number of hedge funds that “use” these banks), or in the world for that matter, imploding due to bank supervisors at the wheel who have been asleep, or at least been blinded, and have not acted on what was clearly recognized by exam staff in the field. For this reason, I feel certain that the EIC of Wells Fargo had better intuition than the “D.C.” powers and that formal action should’ve been taken against the company. I trust those that actually understand the work, do the work, and bleed the blood more than those that sip a Cappuccino while winking and nodding at bank CEOs, presidents, and Chairman.
July 21, 2011 | naked capitalism
Blissex
«the banks were not dealt harshly enough in the crisis»
But that’s ostensibly because they are the USA champions in the global marketplace, and what is good for Bank of America is good for America.
It is a complete myth that the USA government no longer have an industrial policy and no longer pick winners; it is just a less obvious one and one aimed at different sectors (weapons, entertainment, software, finance) than in the past. These are mostly or entirely non-union sectors.
But if one looks at where USA government money and trade representative support goes, it is pretty obvious: Boeing, Disney, Microsoft, Citigroup and their peers are the new industrial champions of the USA and they can do no wrong, and if they do they get a lot of bailout money, especially those in finance and weapons.
The new (30 years old) USA industrial policy is a bit more oriented at whole sectors than specific companies, some of which are occasionally allowed to fail, but it is still about state preference that matters a lot.
tulsatime:
Yes, but will they be allowed to fail THIS time? There are not enough zombies left to eat the corpse, but they can’t let that first piece fall. God help us if those socialists (bo&co) have to dismember the corpse. The war on finance would be in place, brave bankers and brokers arrayed against the evil govt minions. Any chance we can time this out to match the euro fail, the attack on Iran, and the collapse of the sovereign market?
Must. Have. More. Chaos……..
Skippy:
Rats like to gain entry, in dwellings, pilfering small bits at first. Eventually they start chewing on all manner of things, including the wiring, till it creates a short, becoming a furry flare igniter.
Skippy…hutia estampida!
Blissex:
«The authorities have grossly underestimated the severity of the housing crisis»
I doubt that very much — unless you are talking of the PR they speak. The authorities are in often well briefed and realistic, they just learn to talk very softly.
But they carry a big stick and are not afraid to use it, and in the past few years 90% of the mortgage market has been nationalized, many trillions have been spent to cover up MBS related balance sheet problems, etc., all signs that the clever boys and girls in Washington are pretty worried..
But “business as usual”, “nothing to see here, move on”, sort of statements are just PR.
Richard:
Yves,
A couple of quick points.
It appears that the administration’s/regulators’ first line of defense in saving the systemic BofA is pushing through the deal granting immunity for foreclosures/title abuses. BofA cannot be saved if this liability from Countrywide is not contained. Something that stock investors are gradually figuring out (your posts on this issue no doubt contributing greatly to the investors’ ability to add 2+2 together).
Next, the administration/regulators will never take on Saint Warren. They turned to Mr. Buffett for guidance on how to handle the banking crisis early on. They know that he would never offer advice that would be good for his investments and not for the US (not).
Troy Ounce:
America’s capitalistic religion has always been “survival of the fittest”. What happened?
- Wrong (Keynesian) capitalistic religion
- Market manipulations on massive scale
- Entitlements
- Stupid arrogance aided by the msm
Jim A:
Remember back in 2008, when the idea was that BoA was going to be a big enough carpet to cover up all the poo at Countrywide and Merril? As it turns out there was alot more poo than was anticipated by the power that be. Even with the Fed aggressivly pumping money onto the balance sheet, that poo is still stinking up the living room something awful.
July 19, 2011 | naked capitalism
Psychoanalystus:
There really is no such thing as a liberal anymore except in name only. This whole liberal vs. conservative is just another circus meant to keep the chumps entertained and comfortably distracted. The liberal class has long ago sold out to the elites, and are now just another tool in their toolbox.
Maybe there are a few isolated progressives out there, like Ralph Nader, but they have been so marginalized, they are irrelevant.
We need to face the music. The elites have stripped us of all options to repair the system via traditional democratic means. They even took our voting rights away with Citizens United. There is only one option left: the Tahrir Square option. This is the only option that they fear, and the only one that works.
Tao Jonesing:
Meanwhile, I’ve moved to to explaining why “better elites” is equally worthless, for the same reasons as well as for many added ones.
Correct. As we’ve both said before, making incremental change to a fundamentally rotten structure leaves the rot in place. Unfortunately, the human brain is hardwired against fundamental change and, absent a catastrophe, it is only comfortable with incremental change (and only then if it cannot be avoided).
The problem these days is not confined to liberals or democrats but applies to every rationalist of any political stripe. Rationalists like to say they live in the “reality-based community,” but the fact is they just rationalize the reality the realists create for them. In that sense, Elizabeth Warren’s supporters are just enabling the very behavior they claim to abhor. It’s a kind of co-dependent relationship: the power structure could not accomplish its aims without the support of rationalists.
Remember this:
The aide said that guys like me were “in what we call the reality-based community,” which he defined as people who “believe that solutions emerge from your judicious study of discernible reality.” … “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality—judiciously, as you will—we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors…and you, all of you, will be left to just study what we do.”[
Valissa:
Yup! Have always appreciated that quote, as it was stunningly honest.
“The conventional view serves to protect us from the painful job of thinking. The enemy of the conventional wisdom is not ideas but the march of events.” John Kenneth Galbraith
“The goal of modern propaganda is no longer to transform opinion but to arouse an active and mythical belief.” Jacques Ellul
kievite:
I think that “Elisabeth Warren as a potential presidential candidate” problem should be analyzed from the point of view theory of “inverted totalitarian” (aka “managed democracy” or “Democracy Incorporated”).
Inverted Totalitarianism does not mobilize its populations (the way communism and the Nazis did) but try to keep them quiet with Reality TV and consumer culture; it does not require unanimity among the people, but fosters a splintering of public opinion into multiple warring factions. The end result is a fake democracy, masking totalitarian control of corporate elite.
The elite consists of representatives of finance, military, energy, government and ideology (which includes but not limited to religious organizations with political aspirations, like evangelicals).
Out of those Elisabeth Warren can count only on support of a small part of ideology sector and may be small part of government who understand the danger of “Bushism”. In this case her best chances might be appropriation “change we can believe in” grass-root campaign from “Obama Inc” and direct attack on financial sector corruption (the theme of corruption can bring some independents and even moderate conservative voters). How viable is her candidacy within those constrains I don’t know, but clearly the charge of “no experience” can be levied pretty effectively against her as a Presidential candidate. From this point of view attempt to get first to the senate looks like a safer bet. Like “andi” mentioned:
It was my impression the idea of her running for senate was put out by the Obama administration as a consolation prize to their shrinking base, and to get rid of her for a while. I never though much of it, it’s now repeated mainly by bots.
They fear her.
The quote “You can’t cheat an honest man” [WC Fields?] explains a lot about the dynamic between Warren and the Obama Admin I think. They try to manipulate her, and she goes all curious on them. Hard for these little freaks to deal with.
Hugh: July 18, 2011
Much of the impetus for the creation of the blogosphere came out of the realization that elite research was wrong and was really propaganda promoting elite positions and justifying why we needed elites.
To repeat a quote from Reinhold Niebuhr from Moral Man and Immoral Society which DownSouth has often cited:
The reason why privileged classes are more hypocritical than underprivileged ones is that special privilege can be defended in terms of the rational ideal of equal justice only, by proving that it contributes something to the good of the whole. Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold. The most common form of hypocrisy among the privileged classes is to assume that their privileges are the just payments with which society rewards specially useful or meritorious functions.
The criticism of Warren is not that she has only spouted evil all her life but rather that, as with all Establishment liberals, her analysis fails because it pushes for reform at the margins while leaving a corrupt system in place.
Jason Rines:
Power is shared either willingly (seldom) or forcefully (often). Attempting to share power without the violence is actually noble; it lessons the losses even when not successful. That is because eventually, the pain reaches even the top and it is pain that is the catalyst of our evolution.
If you want to take matters into your own hands to attempt to rebalance power, what is stopping you, Attempter? I believe it will crash and burn but between now and then I plan on networking with as many people as possible. That INCLUDES some of the misguided Bankers seeking redemption. Go ahead Attempter, flame away just because I don’t call for a hanging party everyday.
The cornerstones of a Republic are Truth, Freedom and Justice. When a Republic goes dreadfully awry it goes awry in that order, the perversion of truth, the shackles of slavery imposed and blatant injustice.
Liberty is restored in that same order. The Justice sequence comes last and trying to force it first just gets more people killed than necessary.
attempter:
I already answered this exact comment from you a few weeks ago, and you retracted it. Now here you are again. Are you manic-depressive or something?
But just out of curiosity, who among the powerful is showing any willingness to share power with the people (whose sovereignty is the only legitimate source of any power)? On the contrary, their every action without exception has the exact opposite intent. (And who, praytell, are these banksters who “seek redemption”? Like I said above, show me someone whose actions demonstrates it.)
I, of course, want all power to repose with those who are the source of it. I want an end to elite parasitism. I want true democracy. You evidently disagree. So there we are.
JasonRines:
Consider our conversations an ongoing dialogue Attempter. What we seem to be trying to discuss is the means of how power is rebalanced. We can all have wish lists for how power is rebalanced. I don’t think we disagree that power doesn’t merely relinquish itself.
But let me ask you, what do you or anyone else gain by criticisizing those with the spine to do more than talk on the Internet? I have a problem with your analysis of things Attempter, not your intent. Painting a broad brush of us or them causes more casualties than necessary Attempter. Trying to frame the debate as me not believing in Democracy has failed. My point was for the readers of this board to consider risk as that power shifts. When elephants fight, ants get trampled. You seem to advocate that anyone not willing to run under the elephants hooves are either wasting time or are cowards. EW should not require a defensible position for running toward the elephant hooves. Do you get what the debate between us should be about?
Hugh:
So tell me how does one share power with a kleptocrat? How does one share with those who don’t have the concept or only use it to steal from us?
Separating out truth, freedom, and justice sounds very rational, very Enlightenment, and very wrong. And even if we could, your restorative order is wrong. People can know the truth but without justice they still will not be free.
The central question here is if our system is basically sound or not. Those of us who say it’s not have 35 years of political and economic history, a meltdown, and a business as usual post-meltdown that we can point to. What do you have? If ever there was a moment for the system to show it was reformable and worth salvaging it was in the wake of the meltdown. Instead we got Dodd-Frank and all of this Mickey Mousing around with Warren non-nomination. If this is the best the system can do, then it proves our point, not yours.
JasonRines:
The people know the truth? Who? Me? You? Sure, but we are a tiny minority.
How about the citizenship? Quick Yves, shut your site down, the people know the truth!
Your point was about EW specifically, wasn’t it? Did you want to widen the debate between us to the institutions? Believe it or not, I am a fan of both you and Attempter.
But you both have the balls to criticize anyone in leadership trying to speak sanity to other leadership? EW is succeeding, she is drawing publicity to the point that the people are unrepresented in this country.
Her effort isn’t good enough for you. Fine, I get that.
Financial Armageddon
With reports like these --"Small Businesses See Large Challenges" (MarketWatch)
Recent sentiment surveys underscore pessimism, uncertainty
Small-business owners have a dim view of the future, according to a gauge of their optimism for June that stands “solidly in recession territory,” the National Federation of Independent Business reported Tuesday.
The NFIB’s barometer ticked down for a fourth consecutive month in June, reflecting pessimism about future business conditions as well as expected sales.
naked capitalism
Hugh:
This was so eminently predictable and predicted. It’s pure Obama. He made Warren the issue. Would he, wouldn’t he, appoint her? We had the standard set of suggestions that were at once commonsensical and totally unrealistic. If he wanted to, he could recess appoint her. A case of the false premise. He never wanted her under any conditions. If he had wanted her, he would have fought for her, which, of course, he did not, and never had any intention of doing. And that’s important because Warren was no radical. She was solidly Establishment and, at best, only moderately progressive. But still the possibility of her nomination was fine to have out there from Obama’s point of view because it wasted time and energy and kept the attention on Warren and not his failure to push for meaningful financial reform, his blank refusal to hold the banksters accountable, and general embrace of the kleptocrats of Wall Street.
The Warren nomination was a great decoy because it kept his image, not as a reformer, but as a possible reformer in play with his base. Going into the August recess with Americans focused less on news and more on summer, it is the perfect time, not just to propose slashing Social Security and Medicare but to dump Warren. She has served her purpose. The Democratic base and progressives now have much less time and far fewer options to create a real opposition, and alternative, to him. Warren was certainly not the whole of this plan but she was a useful part of it.
And too Obama looks to have effectively neutralized her. If she had left earlier on her own, she could have become a focus of protest to Obama. But Obama dragged out the process so long that we could say much the same of Warren that we said of Obama. If she was going to oppose him, she would already have done it by now. And of course because it is Obama who is pushing her out, if she raises any protest to him now, she can be dismissed and derided as “disgruntled”.
All in all this has worked out very well for the kleptocrat in chief.
attempter:
But Obama dragged out the process so long that we could say much the same of Warren that we said of Obama. If she was going to oppose him, she would already have done it by now.
Yes, even those who have rejected Obama don’t want to hear about Warren’s own complicity in the scam, but it’s been evident from the start. She couldn’t possibly ever have been ignorant of her intended role.
No matter what happens, no matter how much evidence piles up, people remain as children, desperate to find “better elites”.
kievite:
From this debate it’s clear that Warren became kind of idea of justice for banksters, a symbol of a particular political myth. Now this symbol is gone and no wonder that many people feel bitter :-).
Nobody left in the administration to project particular aspirations.
McGee:
Elizabeth Warren walked into the pig’s trough hoping to clean it up. An impossible task without moving the pigs out. I hope she was able to do something positive that she can point to when she returns to Academia and say,” this was worth the effort.”
She justly deserves our thanks for making the effort. She has my respect and was the exception to the rule that the elite are all corrupt.
kievite:
She has my respect and was the exception to the rule that the elite are all corrupt.
In spite of the fact that the primary goal of every elite is to maintain its own power and privilege, there are limits within which it can ignore the interests of non-elite. People like Warren serve a useful function of articulating those limits. So in no way she is an exception.
I think elite always have people who behave this way, “Rabble Rousers”, so to speak. Another example is Gore Vidal (who called Reagan “triumph of the embalmer’s art.”) Of course they are a pretty rare breed.
The fact that she allowed to pursue her goals might also be related to the fact that a some section of the elite lost confidence in themselves or the legitemacy of thier own rule. I think that Bush II was considered to be a joke by a very large part of the US elite. Gore Vidal has described George W. Bush as “the stupidest man in the United States”.
Valissa:
“People like Warren serve a useful function of articulating those limits.”
I like the way you stated that! Warren is competent, capable and smart… and she still cares about the little people. Some elites do, and they are worth supporting to a point. Too bad more elites don’t have her sense of conscience. But in the end, she is still one of the elites. I don’t think it serves any useful purpose to look for saviors or heroes among the elites, or anywhere else for that matter.
July 14, 2011 | naked capitalism
DP:
...the latest loss severity rates according to a presentation on Tuesday by Jeff Gundlach of DoubleLine Capital are 44.8% for prime, 58.9% for Alt-A and 72.5% for subprime. He has long projected that they are headed higher. He says they have seen some subprime mortgages, particularly ones under $100K, with loss severities over 100% due to legal fees, payments advanced by the servicer, etc.
Foreclose on Yves:
“for viable borrowers rather than foreclose ” You still don’t get it, shelter is a human right. I’d suggest the un-viable consider revenge, or gaining the upper hand on dice rolling terrorists. (investors who knew exactly what they were doing) How many millions of un-viable unemployed are there in this country, by the way?
Terra Tremuit:
Good point. As soon as you call them borrowers, most of the PR effort is achieved. We could call them civilians, as the military does when they kill them in foreign countries. (that’s very profitable too)
From Roosevelt Institute Senior Fellow Thomas Ferguson, Professor of Political Science at U Mass, Boston:Alas, this story is all too familiar. In the midst of a giant economic downturn, a new government comes to power. It talks boldly, but acts tepidly. Its massive policy failure discredits the idea that public authority can act effectively at all. At that point a desperate population starts looking around for saviors. In the absence of any plausible progressive alternative, many turn back to primal roots or sacred texts — in the case of the Tea Party, the Constitution. But in a money-driven political system, cash is still king. Leaders of the “populist” uprising soon find they can do good and do well at the same time by striking deals with elements of big business that have political demands of their own.
So the deadly circle begins to close. Big sections of the population cheer on measures that insiders recognize are designed to wreck them.
There is a bright side: This process doesn’t have to end as it did in Weimar or the French Third Republic. Who now recalls that Herbert Hoover’s “activism” in the Great Depression was once hailed as epochal? But when the Great Engineer failed to jump start recovery and capitulated to bankers’ demands for austerity, he was supplanted by Franklin Roosevelt and the New Deal.
But anyone can also see the sticking point now: In 2008, the population threw out the Republicans. In 2010, it tossed out the Democrats.
So who does it eject in 2012?
From Roosevelt Institute Senior Fellow Robert Johnson:
We live in a country where the experience of decline has gone from suspected to obvious. The energy that is built up by the pain is not going to go away. In that painful state the search for culprits and blame is inevitable. The storytelling, through technique and repetition, need not bear any resemblance to the truth when the blame is affixed. Unless strong leaders stand up repeatedly to counter the false narratives, scapegoats will be determined by power, not truth.
Unfortunately, strong leaders do not arise when public officials are imprisoned by the need for money in order to survive in office. As trust deteriorates anyone who espouses a vision of “the public good” is treated like a romantic fool. Pretend rituals of statesmanship abound, i.e., deficit commissions that impose hardship on vulnerable. Elites stand around and scratch their head about why people are so angry and join the Tea Party. Why are elites confused by this? There is no where else for people to go. It reminds me of the lyric in the Leonard Cohen song “Everybody Knows”, a song that may as well be the anthem for our time.
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lostEverybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knowsEverybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died
July 12, 2011 | naked capitalism
Hugh:/L:Media is the propaganda arm of kleptocracy. Its power to distract is essential in terms of class war. Distraction, after all, is the primary weapon in class warfare. It is what keeps the many dazed, confused, unreactive or misdirected in the face of the rampages of the few.
Murdoch and News International may have stumbled into the spotlight for a bit but one tycoon and some practices at some of his newspapers in one country distract from the culpability of media generally in its defense of kleptocratic elites and promotion of their looting and wars.
Two words about millionaires. In this country, much of our punditocracy is made up of millionaires. David Brooks is the quinessential example of the millionaire who purports to speak for the common man. The common man, according to Brooks, always agrees with his own corporatist bought and paid for views. For much the same reasons, I long since have given up on Sunday morning roundtables. There too it is all millionaires talking to millionaires, putting forth the views of their millionaire sponsors, and telling the rubes what they are supposed to think. It is all propaganda and distraction but it is so much more than Murdoch and Fox News.
“Journalism’s primary purpose is to hold power to account. This purpose has been perfectly inverted. Columnists and bloggers are employed as the enforcers of corporate power, denouncing people who criticise its interests, stamping on new ideas, bullying the powerless.”
“Journalism’s primary purpose is to hold power to account.”
I don’t believe it is or ever have been, that is just part of the myth and journalists self-delusion to feel good about them self. Nothing have been inverted, a newspaper act ultimately in the interest of those who own it. Of course there are journalists who really do hold power to account but that is the exception not the norm.
“The man who reads nothing at all is better educated than the man who reads nothing but newspapers”
Thomas JeffersonAugust Strindberg did have sort of a job description for a conservative newspaper editor in “The Red Room“: He have to lack independence, be somewhat dumb, since the company do know that the true dumbness always is accompanied by conservatism in way of thinking and as well as some slyness, can sense the foramens desires in the air …
Patrick:
“Columnists and bloggers are employed as the enforcers of corporate power, denouncing people who criticise its interests, stamping on new ideas, bullying the powerless.”
This is a description that all of the so called “Main stream media” could easily subscribe to. Informed opinion on all the news channels is merely propaganda on behalf of the financial elite. If it wasn’t then the economic and political nostrums that brought about the current depression would have been ejected from the market place. Instead the mind set remains and the talking heads all parrot the same failed elite party line.
As the old song said, “It’s the rich what gets the pleasure, it’s the poor what gets the blame”.
peter de haan:
if I were to even attempt such a thing, I would be jailed without mercy on several accounts of jeopardizing state security. I find it amazing that we don’t hear anything from the state security angle. So far the story has been limited to the personal, political and corporate speres. How can that be explained?
The Mess That Greenspan Made
Aussie Associate Economics Professor Steve Keen appeared on Max Keiser’s On the Edge to talk about all that is wrong in the financial world along with the upcoming second edition of his book Debunking Economics, the two being more than just a little bit related…
MarketWatch
Commentary: Ten reasons we are doomed to repeat 2008
Sorry to be gloomy, but there it is.
Why? Here are 10 reasons.
... ... ...
5. Stocks are skyrocketing again. The Standard & Poor’s 500 Index /quotes/zigman/3870025 SPX -1.81% has now doubled from the March 2009 lows. Isn’t that good news? Well, yes, up to a point. Admittedly, a lot of it is just from debasement of the dollar (when the greenback goes down, Wall Street goes up, and vice versa). And we forget there were huge rallies on Wall Street during the bear markets of the 1930s and the 1970s, as there were in Japan in the 1990s. But the market boom, targeted especially toward the riskiest and junkiest stocks, raises risks. It leaves investors less room for positive surprises and much more room for disappointment. And stocks are not cheap. The dividend yield on the S&P is just 2%. According to one long-term measure — “Tobin’s q,” which compares share prices with the replacement cost of company assets — shares are now about 70% above average valuations. Furthermore, we have an aging population of Baby Boomers who still own a lot of stocks, and who are going to be selling as they near retirement.
6. The derivatives time bomb is bigger than ever — and ticking away. Just before Lehman collapsed, at what we now call the height of the last bubble, Wall Street firms were carrying risky financial derivatives on their books with a value of an astonishing $183 trillion. That was 13 times the size of the U.S. economy. If it sounds insane, it was. Since then we’ve had four years of panic, alleged reform and a return to financial sobriety. So what’s the figure now? Try $248 trillion. No kidding. Ah, good times.
7. The ancient regime is in the saddle. I have to laugh whenever I hear Republicans ranting that Barack Obama is a “liberal” or a “socialist” or a communist. Are you kidding me? Obama is Bush 44. He’s a bit more like the old man than the younger one. But look at who’s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We’ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman. Change? What “change”? (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)
... ... ...
10. The real economy remains in the tank. The second round of quantitative easing hasn’t done anything noticeable except lower the exchange rate. Unemployment is far, far higher than the official numbers will tell you (for example, even the Labor Department’s fine print admits that one middle-aged man in four lacks a full-time job — astonishing). Our current-account deficit is running at $120 billion a year (and hasn’t been in surplus since 1990). House prices are falling, not recovering. Real wages are stagnant. Yes, productivity is rising. But that, ironically, also helps keep down jobs.
You know what George Santayana said about people who forget the past. ...
Telegraph
Although separate, these dangers are intimately related. Both have their roots in grotesque and utterly unsustainable levels of government debt. For it's the massive sovereign liabilities not just of the eurozone "periphery", but some of the "core" nations too, that could yet cause the single currency to break up – an end-game "cranks" like me have been predicting for almost 20 years, but which now even the most slavish Europhiles must accept is possible. A "euroquake", were it to happen, would send financial shockwaves across the world.
Similarly, it is the possible refusal of American lawmakers to raise their country's sovereign debt ceiling that could yet cause a "run" on US Treasuries. This outcome too, were it to take place, would seriously undermine global markets given the habit, nay culturally conditioned reflex in some cases, of so many big institutional investors to use Uncle Sam's IOUs as a "safe haven" to park their funds.
Commentary on these twin tribulations has focused on whether, by this time next year, either will have sparked another "Lehman moment", or whether both the eurozone and the US will have "gotten away with it" and "muddled through". I certainly hope it's the latter. But I can't help thinking that, even if the fudge is liberally applied, arms being twisted and political deals done to stave off an immediate crisis, the current predicaments of both the US and eurozone will still have an enormously detrimental impact on the Western world, the implications staying with us for decades to come.
For even if we get through this, something has "snapped", if not yet in terms of how the West perceives itself, then in terms of how we are viewed by the rest of the world.
On Friday, the eurozone's debt crisis intensified, amidst the first serious signs that "fiscal contagion" is spreading to Italy. Domestic political tensions – with Silvio Berlusconi, Italy's ludicrous prime minister, attacking the finance minister, Giulio Tremonti – caused Italian bond yields to leap to a nine-year high. Without Tremonti to rein him in, Berlusconi would surely show the same irresponsibility towards Italy's finances as he has in so many other aspects of his so-called leadership. That's why, as Berlusconi threatened to sack Tremonti, investors felt Italian default risks were more acute and demanded higher returns to hold Italy's sovereign debt.
Italy has a debt-to-GDP ratio of 119pc, among the largest in the eurozone. That's one reason Berlusconi's outburst sent Italian 10-year bond yields soaring to 5.27pc, up nearly half a percentage point. The premium Italy pays to borrow over and above Germany is now wider than at a euro-era high. With almost €1,000bn (£890bn) of sovereign liabilities maturing over the next five years, steeper yields will escalate Italy's refinance costs, acting as a millstone around the neck of the economy.
Debt markets were reacting not only to Berlusconi, but also to ongoing speculation that eurozone policymakers may impose losses on private sector holders of Greek bonds. Their reluctance to do so is in part due to the disgracefully entwined relationship between Europe's political and financial elites. An additional problem, though, is that, while Greece is an economic minnow, Italy is the third biggest economy in the single currency area and the seventh biggest economy on Earth. It is just too big to bail out. While the eurozone could perhaps survive a Greek default, an Italian debt failure would mean all bets are off.
Worries over Italy caused the euro to fall against the dollar. The greenback gained against the single currency despite an incredibly bleak US jobs report, which was alarming in itself but also likely to complicate the already tortuous negotiations over America's debt-ceiling. Obama's current fiscal plan forecasts that the tax share of US GDP will rise by 2.2 percentage points in 2012, with spending falling by 1.7 percentage points – as earlier tax cuts are phased out and America's 2009 fiscal stimulus comes to a close. Meanwhile, a deadline of August 2 looms on raising the federal government's debt ceiling from $14.3 trillion to $16.7 trillion (£10.4 trillion).
Under intense pressure from the Tea Party, Republicans are pushing for deep, multi-year spending cuts as a pre-condition for allowing more debt. If the Democrats don't deliver, the US may be unable to raise the finance it needs to honour its obligations, which could see the government having to choose between refusing interest payments to the Chinese or stopping US welfare cheques.
Obama is negotiating with Congressional leaders in the White House. But while there are deep divisions to be overcome, a solution can surely be found. The fact that the US economy generated only 18,000 jobs in June, down from 25,000 in May and having plunged from 70,000 new jobs monthly between February and April, shows the fragility of the US recovery.
One senses that the Republicans, having made their point, and having made sure everyone understands it's been made, will then conclude that the implications of a US default are simply too cataclysmic to contemplate. Similarly, one assumes that the eurozone bigwigs will ultimately bang their respective heads together and come up with a burden-sharing plan that spreads the pain between taxpayers and governments, marking down Greek debts, and extending payment schedules, but not so much that the eurozone's bloated banks are plunged into a crisis anew.
This may be informed optimism. Or it may just be wishful thinking. Whatever the outcome, one thing is clear: Westerners who think our massive sovereign debts are someone else's problem are in for a rude awakening. Yes – the so-called emerging markets, led by China and the big oil exporters, are the biggest holders of our sovereign debt. I often hear "savvy" observers argue that such countries wouldn't dare stop lending to us because that would undermine the value of the Western debt they already hold.
This is a staggeringly complacent view. While the big emerging markets are fiscally sound, running relatively small annual deficits and with rather low debt stocks, the Western world – not only the US and the eurozone's "usual suspects", but the UK, too – is in great fiscal danger. The only reason we are still able to roll over our sovereign liabilities is because, for the most part, the true extent of the fiscal risks we face hasn't yet been priced in to yields on global markets. What's happening on the eurozone's periphery, even if the current crisis is averted, is just the beginning.
In my view, a sudden and massive re-pricing of Western sovereign risk will happen much sooner than is widely expected. For now, global investors are in denial, assessing that default risks in many of the big emerging markets are much greater than in the West.
This is nonsense – particularly when you consider that the governments of the "advanced" countries are tacitly reliant on debasing and depreciating their currencies in order to lower their liabilities, so imposing on their creditors a form of "soft default".
At some point soon, and it brings me no pleasure to write this, private sector Western investors, together with our emerging market creditors, will drastically cut their exposure to Western sovereign debt. This will come as a rude awakening to the US and the big European sovereigns, who for years now have abused their "risk-free" status.
Liam Halligan is chief economist at Prosperity Capital Management X
naked capitalism
Readers new to this site may be unfamiliar with Yves’ summer rerun series, in which she reprises vintage NC posts that have stood the test of time. I would like to add a post of mine from Credit Writedowns to the lot. The recent New York Times piece from Joe Nocera on Sheila Bair is a must-read piece about the goings-on in policy circles during 2008 and 2009. For me, the article confirmed the view of the Obama Administration and its craven support for bailing out too-big-to-fail institutions that I put forward in the post below. Tell me what you think.
This post first appeared on 6 November 2009 on Credit Writedowns as “The less optimistic view of Treasury’s handling of the crisis“.
The Obama Administration is captured. To understand why it has acted as it has, one doesn’t have to take the view that its efforts to save the banking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry. One need merely read the last post I wrote on this topic.
In their wildly optimistic view, the banking industry is solvent and always has been. All that was needed to ‘solve’ than banking crisis was a lot of liquidity, government backstops and, most importantly, time. This blinkered view sees a looting of taxpayer money to bailout the banking industry as necessary to save banks whose credit is the ‘lifeblood of our economy.’
They are wrong. The banks did not need to bailed out. The banking industry industry needed to made solvent again. There is a big difference between those two sentences (banks versus banking industry and liquidity versus solvency) that goes to the core of the captured and politically damaging world view we have seen on display by the Obama Administration.
Change you can believe in
Think back some 18 months when Senator Obama was in a horse race with Hillary Clinton to see who would go up against John McCain in the Presidential election. If you asked any reasonable individual who had the least experience and the thinnest political resume of the three, he or she would have said Barack Obama. If Americans wanted someone long on inside-the-beltway experience, they would have chosen John McCain – or, at a minimum, Hillary Clinton, not Barack Obama.
So, Barack Obama did not best both Hillary Clinton and John McCain and get to the White House because Americans felt him more qualified for the job. Rather, Americans believed the U.S. was on the wrong path and wanted a qualified person to lead the country who would also change course. They believed that person was Barack Obama.
And when it came to the economy, the presence of two men, Paul Volcker and Warren Buffett, born some 80 years ago, gave one the sense that, despite Barack Obama’s perceived relative youth or inexperience, he had the ablest of wise old men who would be his and our counsel in resolving this crisis.
Bailing out the banks
So when Barack Obama took office, it came as a rude awakening for many that he chose to bail out the too big to fail institutions with little or no strings attached, allowing them to later make record profits and pay record bonuses, while the economy was in a deep slump and ordinary Americans were being bankrupted and losing their jobs and homes at record rates. This was not change you can believe in.
What could or should the Obama Administration have done?
If you had listened to the chatter inside the beltway early this year, you would realize that Obama’s team believed it was not politically feasible to ‘nationalize’ Citigroup or Bank of America and force top executives to resign as was done at RBS, Bradford and Bingley or Northern Rock in the UK. This was a blinkered view which can only be described as captured (if not outright disingenuous). We need look no further than Fannie Mae and Freddie Mac to see that nationalization was an option.
But this is not the kind of solution we needed. What we needed was a solution by the Administration to take prompt corrective action in seizing bankrupt institutions, dismissing management, punishing any misdeeds and setting up a timetable to sell off the institution’s assets. That is change you can believe in.
I laid this out fairly comprehensively in February in my post “America needs a pre-privatization plan.” So I am not going to cover that ground here except to quote the key relevant passage in that post:
To my mind, there are three ways to deal with an insolvent financial institution:
Bankruptcy. Allow the institution to collapse (like Lehman Brothers) Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae) Bailout. Inject capital into the institution in order to allow it breathing room until it can meet capital adequacy levels. As you can see, governments have tried all three solutions. However, there are vast differences between the three.
The bailout solution is the most ‘anti-free market’ choice and seems to be the favored solution of governments everywhere. It props up organizations, giving them an unfair advantage at the expense of other more prudent institutions. It also acts as a subsidy, which favors domestic institutions over foreign rivals. Bailouts increase moral hazard by rewarding risky and reckless lending practices. And they are often the result of crony capitalism due to the power of the financial services lobby. There are many other problems with bailouts. All around, bailouts are a poor solution.
So what we have here is a case of crony capitalism and kleptocracy, plain and simple – whether by design or not is immaterial. And the American people are on to this. That is why people are resistant to other changes this Administration has put forth.
Don’t let the media’s spin fool you: Washington insiders are on to this too. Politicians in Congress realize that Obama’s bailouts have cost him political capital and they are challenging his policy agenda as a result. This is why the health care bill, which Obama wanted passed before the summer recess, may not see the light of day before year’s end.
Are we home safe?
I would advise the Obama Administration not to run any victory laps about having slayed the beast. The lingering effects of crisis are still there. The Fed’s liquidity is still liquid. Impaired assets are still impaired. And zombie banks are still zombies. As I indicated in my depression piece:
In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized.
Since I covered this ground in that article, I will leave you to read my further thoughts there. What I want to turn to now is the ‘why.’
The Cheney-Rumsfeld replay
Now, I am not writing off Barack Obama’s presidency. I do worry he still could see a recessionary relapse which would cause him to seem more Herbert Hoover than Franklin Roosevelt. But, despite his Nobel Prize, it is much to early to know what his legacy will be.
Nonetheless, I believe he has wasted a lot of political capital and this will make ushering through a meaningful legislative agenda very difficult.
Why did Obama throw it all away?
Here’s my answer: I call it the Cheney-Rumsfeld replay.
When historians look back at the Bush 42 presidency, it will be defined by 9/11 and the wars in Iraq and Afghanistan. While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible. George W. Bush was famously not well-versed in foreign affairs, having almost never travelled abroad. He was completely dependent on Dick Cheney and Donald Rumsfeld to make foreign policy (although he could have listened more to Colin Powell, his actual Secretary of State; again it goes to predisposition).
So, I see George W. Bush’s presidency as having been defined by foreign policy and the War on Terror and, by extension, on Rumsfeld and Cheney.
Fast-forward to Barack Obama’s presidency and you have an almost identical situation, this time with the economy instead of foreign policy and Tim Geithner and Larry Summers instead of Donald Rumsfeld and Dick Cheney.
But, as with George W. Bush, it goes to pre-disposition. Paul Volcker was a critical member of the Obama 2008 campaign. He also was a key member of Obama’s economic policy team. But, he has been speaking a very discordant message that is not in sync with team Obama. So, as with Bush and his marginalization of Powell, one has to believe Barack Obama has chosen to side with Geithner and Summers over Volcker. Why anyone would do so given Volcker’s experience is beyond my comprehension.
The obvious conclusion, therefore, is that Barack Obama shares the blinkered and captured view of his policy makers and that this is why he has decided to go down this chosen path. And when it comes to Obama’s other ‘change’ decisions on the Guantanamo closure, torture, rendition, state secrets, and health care, the same logic also applies.
Is this change we can believe in? I will leave that for you to decide.
Smoke n' Dimon Mirrors:
Rude awakening for whom exactly? (The deluded, institutionalized, indoctrinated, and/or drunk?)
“So when Barack Obama took office, it came as a rude awakening for many that he chose to bail out the too big to fail institutions with little or no strings attached”
They funded his selection. It was obvious during his time as a junior corporate hack featuring tort reform, then the posturing stupidity show with Hillary Random Klanton, culminating in his AIPAC presentation.
REBEL!
XRayD:
Bush0bama gang.
Much of the sorry history of the “financial crisis” is now well known. The theft, fraud, the waste and misallocation of capital in order for the players to get their “cut” of the trillions of dollars of ‘fake money’ created by “financial innovation”, which lies at the heart of our moribund economy, is staggering.
We all know that the markets are a reflection of the economy, and ultimately the markets are about CONFIDENCE. The economy has stopped working because of this lack of confidence. The stock and commodity markets are merely a fig-leaf of Mr. Bernanke’s imaginary “wealth effect.” The bond markets is sailing on money created out of thin air.
The average American simply appears to have thrown up his arms in despair and helplessness because he/she knows that Wall Street and Washington care nothing about them beyond using them as pawns in the endless and fruitless “talking point” debates and dueling op-eds in the media.
The “housing” part of the financial crisis has mostly been ignored.
With massive mis-allocation of capital into credit instruments of all types, and resulting attendant demand on future cash flows for interest and principle payments, is it any surprise that no oxygen is left for the real economy?
I agree that drastic intervention was called for to deal with the so-called “financial crisis” (as if was caused by the weather) by taking over failed big banks and cleaning them up in a fair open and honest way, including punishing those responsible by making them disgorge their ill-gotten gains.
Instead, the people responsible have been rewarded, and too big to fail institutions are even bigger. And all the “risk” is now deliberately piled onto the aching backs of tax payers of the future and reducing their standards of living.
To add insult to injury, those who have captured Washington now call the lack of confidence “Uncertainty” and keep braying about “too much regulation.” And demanding more “tax cuts” to boot with fake promises of investing and creating jobs.
Obama should quit complaining about the economy he “inherited” not being as strong as he would like. By failing to take firm action on behalf of the American people, and instead jumping into Wall Street’s bed, he is clearly responsible for making things worse and digging us into an even deeper hole.
Sauron:
Obama must be “captured” (for whatever reason). Ignorance of economics, like the law, is no excuse, because the fundamentals of building a prosperous economy are not that hard to understand. Maximize your human capital. Favour policies that maximize employment and encourage training and education. Maximize your country’s natural capital–build the best infrastructure/find the best energy solution you can. Then use these two ‘legs’ productively–i.e. not digging holes/filling them in, bombs, or societal luxuries like a supra-rich class.
THEN you bring in the experts to help acheive these goals.
Richard:
Ed,
The post was a terrific post the first time you published it too!
As for the effort to canonize Sheila Bair, it will be shortly undone by the facts surrounding her leading the FDIC. As a practical matter, Sheila also believed in the government guaranteeing everything.
Look no further than the structured finance deals that she oversaw. Faced with a choice between providing asset-level disclosure or a government guarantee to make the deals sellable, she opted for the government guarantee.
On to Obama. The fact that his administration did not address the solvency issue is now hitting home. When everyone in Washington can see that you have failed, you have zero political capital.
Unfortunately, he is terrified of the prospect of default (he appears to have run his entire economic platform on fear based decisions – example, bailing out the banks) . As a result, he is willing to end Social Security and Medicare (I know, he is only making a modest adjustment, but that is today and the Republicans still have not said they agree, hence, much, much more to come).
If I was the Republicans, I would make sure that both programs are dismantled and that there is agreement to undo Obamacare too so that they can have their tax cut for the rich.
While I think this is terrible for the US, I think Obama is so terrified of default that he will agree to anything (when has he actually stood up for anything/drawn a line in the sand). Thereby cementing his place at the top of the worst presidents in the US and even worse, not addressing the solvency issue that will continue to plague this country.
Richard
Martin:
Obama lost me before the inauguration. When he named his economic team I knew where this was going – disaster. Obama is an empty suit that was styled at the Friedman school of economics. The fact that he will not even consider a jobs program tells you he is OK with the pain the 99 percent of the public is suffering. Like Bush he uses faith based economics.
kares:
Yves:
It is good to see one’s reflections committed to paper for later recall, and see one’s insights and analyses proven right yet again, this time by history.
Obama just like Bush II has neither training nor aptitude in economics and economic history, is managerially inexperienced, philosophically and intellectually immature, and not anchored to any notion of social justice, despite having been a “community organizer”. The community organizer position was a stepping stone, for an ambitious (black)man in a hurry: a convenient resume builder for some one wanting to be accepted at Harvard.
Since, Bush’s term was up he had to be replaced by a similar, a twin, as it were, just like replacing an expiring bond by another equally lucrative bond. The investment banks vetted Obama undercover via Geithner, the head of the NY Fed. Obama knows which way his bread is buttered. No wonder, despite serious and visible moral lapses — having not paid his taxes– Obama told Geithner that he was secure as his Treasury Secretary, that he would fight tooth and nail for his nomination, some thing he did not do for equally morally compromised Daschle. Obama, had to have his channels open to the investment banking and Wall Street community for the 2012 bid, and now that he has Daley as his conduit to Wall Street as his chief of staff, Geithner can make the sounds about leaving.
So, we have history (1937) repeat itself, just like under Franklin Roosevelt, an unending recession, because of wrong policies of deficit reduction that Roosevelt adopted, despite Keynes” admonitions. Except now we have a jester as king, morally unequipped to fight an ideological war, because his aides tell him that he would return to being a jester, if he does not fight with the tools that they have pressed on him — tax cuts which proved useless in the last go-around in 2009 and secondly, “deficit-reduction.” They advise patience, good advice for the chronically unemployed.
The jester will be retired in 2012 and we will go back to history which was left unfinished because of the IInd World War. As Hegel said history repeats itself, the second time as tragedy.
July 9, 2011 | The Big Picture
craig.r.jacksonJames“Marching Full Speed into Calamity” Although this is a direct quote, I have to say it is a bit misleading as a headline. What Zulauf actually expects is a choppy market for the next 2-4 years, range bound between 1000 and 1500. Then he expects all of the economies to be aligned, set for a downward economic move, with the S&P reaching around book value whatever that is at that time. Until the calamity, governments will resort to fiscal stimulus to keep the game going. Right now, government fiscal stimulus is negative because local, state and federal are all cutting; while EU is in austerity; China is slowing. So he expects a downturn very soon that will prompt the emergency stimulus, to be followed by a move possible to 1500. The only asset class he likes is gold because he views it as a currency, not a commodity, which investors will increasingly use as a currency haven.
His commentary is far-ranging, riveting . . . and, frankly, a little frightening. I found his discussion on the euro zone especially attention-getting:
- “We all know that Portugal will default, and most likely Spain, and possibly even Italy and Belgium, and the longer they stay in that monetary union, the more likely the default will be . . . ”
- “That is why the banks, particularly at the periphery, are refunding themselves via the U.S. money market that is extremely liquid, and half of the money in the U.S. money market funds is really money to fund the peripheral European banks. Once those money market funds get hit by redemptions because investors find out, then you have a funding crisis of major scale at the periphery of Europe, and that is the next step. It is a never-ending drama until it breaks in a big way.”
- “You now have a public sector government crisis, you have a central bank funding crisis, an equity capitalization crisis. You bring the whole thing to a new level, and I do not know – in the next calamity, I mentioned I expected to see in the middle of this decade who can bail all those guys out. It will be impossible.”
- ” But once the bond market turns around and begins to riot against it, then you are, in the U.S., in the same trap that Greece is in right now. It is not exactly the same, but it is very, very similar.
- “You have to understand, we are all trapped, and there is no way out. You can postpone it by printing money, by debasing the currency, you can go into devaluing your currency and trying to steal trade from your neighbor, you can try to do that, but we know from history that that usually does not end very well. That is the situation we have.”
Transcript here:
http://mcalvanyweeklycommentary.com/july-6-2011-felix-zulauf-marching-full-speed-into-calamity/
Joe Stiglitz is disappointed in the resurgence of "ideas that have failed repeatedly":
The Ideological Crisis of Western Capitalism, by Joseph E. Stiglitz, Commentary, Project Syndicate: : Just a few years ago, a powerful ideology – the belief in free and unfettered markets – brought the world to the brink of ruin. Even in its hey-day, from the early 1980’s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest... Moreover, output growth ... was not economically sustainable. With so much of US national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.
I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven, as always, by ideology and special interests, once again threatens the ... economies of Europe and America, where these ideas continue to flourish. ...
The remedies to the US deficit...: put America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right will have none of this, and instead is pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection...
Regrettably,... right-wing economists have gotten the problem exactly backwards: they believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government’s fiscal position, or at least yielding less improvement than austerity’s advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion.
Do we really need another costly experiment with ideas that have failed repeatedly? We shouldn’t, but increasingly it appears that we will have to endure another one nonetheless. ...
anne
Joseph Stiglitz pointed out several years ago that we were passing through the first war time in American history when taxes were actually being cut assuring that what would be far, far beyond a trillion dollar war would not be paid for. The material fears Stiglitz and Linda Bilmes had about our wars are being fearfully realized, but such material focus has been limited and fleeting.
June, 2011
Costs of War Executive Summary
In March of this year, the Congressional Research Service report by Amy Belasco on the costs of Iraq, Afghanistan, and other operations related to the war on terror estimated that the Pentagon allocations for war through the current fiscal year were already $1,208 billion in current dollars....
The human and economic costs of these wars will continue for decades, some costs not peaking until mid-century. Many of the wars’ costs are invisible to Americans, buried in a variety of budgets, and so have not been counted or assessed. For example, while most people think the Pentagon war appropriations are equivalent to the wars’ budgetary costs, the true numbers are twice that, and the full economic cost of the wars much larger yet.
Conservatively estimated, the war bills already paid and obligated to be paid are $3.2 trillion in constant dollars. A more reasonable estimate puts the number at nearly $4 trillion.
Main Street Muse:
anne"Just a few years ago, a powerful ideology – the belief in free and unfettered markets – brought the world to the brink of ruin."
That was the spin - that our financial markets would be crippled by the fetters of regulation. But does anyone really believe a market so reliant on bailouts to be "free and unfettered"?
The amount of moral hazard in the system was well understood by those within it - and clearly, they worked it to their advantage.
If Alan Greenspan TRULY did not understand the moral hazard inherent in the industry he was tasked with regulating, he's left a legacy as the biggest fool in the world today. And if he DID understand the hazards of deregulating a sector rife with systemic risk, he's the biggest tool of the capitalists who worked tirelessly to profit by dumping junk onto the laps of others, knowing that because they were too big to fail, they'd get bailed out when their flimsy house of cards fell down.
But we should be warned - the bankers remain utterly committed to the "systemically rickety" business model they've created. It's the task of the policy makers and regulators to rein them in. And it's not clear the those in such positions have a vision of regulatory protection for consumers that's any different from the blindness of Alan Greenspan.
Main Street Musehttp://krugman.blogs.nytimes.com/2011/07/07/contraction-still-contractionary/
Contraction, Still Contractionary
By Paul KrugmanA new paper from the IMF * puts another nail in the coffin of the doctrine of expansionary austerity. It basically shows that results purporting to show economic expansion following spending cuts and/or tax increases were based on a statistical illusion: an expanding economy can often lead to rising revenue and/or falling spending (e.g. because safety-net spending falls or because the government cuts back in an attempt to cool off inflationary pressures). And as a result, what the Alesina-Ardagna results capture is muddle by reverse causation.
The paper corrects this by using the historical record to identify true examples of deliberate austerity — and it turns out that they are contractionary. The multiplier is less than one, but that may reflect the fact that these austerity programs did not take place in the face of a zero lower bound, so they were partly offset by monetary expansion.
The paper also provides a tentative answer to the apparent tendency of spending cuts to be less contractionary than tax increases: it looks as if central banks take more aggressive action to offset spending cuts than tax hikes, reflecting some combination of inflation concerns, belief that spending cuts are more durable, and (the paper doesn’t say this) bankerly ideology.
If we were discussing a politically neutral subject, the evidence here would long since have been considered definitive: expansionary austerity is a doctrine that failed. But since we’re in the political realm, of course, such a convenient doctrine can’t be abandoned. On the contrary, it now seems to be the official doctrine of both the GOP and the White House.
at University of Missouri, Kansas City, who for reasons I do not understand is little noticed by other economists, has been writing about economies in Europe and about us in class terms that Joseph Stiglitz really skirts. * Hudson to me is especially effective in allowing for an understanding of how removed the governors of Greece, say, are from ordinary Greek people. Along with Paul Krugman, Hudson early on recognized how Iceland might escape the austerity-dept repayment trap that has closed about other European economies.*
Talks: Inflation Change Could Cut Social Security
By ASSOCIATED PRESSWASHINGTON — Once considered untouchable, Social Security is now in play in the debt-ceiling negotiations. And that could mean higher income taxes for many U.S. families in addition to shaved benefits for tens of millions of retirees as they age.
Social Security became part of the private discussions between President Barack Obama and Republican House Speaker John Boehner on coming up with "something big" for reducing deficits by $2 trillion to $4 trillion over the next decade. White House officials said Thursday that could include a new inflation measure for Social Security that, through a combination of reduced benefits and higher taxes, could produce federal savings close to $200 billion.
Low- and middle-income families could be hit.
The proposal would represent a reversal for Obama. In contrast to his pledge to target tax increases at the wealthy, high-income families would largely be spared from tax increases that would result from changing the way inflation is measured. And until now, the administration has been adamant that Social Security does not add to the deficit and should not be a part of deficit reduction talks.
Adopting a new inflation measure would allow policymakers to gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans....
[Astonishing, simply astonishing. The idea is to cut Social Security benefits "in a way that might not be readily apparent to most Americans."]
"Paul Ryan has won, it seems."Paul Krugman as Joseph Stiglitz or Mark Thoma, has been pointing out the philosophical problem of winning an argument even if policy does not immediately follow from the win. A lack of Presidential defense of Social Security, weakens support for the system in time. Similarly Medicare and Medicaid need be defended on principle, and principle never given away in the hopes enough people may not quite notice.
Social Security and Medicare have been wonderfully effective for older men and women, the poverty rate for men and women over 65 being the lowest ever recorded even in the wake of so severe a recession.
Curt Doolittle:
Of course, Stiglitz' analysis is a straw man.
The conservative strategy since 1980 has been:
- Defeat ideological communism as a threat to the international order, and to American trade interests - and to borrow any amount of money to do so.
- Dismantle the left wing "great society' movement, and if possible privatize education, social security and medicare as a means of starving and de-politicizing the government.
- Starve the government either by over commitment or over extension, forcing either the dismantlement or privatization of 'socialist' programs.
- Support of the entrepreneurial class, and increase home ownership in order expand conservative sentiments.
UNEXPECTED
- The replacement of ideological communism with ideological islam was an unexpected threat and a high cost.
- The rate at which Christian whites have become a minority was greater than expected, and the transition of Vhristian whites into a political block at acts like an minority was unexpected and therefore the conservative movement has not been able to ideologically adapt to this change fully - they still remain attached to the Classical LIberal Constitutional model, despite the obvious evidence that the model has failed them and (per Epstein) attacks on constitutionalism by the courts and cultural indoctrination by the schools has been largely successful.
The end result is that the country remains ethically center-right, and will continue to remain center-right for some period of time.
TRENDS The general trend that will drive conservatives sentiments will be:
- the regionalization and fractionalization of domestic culture due to demographic concentrations. and the eventual exhaustion of the population's tolerance for discord.
- the increase in small businesses due to global repositioning of the economy
- the increase sense of threat from weakened US strategic and economic power.
- the extended economic stress that will likely lose a generation of permanently displaced workers.
So, Stiglitz simply does not understand conservative strategy or motivations and is arguing against a straw man. The left is willing to create the redistributive society by class warfare and destruction of the western identity. The right is wiling to bankrupt society in order to preserve it's identity. The fact that one policy or another was used to accomplish this is immaterial.
To conservatives, freedom is incompatible with the left's agenda. And the willingness to protect that freedom is infinite. Revolt works from both directions.
[Jul 08, 2011] The Corporate State Will Continue its Inexorable Advance Until We're Locked into a Permanent Underclass AlterNet
Corporate capitalism—because it was trumpeted throughout the Cold War as a bulwark against communism—expanded with fewer and fewer government regulations and legal impediments. Capitalism was seen as an unalloyed good. It was not required to be socially responsible. Any impediment to its growth, whether in the form of trust-busting, union activity or regulation, was condemned as a step toward socialism and capitulation. Every corporation is a despotic fiefdom, a mini-dictatorship. And by the end Wal-Mart, Exxon Mobil and Goldman Sachs had grafted their totalitarian structures onto the state.
The Cold War also bequeathed to us the species of the neoliberal. The neoliberal enthusiastically embraces “national security” as the highest good. The neoliberal—composed of the gullible and cynical careerists—parrots back the mantra of endless war and corporate capitalism as an inevitable form of human progress. Globalization, the neoliberal assures us, is the route to a worldwide utopia. Empire and war are vehicles for lofty human values.
Greg Mortenson, the disgraced author of “Three Cups of Tea,” tapped into this formula. The deaths of hundreds of thousands of innocents in Iraq or Afghanistan are ignored or dismissed as the cost of progress. We are bringing democracy to Iraq, liberating the women of Afghanistan, defying the evil clerics in Iran, ridding the world of terrorists and protecting Israel. Those who oppose us do not have legitimate grievances. They need to be educated. It is a fantasy. But to name our own evil is to be banished.
We continue to talk about personalities—Ronald Reagan, Bill Clinton, George W. Bush and Barack Obama—although the heads of state or elected officials in Congress have become largely irrelevant. Lobbyists write the bills. Lobbyists get them passed. Lobbyists make sure you get the money to be elected. And lobbyists employ you when you get out of office. Those who hold actual power are the tiny elite who manage the corporations. Jacob S. Hacker and Paul Pierson, in their book “Winner-Take-All Politics,” point out that the share of national income of the top 0.1 percent of Americans since 1974 has grown from 2.7 to 12.3 percent. One in six American workers may be without a job. Some 40 million Americans may live in poverty, with tens of millions more living in a category called “near poverty.” Six million people may be forced from their homes because of foreclosures and bank repossessions. But while the masses suffer, Goldman Sachs, one of the financial firms most responsible for the evaporation of $17 trillion in wages, savings and wealth of small investors and shareholders, is giddily handing out $17.5 billion in compensation to its managers, including $12.6 million to its CEO, Lloyd Blankfein.
[Jul 08, 2011] Defining Deviancy Away: How the Justice Department Adopted “See No Evil” Approach to Corporate Crime
July 8, 2011FoppeGretchen Morgenson and Louise Story have a must-read article in the New York Times on an important aspect of our two-tier justice system, in which only little people seem to be subject to the full force of the law. The article describes how, starting with the Bush Administration and continuing under Obama, the Department of Justice decided to exit the business of prosecuting suspected corporate criminals.
This section is stunning:
But by 2005, a debate was growing over aggressive prosecutions, as some business leaders had been criticizing the approach as perhaps too zealous.
That May, Justice Department officials met ahead of a session with a cross-agency group called the Corporate Fraud Task Force…
In the meeting, the deputy attorney general at the time, James B. Comey, posed questions that surprised some attendees, according to two people there who asked to remain anonymous because they were not supposed to discuss private meetings.
Was American business being hurt by the Justice Department’s investigations?, Mr. Comey asked, according to these two people, who said they thought the message had come from others. He cautioned colleagues to be responsible. “It was a total retrenchment,” one of the people said. “It was like we were going backwards.”
This is ass backwards. First, it is of absolutely no concern to a prosecutor what the impact of his work is on the quality of life of criminals. Would you ever hear a prosecutor say, “Gee, we better not bust that drug dealer. His mom would be distraught, and think what it would do to his kids”? Prosecutors are in the business of enforcing the law. If there is something wrong with the law, that’s a different question, and remedies should fall to the legislature (but we’ve been plagued with an awfully creative Supreme Court). A ttorneys general do not have social or economic engineering as part of their job description.
Second, American business is hurt by the failure to investigate corrupt and potentially criminal activities. The failure to go after bad actors puts the good guys at a competitive disadvantage. Want to give American corporations a lousy reputation? The best way is to enable crooks. Honest businessmen will be under pressure to match the growth and profits of the miscreants.
Subprime lending is the poster child of why this “enable bad businessmen” idea is a horrorshow. All the leaders in that business, Countrywide, New Century, Indymac, were criminal enterprises. They engaged in consumer and investor fraud, and not just one scam, but multiple scams. They left smoldering wreckage across the economy, imposting costs on individuals and enterprises that were innocent bystanders.
The history of economic development also shows corruption reduces economic competitiveness. We’ve mentioned repeatedly Amar Bhide’s 1994 Harvard Business Review article, “Efficient Markets, Deficient Governance,” in which he pointed out that one of the biggest reasons that the US had such liquid and deep capital markets was that foreign investors felt safe sending funds here due to the tough policing, specifically disclosure rules, prohibitions against insider trading, and rules against market manipulation (if you’ve ever done international deals, foreign investors are marks, so they have legitimate reasons to be worried about being taken for a ride).
Similarly, as the US is sliding into banana republic status, it needs to consider the insight of Lee Kwan Yew, who was the prime minister of Singapore for thirty years and is often described as its founding father. When the island nation gained its independence from Malaysia in 1965, it had nothing going for it: no natural resources, no technology, no world class manufacturers. His strategy was that Singapore could still compete by having a highly educated workforce and having clean government. Yew’s approach to policing citizens is admittedly heavy handed, but his policies designed to forestall official corruption are shrewd. For instance, top government bureaucrats are paid at the same level as private sector professionals (think partners of top law firms). That means no revolving door (staying in government is an attractive career path) and little incentive to cheat (you don’t have much to gain if you are well paid and have a lot of status and power already). He also put in place tough, independent internal audits.
By contrast, look at the effort to hamstring the watchdogs in the Executive Branch, the inspectors general. Morgenson and Story use Beazer Homes, which came under scrutiny in March 2007, as a case example:
Investigators found that Beazer had been offering a lower mortgage rate if buyers paid an extra fee, but then not giving them the lower rate. And it was enticing homeowners by offering down payment assistance, but not disclosing that it then raised the price of the house by the same amount.
Yet the further investigations were held at bay. No Beazer employees or customers were interviewed while Beazer and its law firm conducted their own “investigation”. I wonder how much coaching of executives and staff took place and how many records disappeared. If subpoenas have not been issued, I would assume some targeted file tidying up can’t be construed to be destroying evidence.
And the toughest internal watchdog, the inspector general, was leashed:
A year after the settlement, Kenneth M. Donohue, the inspector general of HUD at the time, raised questions about its handling. He said he was disturbed by the interference by the Justice Department and its calls to stop pursuing Beazer executives so the deferred prosecution deal could be completed. “As a law enforcement official for over 40 years,” Mr. Donohue wrote in a letter to Eric H. Holder Jr., the attorney general, “I have never witnessed a like action in any of my varied dealings.”
In a recent interview, Mr. Donohue, now a senior adviser at the Reznick Group, an accounting firm in Bethesda, Md., said of the Justice Department: “The most important point of this whole thing is the fact that they threatened the HUD office of the inspector general that we would not be allowed to go forward with our investigation of executives if we didn’t agree to their settlement.”
The problem is that while inspectors general have substantial law enforcement powers (for instance, most can execute search warrants and make arrests), they are not full fledged prosecutors; they can subpoena records, but not witnesses. So they are forced to work with the DoJ if a matter rises to a criminal level. So if you have a DoJ that is in “see not much evil” mode, you have a very effective Catch-22. Here is the bland bureaucratic formulation:
David A. Brown, acting United States attorney on the case, said: “What we do is work cooperatively as a team in conducting these investigations. We don’t tell agencies to stand down when they are working as part of the team.”
“Working at part of the team” means “not challenging our decision to do not all that much”.
That isn’t to say the DoJ is doing absolutely nothing. The new business-friendly approach is the “deferred prosecution agreement”, which became DoJ policy in mid 2008 and was used in Beazer. Again from the article:
Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis.
Though little noticed outside legal circles, the guidelines were welcomed by firms representing banks. The Justice Department’s directive, involving a process known as deferred prosecutions, signaled “an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors,” Sullivan & Cromwell, a prominent Wall Street law firm, told clients in a memo that September.
The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.
While deferred prosecution agreements had been used before 2008, they had not been formally set forward as an options They were adopted last year by the SEC. The article argues, convincingly, that this change embodies an official posture of going easy on white collar crime.
Fundamentally, this is the same intellectually bankrupt reasoning that also gave us deregulation of financial markets. The push was for more efficiency and the hell with safety. But any real systems designer, be it a software designer, an architect, a civil engineer, will tell you safety is a first order design consideration and efficiency is second. It’s more important than the skyscraper not fall down than it be built for the lowest possible price. Yet what we are doing is the legal equivalent of gutting building codes and hoping for the best.
FoppeDefending the department’s approach, Alisa Finelli, a spokeswoman, said deferred prosecution agreements require that corporations pay penalties and restitution, correct criminal conduct and “achieve these results without causing the loss of jobs, the loss of pensions and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it or were unable to prevent it.”
Absolutely fascinating approach.
Too bad the DoJ doesn’t really care about the “significant negative consequences to innocent parties unable to prevent it” when those parties are mere voters, though. Glad I live elsewhere, I guess.
BlissexParenthetically, this attitude can also be found among judges in ‘smaller’ cases:
The scion of a wealthy Chicago-area family pleaded guilty in a South Florida court Friday to killing two British businessmen with his Porsche but avoided prison after agreeing to pay an undisclosed sum to the widows.
Ryan LeVin, 36, will spend two years under house arrest in his parents’ oceanside condominium.
LeVin admitted to being behind the wheel of his $120,000 Porsche 911 Turbo when it jumped a sidewalk and killed Craig Elford, 39, and Kenneth Watkinson, 48, as they were walking to their beachside hotel Feb. 13, 2009. LeVin initially denied driving the speeding car and pinned the blame on a friend.
Given that LeVin’s sentencing guidelines called for up to 45 years behind bars, some legal experts say the case seems to be an unsettling example of checkbook justice.At the time of the crash, LeVin was on probation in Illinois for a 2006 case in which he had driven into a Chicago police officer and instigated a chase on the Kennedy Expressway. Court records show LeVin has more than 50 traffic violations and a long history of drug abuse.
Illinois officials will work with Florida authorities to return LeVin to his home state, where he faces a parole violation stemming from the 2006 incident, an Illinois corrections spokeswoman said. Illinois will seek to have his parole revoked and sent back to prison.
Rather than agree to a deal with Florida prosecutors, who wanted him to serve 10 years in prison, LeVin took an open plea that placed his fate in the judge’s hands. His lawyer argued that the need for LeVin to pay restitution to the men’s widows and children outweighed the need for LeVin to serve prison time. “The wives and children of the deceased were significantly and permanently impacted by this incident, and they have indicated … that there exists a great necessity for restitution which the defendant can, and will, make, if permitted a sentence devoid of incarceration,” LeVin’s defense attorney David Bogenschutz wrote in court documents.“I think he hardly bought his way out of this,” Bogenschutz said after the court hearing. “We have two victims who have an absolute say in what should happen in their case. All the judge did was follow the law.”
LeVin initially declined to speak in court, but the judge asked him to spit out his chewing gum, look at the photographs of the men’s mangled bodies and make a statement. Clearly nervous, his face red and glistening with sweat, LeVin said he was ashamed and tortured. But he did not say he was sorry.
“I think he’s grown up a lot,” Bogenschutz said. “He understands now how he has to stay out of trouble. I think this time around was a real eye-opener.”
(One might note that the journalist writing this article had a field day quote-mining the defense lawyer, and probably disliked the verdict.) Furthermore, it is unclear to me why there was a need to keep him out of prison ‘in order to pay restitution’, given that he’s likely living off of his parent’s wealth.
RansomeWhile some judges show the deserving rich the understanding and deference that they are entitled to, some judges don’t get yet the new/old cultural climate:
http://storagemojo.com/2010/06/26/greg-reyes-sentenced/comment-page-1/
When Reyes got his opportunity to address Breyer, he stood at the lectern silently for a few seconds, and then broke down sobbing. [His attorney] read his statement for him.
“I am a shell of the man I once was,” he read.
Breyer said he was quite moved by the 400 letters sent in on Reyes’ behalf, as well as the financial and emotional support he extends toward others. Yet a message must be sent to executives that deceiving the public markets is a serious crime, Breyer said.
The judge cited one more reason for a prison term.
“White-collar defendants, unlike most defendants I see in court every day, have choices,” Breyer said, adding that he had just sentenced a man to more time than Reyes because he illegally re-entered the United States to see his 5-year-old son.
In two weeks, Breyer will sentence another man whose drug addiction began when his father shot him up with heroin when he was 11.
“What choices did that young boy have?” Breyer said.»
However I still have seen no progress on the numerous convictions that should have came of the hundreds of millions of tax fraud due to backdating options to turn income into capital gains. But tax law is one of those things that are mean to be enforced mostly against the little people, not hero producers, even if sometimes one of them is thrown to the wolves.
MogdenThe turning point was Enron and the collapse of Anderson.
propertiusI’m quite afraid this one won’t be over until some billionaires have bullets in their skulls.
Roman BerryA couple of years ago, I wrote that I didn’t know whether I was proud or ashamed that investment bankers weren’t dangling from the lampposts along Wall Street.
I’ve since decided I’m not proud.
K AckermannSometimes I feel as if I need to step away from news and information. I envy the blissfully ignorant. There is just so much that is wrong layered on top of so much else that is wrong, and I find the foundations of things I believed in to either be crumbling or perhaps illusory. It’s not an exaggeration to say that at times I find myself vacillating between dismay and anger to near tears. I think that’s because in the face of it all, I have come to believe that I am near powerless to do anything to set it all right. And if I can’t do anything to set it all right, then surely blissful ignorance is a better (or at least less stressful) choice.
Our politics and our system of laws seems utterly corrupt. And promises of change wind up delivering just more of the same. I no longer believe that these issues will be fixed through the ballot box. I believe that we are to the point that we will have no alternative but to tear it down and build again. The old structure is rotten to the core.
BlissexI hear you.
I find myself hoping something big will happen… hoping for some critial mass to say, “Enough! Smash the system!”
I watch the protests in Greece and think, I know how to make chloroform. I could make all those police take a nappy nap with one good throw. Save a few cracked heads.
K Ackermann«Sometimes I feel as if I need to step away from news and information. I envy the blissfully ignorant. There is just so much that is wrong layered on top of so much else that is wrong, and I find the foundations of things I believed in to either be crumbling or perhaps illusory. [ ... ]
Our politics and our system of laws seems utterly corrupt.»On my usual theme that it is voters who are corrupt, here is a very revealing quote from Newt Gingrich from some time ago, one of my favourite quotes:
http://classwebs.spea.indiana.edu/bakerr/v600/a_new_look_at_environmental_poli.htm
«In Germany on the Autobahn there is no speed limit. If tomorrow the Bundestag adopted a 100km, or 62-mph speed limit, virtually every German would obey it. Until, that is, the next election when they would wipe out the current politicians and they would elect the “No Speed-Limit” Party.
Now this is a significant insight that American reformers have neglected for 30 years, and is the great mistake of the Great Society and everything that followed it.And I don’t want to offend anybody, but let me suggest to you that the American cultural response to the challenge of speed limits has been dramatically different than [sic] the German one. For most Americans speed limit is a benchmark of opportunity. This is not a light insight.
If you have a society where almost every middle class person routinely fudges the law, that’s telling us something. We have laws that matter-murder, rape, and we have laws that don’t matter. Speed limits are an example. Why would you think that a regulatory, process-oriented bureaucratic model would work?»
I think that in this quote Newt Gingrich is being descriptive, more than approving, of Usian culture.
But clearly this is a worldview that is behind the “don’t make waves” approach of recent federal prosecutors.
I wonder also how many of your remember the case where the Bush administration removed several district attorneys, where many/all of them had a reputation for investigating crimes by politicians even near elections, instead of doing the decent thing and burying the cases.
anon48“It’s the voters who are corrupt”
You’ve got to be fucking kidding me…
Joe RebholzBliss: “On my usual theme that it is voters who are corrupt”
Sorry, but I think Roman’s first paragraph is somewhat more accurate. It’s a favorite rationalization employed to avoid responsibility for actually trying to do something. At least, from my own personal experiences. So corrupt- no. Willfully ignorant- a more likely description.
MasonboroThere is only one solution to your near dispair besides withdrawing from the world. You said you felt “nearly powerless” to do anything. There is hope in that “nearly”. We are all “nearly powerless” but if enough people see, like we do, that the present system needs radical change we can work together with sites like Naked Capitalism to spread that idea and ideas about how to change the system and what to change it to. It’s bleak right now. But one way or another this system must and will change.
My solution to a similar dispair, which tends to occur whenever I read Chris Hedges, is to continue to read Naked Capitalism and the comments and similar sources so I can effectively participate in the peaceful nonviolent revolution that will be necessary to create a better system. The first step in a revolution is to realize that we need one. The second step is to banish the idea that it can’t be done. You have already taken the first step.
WK“I believe that we are to the point that we will have no alternative but to tear it down and build again.”
My sentiments exactly.
Jim
BlissexAs Yves eloquently put it, this article depicts the continued slide of the United States into banana republic status. The key question becomes the tipping point when Americans in large numbers say enough is enough and begin to organize. But indeed the power structure in this country is and has been corrupt, and I suspect the DoJ policy change had everything to do with finance cartel influence or pressure not to prosecute Wall Street. But as the rich get richer (and the poor get poorer), the banana republic identification becomes more valid with the passage of time. People get outraged about injustice with Casey Anthony yet they are not bright enough to identify or act on injustice with the largest perpetrators of injustice today, the global finance cartel and the power brokers in NY and DC.
appointmetotheboard«the continued slide of the United States into banana republic status.»
Another type of plantation republic: Dixiefication is the name of the game. A lot of “Southern” values have gone national.
«The key question becomes the tipping point when Americans in large numbers say enough is enough and begin to organize. But indeed the power structure in this country is and has been corrupt,»
The power structure in the USA has been corrupt for hundreds of years. As a major investor once said in an interview, in the 19th the USA did not have the rule of law.
The development has been that voters, which are now almost all propertied and landlords, think that they have joined the rentier upper class and have become accordingly corrupt.
It is more likely that the USA will devolve towards a mass-kleptocracy political culture more like Argentina or Greece (or even Lebanon) than a truly banana republic style one.
Yves SmithIts been a depressing week of blogs. This, and the NYT Rich article about Obama just makes you think there is no democratic alternative. You need a third way, but the system doesn’t really allow for a third party. And even then, you wonder if that would be some sort of Donald Trump tea partier. Where’s the next Huey Long..?!
doomAlan Grayson’s role model was Huey Long, and since Huey Long wound up dead, when I first heard that, I figured Grayson had a self destructive streak. Although Grayson did a rather spectacular job of shooting himself in the foot with his “Taliban Dan” ad, he was probably going to lose because he was targeted by out of state Republicans (tons of big dollar donations to his opponent) and Grayson had a manner that rubbed a lot of women voters the wrong way (he always polled badly with them).
Yves SmithHe is a genuinely irate fellow, sincerely motivated to take up torch and pitchfork. The bulk of his assets are claims on a fraudulent fund.
doomActually, he’s self made, and his money came mainly from a business venture. Was a Fried Frank attorney in government contracting (normally a backwater) and made a ton of money starting up a phone card business.
See this from Vanity Fair:
http://www.vanityfair.com/politics/features/2007/11/halliburton200711
vladeHe did, IDT was a bonanza, but (I can’t seem to get at it now)
http://www.opensecrets.org/pfds/CIDsummary.php?CID=N00028418&year=2009
I seem to recall 20+M in claims on Derivium in his asset disclosure.
Business insider says it’s 34M, more than half his upper asset bound.
http://www.businessinsider.com/rep-alan-grayson-ponzi-scheme-victim-2009-7
Whether it was actually a Ponzi scheme I don’t know, or whether that affects his prior withdrawals. But if it was me I would not have the patience to nobly sublimate my displeasure as a legislator, there would be blood on the moon.
PatHow about doing away with all that voting stuff, and going back to what democracy really meant for Athenians? That is, switching to sortition instead of elections?
The argument that politicians are “professionals” who would be better than a semi-random man-on-the-street is pretty weak, I believe (at least, the larger sample of potential voters you have). Keep civil service to implement things, but otherwise…Or, alternatively, if you don’t like the randomness, go for something like Venetian’s had for their Doge elections – including electing president (instead of Doge) for a very long time, and preventing anyone connected to him to be the next one.
Michel DelvingThere are many, many thick volumes of codes and caselaw covering securities regulation and fiduciary duties of corporations and corporate officers. Yet the laws sit unused and useless and there have been almost no prosecutions in the midst of the greatest financial fraud in history. Why?
I have two explanations for this sorry state of affairs: 1) the idea that prosecuting corporate crime is bad for the stock market, and thus the economy and 2) the rise of the Republicans and the politicization of the enforcement agencies.
There were maybe a thousand convictions during the S&L scandal during the early ’90s, with lots of convictions of bank officers for fraud, for the exact sort of activities that we have seen in the 2004-2008 period, such as knowingly making bad loans to pad short-term profits. And in the 2000s, up until about late 2001, there were numerous civil class actions and criminal prosecutions against a variety of companies, not just Enron and Worldcom but a whole range of tech and biotech companies. Almost every day there were announcements of class actions for crashed stocks and pending charges of insider trading. Then in about 2002 and 2003 the actions almost completely disappeared.
Why? One explanation was that the stock market was going up again so there was no financial losses anymore. Another explanation is that insiders wised up and stopped overt insider trading and instead took their money in the form of huge paychecks. But at the time, in 2001-2002, there was a widespread perception in the financial news outlets that it was actually the lawsuits that were responsible for making the markets tank, and not the illegal activities themselves. Somebody, such as the banks, big brokers or the White House, must have applied pressure on the lawyers and the SEC to knock it off, so that the stock market could proceed without these pesky scandals. Lerach, the leader of the class actions, was quietly disbarred and put out of action. The SEC did virtually nothing after Martha Stewart, Enron and Worldcom. (Those who follow the 911 issue will remember that most of the evidence for criminal prosections were stored in Building 7 of the WTC, which mysteriously collapsed that day despite not getting hit by any airplane.) And what do you know, with nothing but good news in the papers, the stock market just happened to take off and kept rising until 2007.
And it is also no coincidence that the rise of the Bushes and their penchant for politicizing government agencies and de-fanging regulatory agencies also greatly contributed to the lack of enforcement by the SEC and DOJ. Some commentators argue that there is a mismatch in resources between the two sides, with the government agencies being outgunned due to low government salaries. But this was not true in the S&L crisis, or even during the prosecutions in the early 2000s. If the state really wants to get someone they can and did. There are thousands of able and willing lawyers who would work for government pay of $80k per year, and if you hire enough of them you can get convictions if you wanted to. All you have to is recycle some of the S&L lawsuits and substitute one set of facts for another. What has instead happened is that a decision has been made at the top not to do any prosecutions. Regulatory captured has occurred at the SEC and DOJ, who are now mere obedient lapdogs of the White House and the big banks.
The “hands off policy” did not start in 2008, it started soon after Bush took over, in 2002 and 2003.
ReplyBlissex“The Revolution Will Not Be Televised”
Gil Scott-Heron R.I.P.
Responsbile bloggers tell the truth. Depressing as all hell it may be, people are on to the big picture now before us.ambrit«But at the time, in 2001-2002, there was a widespread perception in the financial news outlets that it was actually the lawsuits that were responsible for making the markets tank, and not the illegal activities themselves. Somebody, such as the banks, big brokers or the White House, must have applied pressure on the lawyers and the SEC to knock it off, so that the stock market could proceed without these pesky scandals.»
That’s basically the industrial policy of the USA in the past 30 years: pump asset prices up via an expansion of the financial sector, to enrich the few and create make-believe jobs, to avoid massive unemployment.
In addition this policy has been enthusiastically endorsed by most voters who have been bribed with modest assets in real estate and in shares.
This was planned, here is a “smoking gun” quote by Grover Norquist:
http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699
«The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”.
And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.»
Every middle class “F*ck you! I am fully vested” voter wants to be rich and retire in luxury to a McMansion. Jerks who want to undermine that dream by enforcing stupid laws are not welcome.
The voters are as corrupt or more corrupt than the elites…
BlissexMy Dear Blissex;
I would counter with the observation that the ‘Commons’ have been indoctrinated over the years to want to be elites themselves. This society wide Stockholm Syndrome has had the “intended” effect of neutralizing popular reform tendencies. Note the ‘pandering to the base instincts’ policys of the Mainstream Media. Charles Foster Kane is alive and well. To paraphrase the original: “You send me the charts, I’ll supply the policy.”
Jim A«have been indoctrinated over the years to want to be elites themselves.»
Ahhh that has been part of the story, the other part has been that the irish/italian/jewish working classes that supported the New Deal politics abandoned them when after the black revolts of the 60s-70s and becoming property owners they started to see themselves as fully vested.
But your word “indoctrinated” has a terrible connotation: that voters somehow cannot be trusted to think with their own head, and are easy prey of manipulation, which is a common position among progressives.
Sure that can happen, but in a republic/democracy either the voter remember that the price of liberty is eternal vigilance, or else they get what they deserve.
Many people think that republican democracies have as goal or consequence to ensure good government, but that’s false: their signal goal and consequence is to ensure that voters suffer the consequences of their political choices. This may lead to better government, but it might not if the voters are corrupt themselves.
Good government cannot be achieved by any institutional arrangement; the alternative, seemingly beloved by Brad DeLong, of government by centrist technocrats, is just a rebranding of government by philosopher-kings of Plato, and has not much plausibility.
Again, the only hope is for the majority of voters to be eternally vigilant, including resisting indoctrination, and to look carefully after their long term interests, without being corrupted by short term temptations.
That’s a pretty ambitious set of requirements, and the problem in the USA is that voters seem to think that in the new plantation economy most of them are going to be masters or at least trusties, and vote accordingly. Too bad for them and for those that are on the same boat.
Two major pieces of evidence: USA voters have massively endorsed the PATRIOT act, the invasion of IRAQ, the TARP and other facilities by re-electing those who passed those laws. All of those are on their heads.
BlissexIMHO part of the problem is the false equivlance that business = current management. Because when you fall into that mistake, the idea that fleecing stockholders, bond purchasers indeed anybody who a company has business dealings with is just a short jump away.
The problem isn’t the very idea of prosecutorial discression. After all, prosecutors make decisions based on the chance of success, the resources involved in taking a case to trial, the deterrent value of a conviction vs the cost of a trial and incarceration all the time. The problem is that financial crime are regarded as somehow if not “victimless” than as “they had it comming.”
They all signed the contract, after all. As if all the parties agreed to material misrepresentation and insider trading. As if government bailouts when the counterparties are connected somehow make the victimization disappear, instead of making us all victims.
one Dave Chapelle is more insightful than the entire NYT ed. board«The problem is that financial crime are regarded as somehow if not “victimless” than as “they had it comming.”»
In part it is because financial fraud is a wholly American value, where most voters think that it is immoral to leave suckers their money (even if those suckers are themselves, so many Usians are self-hating losers).
In part though it is that in every stage of social organization the actions that are most difficult to prosecute are those performed by the dominant elites, and those that are easiest to prosecute are those of which the elites are afraid.
In the current climate it is surprising that securities fraud is still considered a crime, instead of being merely unenforced.
In more “advanced” countries like Italy activities performed by the prime minister such as accounting fraud, bribery of officials and tax evasion have been largely decriminalized outright. To some extent that’s more honest than having unenforced laws.
Independent Accountant“. Would you ever hear a prosecutor say, “Gee, we better not bust that drug dealer. His mom would be distraught, and think what it would do to his kids”?”
http://www.comedycentral.com/videos/index.jhtml?title=tron-carter-s-law—order&videoId=219426
engineer27YS:
This is an old story. It goes back to 1986 with the creation of the federal sentencing guidelines. Where has Morgenstern been for 25 years?kravitzPerhaps prosecutorial forbearance is merely a form of blackmail being enacted by the executive branch (one could make the same argument about regulatory forbearance as well), either for the personal gain of people within the administration, or as a general power grab by the executive.
With a recalcitrant congress and a fickle public, it might be tempting to employ the threat of future prosecution to strongarm key players in an industry to “voluntarily” implement a preferred policy that congress is unlikely to enact into law.
I’m not sure which is worse — that public officials are completely under the thumb of business; that public officials are doing the “people’s business” through strong-arm tactics rather than rule of law; or that public officials are solely self-interested actors that violate public trust, rule of law, and ethics to promote their own interests.
PatrickSomeone’s next spouse, Cotillion conversationalist, golf partner, employer, neighbor, kid’s date, etc come from families of banksters. It’s no real surprise that federal prosecutors don’t really want to put anyone in jail. They’d hear about it the next time they were scarfing a cocktail hot dog at a rooftop party in the HighLine. Embarrassing. Just like the law someone in NY wants passed preventing perp walk photos. Since more … um … non-minorities (yeah, that works) are banksters, those photos would be rather unwelcome beside the kiss-up photos in society pages.
jcbMeanwhile the prosecutors make hay and headlines charging the likes of Barry Bonds, Marion Jones, and Roger Clements with lying about taking drugs. Now I don’t condone lying and some of our celebrities are as entitled as their Wall Street counter parts. But when the corporate types are responsible for the financial ruin of millions of people by fraudulent behavior the DoJ looks the other way and Obama slips them a few billion to help them on their way.
One rule for the people, an entirely different one for the bosses.
When money talks, the perps walk.
Susan the otherYves,
You are one of the most cynical bloggers out there. (Justifiably so, in my opinion.) But even you are not cynical enough when you write this:
“American business is hurt by the failure to investigate corrupt and potentially criminal activities. The failure to go after bad actors puts the good guys at a competitive disadvantage.”
This is not primarily about the economic efficiency of the entire business sector. It is about stress reduction of managers. Knowing that the Feds will be understanding of any peccadillos means not having to worry about being second-guessed by outside authority as you try to maximize profits for your shareholders. This, not concern with the welfare of the entire sector, is why it is preferred by individuals running businesses. Autonomy.
Given the logic of free enterprise competitive capitalism I’m not sure that this is not a rational calculation.
Wrath of the RegentsComplex societies fail. They instigate prosecutorial loop holes. Tax loop holes. Everyone is greedy and dishonest. Everyone hallucinates. The need for honesty and good faith is removed because all the laws and, yes, regulations, undermine just this underpinning to a functioning society, which underpinning is: we have a fair social contract which we agree to. But we don’t agree when the contract has been so consumed by mold that it crumbles. So we don’t agree on anything these days. It is a monster of a mess. And everyone and their dog can find some legal out. It is very depressing. Here’s what we all have to remember – we need each other. When the shit hits the fan, all we will have left is what we started with – each other.
Anonymous Jones‘All those hired during the Bush Cabal, still work for the justice dept, except Gonzales. ‘ Banks Good! Jesus Good!
Work Sets you Free!
ThomasGreat post. Vigilance is key. If you don’t have checks and balances and you don’t have motivated overseers (in a web that works to check the overseers), the system will devolve into corruption. It is difficult to investigate the history of human societies and come to another conclusion, I think.
Cedric RegulaMy personal favorite quote from the article was, “Alisa Finelli, a spokeswoman, said deferred prosecution agreements require that corporations pay penalties and restitution, correct criminal conduct and ‘achieve these results without causing the loss of jobs, the loss of pensions and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it or were unable to prevent it.’”
That innocent victims have ALREADY lost jobs, pensions, and faced “significant negative consequences” seems to beyond comprehension here. I wish I could say it’s incredible how obvious their obliviousness is, but this is standard operating procedure.
Yes, why put white collar criminals in white collar jails and suffer the indignities of the electric vibrator chair, caviar past its “best consumed by” date and commoner high end busted escorts (ones that don’t even have a fake european accent).
They will just associate with other white collar criminals and learn to be better white collar criminals and develop a network of white collar criminals once they are released back to society in 90 days.
Better to let them cope with society as they see fit like the rest of us.
Egads. I am starting to sound like such a libby.
We should also consider that being interred for 90 days does give them ample time to sign the next Q report once they are released back to their jobs, but not to read it.
So we are now dependant on corporate control fraud culture to have adequate inertia to survive an entire quarter, with out the big guy at the helm.
That gives me cause for concern.
HughAlmost forgot. Confining someone like Mozilo to a tiny suntan booth for hours on end is unhealthy, could be considered torture – sort of like water boarding without the beach, and there was a proposal to tax sun booth usage in one of our “balance the budget” plans. If one’s tax accountant fails to find a loophole here, that could certainly drive one into insanity.
That the Anti-trust Division at Justice became moribund under Bush was well known at the time. As far as I can tell, it still is.
Comey’s role is interesting. He was portrayed as a kind of hero for refusing to re-authorize Bush’s illegal wiretapping episode. He was the acting AG during the famous attempt by Gonzales by White House Chief of Staff Andy Card and White House counsel Alberto Gonzales to get Ashcroft to sign off on the program while he was in the hospital with gallstone pancreatitis. But as some of us pointed out later, Comey otherwise endorsed most of what Bush was doing at the DOJ. This is another example of it.
It is also another example of what I call the Mukasey principle, which now also applies to the Obama Administration, and that is no one would with a shred of integrity would work for either Administration.
There are various levels of inspectors general. Even those with greater independence tend not to be very aggressive. Those that are generally don’t hold their jobs for very long. So when an inspector general criticizes anybody or anything, a good rule of thumb is to multiply the severity of the problem by 10.
Economist's ViewThis is beyond disappointing:
President Looks for Broader Deal on Deficit Cuts, by Carl Hulse, adn Mark Landler, NYTimes: Heading into a crucial negotiating session on a budget deal on Thursday, President Obama has raised his sights and wants to strike a far-reaching agreement on cutting the federal deficit as Speaker John A. Boehner has signaled new willingness to bargain on revenues. ...The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare and Medicaid.The intensifying negotiations between the president and the speaker have Congressional Democrats growing anxious, worried they will be asked to accept a deal that is too heavily tilted toward Republican efforts and produces too little new revenue relative to the magnitude of the cuts. Congressional Democrats said they were caught off guard by the weekend White House visit of Mr. Boehner...Officials said Mr. Boehner suggested that he was open to the possibility of $1 trillion or more in new revenue that would be generated by addressing tax issues already raised in the talks...One source familiar with the talks said the speaker had put forward options on how to proceed, including making a commitment to a tax code overhaul that would lower rates while closing loopholes, ending deductions and instituting other changes to generate substantial new revenue. ...I can't imagine why they're worried (and this doesn't even mention the increased risk to the recovery posed by larger budget cuts):
In debt talks, Obama offers Social Security cuts, by Lori Montgomery, Washington Post: President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending. ...Rather than roughly $2 trillion in savings, the White House is now seeking a plan that would slash more than $4 trillion from annual budget deficits over the next decade...That would ... put Obama and GOP leaders at odds with major factions of their own parties. ... It is not clear whether that argument can prevail on Capitol Hill. ...Asked to comment, Boehner spokesman Michael Steel would say only that “there are no tax increases on the table.”And:
Meanwhile, another senior Republican on Wednesday signaled a new openness to raising taxes..., so long as the final deal does not raise tax rates or overall federal tax collections.How absurd is that? What they mean is that they are open to redistributing taxes, but not raising them (and even for those who are willing to give a little on the revenue issue, redistribution still appears to be the larger goal -- and note that there is further redistribution through the reduction of government programs that serve those in need). Close loopholes in return for cutting taxes on the wealthy, that kind of thing. I wonder who the winners would be when all is said and done?
“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” Cantor said... Even as Cantor cracked the door open, however, Senate Minority Leader Mitch McConnell (Ky.) slammed it shut, reiterating the long-standing Republican position that policymakers should consider eliminating tax breaks only as part of a comprehensive effort to rewrite the code and lower income tax rates. ...Revenue enhancements are supposed to support key social programs. Instead, they are put on the chopping block in trade for more revenue (which means no new revenue according to many Republicans). Yes, we have issues to address with the growth of health care costs, but I hope people realize that the hole in the budget caused by the Bush tax cuts alone is larger than the projected Social Security shortfall.
Defense cuts are not mentioned in either story.
Michael Zoran:
I have a disability with epilepsy where I cannot drive. This is responsible for my lack of employment, since I live in a small town without public transportation. There is nothing within walking distance of where I live. My only source of income is from Social Security.paineI placed myself $30,000 in debt with student loans because I listened to lying counselors who said it would be easy to find a job online if I attended college online. I earned a Bachelor of Science in Business Administration with a minor in Process Management. I also earned certifications in Time Management and Human Resources. I even am a Microsoft Office User Specialist in Word, Excel, and PowerPoint.
However, I cannot find work online. The online colleges told lies about finding employment online. All they want is your business. I’ve even tried to start entrepreneurial businesses online, but they have failed.
I'm very disappointed to hear that my #1 man -- President Obama -- would even consider cutting Social Security income. Social Security represents the only source of income for disabled people and hard-working retirees who worked hard their entire lives as dedicated tax payers in the American economy.
But we need to be realistic. The one and only reason why President Obama would suggest cutting Social Security and Medicare is because those wealthy Republicans are forcing him to do this because they refuse to negotiate with him. The Republicans have the selfish belief that if they receive higher taxes for earning higher levels of income, it means they are being penalized for doing their job as successful capitalists.
Wealthy Republicans do not realize the full scope of what they are doing by cutting Social Security. If my disability income from Social Security is reduced, I may need to get a part-time job at a local restaurant or grocery story in order to receive extra income. The problem is, it is illegal for me to drive and threatens the life of others on the road. Think about what would happen if I had a seizure while driving and ended up killing one of those wealthy Republican families. The wealthy Republicans are too 5th-dimensionally near-sighted and selfish to think of things like that.
The simple fact of the matter is that the wealthy Republicans earning more than $250,000 per year can in fact afford to pay higher taxes in order to help our country get out of debt. Another simple fact of the matter is that those receiving Social Security income absolutely cannot afford to have that income reduced.
When wealthy Republicans receive a higher tax level, it means they may be forced to attend a smaller number of professional sports games each year. It means they may be forced to buy a 35' boat instead of a 40' boat. It means they may be forced to buy a $400,000 house instead of a $500,000 house. It means their children may be forced to attend a community college for a couple years instead of an incredibly overpriced Ivy League school.
When those receiving Social Security receive any form of cut, it means they will no longer be able to afford basic things such as food! It means they will no longer be able to afford basic things such as transportation!
We cannot allow anyone, Democrat or Republican, to allow any form of reduction in Social Security to occur. President Obama has done an excellent job as President so far -- he saved the auto industry; he restored the stock market; he revived the banking industry; he even invaded Pakistan without permission in order to successfully kill the most wanted terrorist in history! President Obama has even won the Nobel Peace Prize, and rightfully so since he was able to do things like keep Pakistan as an ally and continue killing off those terrorist leaders.
The solution to this problem with Social Security cuts is to take the focus off of President Obama and make it 100% clear to all senators and representatives that anyone who votes in favor of reduction of Social Security will not be reelected at the next election!
Now is the time to start writing to senators and representatives in order to let them know they will not be receiving votes if they decide to support a reduction in Social Security! Remember, tomorrow is the devil’s favorite word! Take action today!
Do not just “pray” to God and ask Him to keep Social Security the way it is. Remember, 1 Corinthians chapter 15 talks about how God does things through the natural, and then the spiritual. In other words, don’t pray to God for something unless you plan on doing your part to acquire what you are praying for.
If you want God to answer your prayers to maintain Social Security, you need to take action today by contacting your local senators and congressmen. Make sure you point out the fact that your vote represents a form of political violence that you will take against them if they are willing to selfishly take income you desperately need to survive!
For the record, I have recently written a very successful article I am very proud of on my blog. This article is titled: “Boycott of Casey Anthony Starts Here – Sign Up Now!” The article asks you to write a pledge to boycott any product or TV show that attempts to generate any form of financial gain from the death of innocent little Caylee Anthony.
As an act of faith to confirm your loyalty, please write a Comment as a pledge to confirm your desire to boycott anything associated with a financial gain from the death of Caylee.
Here is a hyperlink to that article: http://controversy.typepad.com/controversy/2011/07/boycott-of-casey-anthony-starts-here-sign-up-now.html
Lot’s of people have already taken this pledge to boycott anything associated with a financial gain from the death of Caylee Anthony. This has already helped Caylee receive the justice she deserves. Today I learned that a pornographic company has officially withdrawn their offer for Casey Anthony to star in an XXX-rated movie. The pornographic company specifically said that they “Now realize people want nothing to do with her and that includes an XXX movie.”
This means the plan for a large number of people pledging to boycott products, retailers, and distributors who try to financially gain from the death of Caylee Anthony is working. By grouping your personal pledge to boycott in the same place as everyone else, it gives us bargaining power to threaten publishers, retailers, and TV companies if they try to gain financially from the death of sweet Caylee Anthony.
Please take the time to write your personal pledge to boycott. Just visit the website URL listed above. Thank you very much for helping Caylee Anthony gain justice in this way. Nobody should be allowed to gain financially from her death, and if we work together as a team we can make that happen. But each of us needs to do our part as an individual. Thank you again for doing your part.
"help our country get out of debt"paineu actually believe that's what's up here ??
long comment obviously earnest
but ..well
the jacobeans called that
being "gulled ""take the focus off of President Obama and make it 100% clear to all senators and representatives that anyone who votes in favor of reduction of Social Security will not be reelected at the next election!"Ron
that is however sage advice indeedbut to be a threat it has to be organized and that's best done by the people's wing of the party itself with its donor base behind it
ie unions
the attempt to knock off the lincoln log in arkansas was a paradigm case
better of course to take it to the general election and pick a real people's Democrat
as candidatei agree with a strategy that leaves the ohbummer in place and punishes the corporate wing of the party in congressional elections that and state level referenda oughta be the agenda for ballot boxed in citizen activists
and of course referenda are far far more useful indexed wages laws and tighter hours laws
on the job free speech and self organizing rights and .....last but not least
state wealth taxes !!!!
"but to be a threat it has to be organized and that's best done by the people's wing of the party itself with its donor base behind it"derangedlemurInteresting that people can organize via social networking in Egypt and Libya, but not the US.
Traditional organizing environments have been churches (remember when evangelicals were socialists - from history that is - before our time), unions, and college campuses. Now we do have the Tea Party. There is nothing to prevent ten thousand union workers, African American protestants, Quakers, students, and Unitarians from joining their local Tea Party of two thousand white Southern Baptists. Democracy works by the law of large numbers.
However, that agenda might need a little moderation in order to fly. If people actually talked and listened, like Wilson, across their fences then the distance would be far less.
Maybe Obama doesn't like being president, which would be handy for him, since I can't see him getting the gig again with this attitude.painehey they got yelsin re electedRonyou forget he's carrying wall streets water here
and some one goper has to beat him
in a face offname that goper
There might be one or two goper that could. But of course that is why they are not going to run in 2012.Stephen KrizWhat happened to the Democratic Party? They used to stand for something. I will be voting Green or Socialist Party in the next election, as I cannot be an accomplice to the gutting of the social safety net in order to unjustly enrich the wealthy and corporate interests. We are well down the road to fascism and it is stunning to see that it is a Democrat driving the bus....paine"What happened to the Democratic Party?"
1968 and 1972
beezerSo it's down with the New Deal and up with the Raw Deal.ilsmThe GOP at it's core has always fought against social spending. If you don't have the money it's your own darn fault. Stop pestering real folks with ideas about national insurance or national retirement plans.
Up until (relatively) recently most voters knew that effective social safety programs were important and worthwhile. No longer. It's been a long slog, but a persistant GOP, utilizing a serious recession and a weak Democrat in the White House, has a golden opportunity to unwind that social spending embedded in the New Deal philosophy.
Obama should say 'No Deal' to the Republican's Raw Deal but it appears he wavers. Cripes, even the conservative Pete Peterson says raise the payroll cap and SS is solvent for forever. http://www.csmonitor.com/USA/Politics/2011/0706/Federal-budget-mess-Six-ways-to-fix-it/Bipartisan-Policy-Center
If Obama continues to fold on FDR's New Deal and LBJ's Great Society, the efforts of three generations will be unwound. A tragedy built upon a farce.
The party has been offing the New Deal since 1935.
FDR saved the party from the rope.
paineno 1937ilsmthe landslide of 36 started the garner reaction into motion
the cotton jim crow dems joined the gop rump and blocked most of the new deal long enough
once the arsenal of democracy replaced the new deal as priority
it was all just a matter of time and kold war
america's century was not going to be about
spreading and deepening
de factodomestic social democracy--apart from the brief and lovely
post dallas nov 63 indian summer ofsocial gospel decency --and pushing a "stay home yank" foreign policy
hardly had a place in either party core
if that party wanted serious donorsSocialism is for blowing things upbeezer
More than for the aged keeping up
Tell us it is to keep Tojo or Imams away
While the laborers are the ones to pay
Have a boat the military trough is upAnd as a subplot the economist profession is discovering (again) that morality does matter. A world constructed on 'taut' optimal models, it turns out, isn't a very nice world at all: It's efficient but not effective.beezerI'm not an economist, Paine, but my sense is that social welfare programs are very effective, but criticized endlessly by economist's as being, somehow, inefficient.paineThe same types of criticisms seeme to be levelled at full employment policies, unions, import tariffs, infrastructure programs, environmental regulation--in fact just about all regulation.
They are all tossed in the bin labeled 'sub optimal' for any number of economic models that 'prove' this.
If you want more revenue you raise marginal tax rates. If you want more jobs, you hire people. If you want to encourage growth industries, you provide them with cheap capital and protect them from foreign competition. If you want to protect legacy industries, such as high end machine mfg., you put up import tariffs to keep them at home. You want to encourage Apple to start actually making stuff in the US, you slap their imports with a tariff.
I don't think the economics profession has been very reliable in explaining how the real world operates and constructing models that result in what I call 'taut' or even elegant mathematical formulas has provided very poor economic advice for a long, long time.
all very trueLinda R.but the counters can be effective within the paradigm no need to go all moral on these clowns
the micro of joe stgilitz implies all of these assumptiions by neo classical parasdigm hacks are bogus non science
at best logical toys of mass deception
beeze
you want a comprehensive
industrial policy ...bravoso do lots of progessive folks
the last time we had one was the arsenal of democracy
-- some say the NRA was the only real full blown INDUSTRIAL POLICY ..fair enough ---okay we had a partial one after
the kold war hit warp drive
post nsa 68the point remains we as global hegemon have sublated our narrow national interests
since 1945 uncle sam has more or less
operated official policy
with the larger earth wide interests of our multi national trans border corporations
upper most in his mind
in fact so much upper most even secondary mnc concerns trump primary domestic job class concernsto pull this of within the formalities of a two party liberal democracy
is really quite a fete ..no ??housing a totalizing security state
completely inside
a liberal state
like a matryoshka dollthe mind gapes
and rattles itself
in an aweful tremblingWell, they've always said it would take a Democratic President to kill SS and Medicare...paineObama has purportedly already agreed to an 85/15 split, cuts/revenues - an unacceptable capitulation in itself.
Republicans are insisting on spending cuts - SO THEY CAN CUT TAXES IN A "REVENUE NEUTRAL" WAY. They want to TAKE MORE from the bottom 80% of us in order to GIVE MORE to the wealthy. That pretty much proves that paying down the deficit, "saving" our children and grandchildren from that burden, is NOT their goal.
He did not try to negotiate a compromise with Osama bin Laden or al Qaeda. There is no point negotiating with someone whose primary, **non-negotiable** goal is your destruction. And yet, he keeps negotiating with people whose goal is similar if not the same, albeit for different reasons and by different methods.
Past crimes have been ignored in the interest of "looking forward." Republican talking points, parroted by a Democratic President, have turned into foregone conclusions. The doable has become the enemy of the effective.
It appears that America chose the wrong person to deal with domestic hostage-takers. He told us we had to "make him" do what needed to be done. It appears that scream a lot, cry a little, demand 100% - or else! - gets him moving.
I wonder if we ALL, regardless of age, gender, and all the usual divisions, react swiftly and loudly to this... would it make a difference? Would Dems hoping to be elected in '12 understand that no district is safe if they go along?
This President has about 18 months left. We already know how much damage a President can do in 18 months. Been there, done that, not too long ago. If these stories prove accurate, it's time to think seriously about alternatives.
destruction ??Robno
more like cheaper by the hourThe democrats need to hire some expert marketing team and start chipping away at the idea that helping the wealthy will eventually be good for everyone. The idea is so counter-intuitve yet most believe it as fact. I believe that democrats vote for smarter democrats to lead them, but in the end, these brilliant men don't understand how the "everyman" thinks. There are studies in economics showing the market does NOT behave rationally, even in aggregate. Basically everything of worth is worth something because it is perceived as such. Start working on people's perceptions of social security and other social programs rather than thinking Americans are rational people and see their actual value.paine"start chipping away .."beezerrob that advice might have had some punch in....1870
The democrats need to hire some expert marketing team and start chipping away at the idea that helping the wealthy will eventually be good for everyone. The idea is so counter-intuitve yet most believe it as fact.beezerNot really. Ryan was booed loudly when he made that assertion at a Town Meeting in his own district. Our only hope is that the GOP sticks to it's obvious, in your face, destruction of Medicare and SS. If they do, they're gone in 2012.
Unless, of course, Obama joins them in this destruction.
Is Howard Dean available?ken melvinSurely. Whoever followed GWB was doomed to fail, but this is not the way to fail.Fred C. Dobbs'They' didn't want, wouldn't haveFred C. Dobbs
Howard Dean last time around, after
he went all 'Howard Beale' on them.I'd welcome him back in a minute.
Perhaps Obama does not appreciate that there will beken melvin
nasty political consequences for giving in to GOP
chicanery, or perhaps he doesn't want the job
anymore.We could be seeing a shift in the way we do our
governing, with the House Speaker taking on the
role of 'prime minister', leader of the House of
Commons, as it were. Not exactly how it is done
in most parliamentary governments, but close enough.
Anyway, the President retains a mainly ceremonial role.This would cost the Dems the Presidency, at least.
The Peter's writ large; he's simply not the man for the job. Absurd is this man negotiating anything. At this point, they are simply working him.WhateverGOP Good Cop, Bad Cop.beezer
Works on Obama the prisoner.
Or is he a hostage?Frankly, if you need a billion to run for President, you are very vulnerable to extortion.beezerThat said, pushing the GOP over the budget ceiling cliff will frighten the beejesus out of their cash base and the extortion could run the other way.
Better to have higher marginal rates, SS and Medicare than to see one's bond portfolio go into the sewer.
The question is can the GOP do anything about their position at this point? I think Boehner has lost any control over the crazies in the GOP.anneI think a technical default, at minimum, is in the cards but that's not yet fully appreciated by the investing public, much less the general public.
Obama should walk out now, and demand higher marginal rates AND closing loopholes. He should cast his lot with seniors and make it clear that's where he stands, firmly. He could demand, at the same time, that SS be given cost of living increases. I can't tell you how many seniors were pissed off in 2010 that they didn't get any cost of living increase--and blamed Obama.
Give the GOP some drill baby drill sop and they'll go home beaten but still alive politically.
He should do it now, too. That still gives the GOP cash cows time to exert the necessary pressure on the GOP. The party will be told to 'take the deal--whatever it is.'
Otherwise, I'm thinking Howard Dean has a pair.
Afghanistan, Iraq, Pakistan, Yemen, Libya, Somalia.... No matter, President Obama is willing to trade for Social Security and Medicare for wars and military occupations.Jerome TurnerNo Republican who dared to suggest cutting Social Security and Medicare could ever have been elected President, but we have a supposedly Democratic President to suggest just this.
I wonder if Mitt will keep the same decorating scheme when he moves in 2013, or if he'll change them?TracyI can't understand why they aren't cutting defense. I can't think of any reasonable analysis that would support our current level of expenditures. It does not seem rational
Grohowski says "municipal defaults rates will remain comfortably below 1%," adding that he's on the other side of the doomsday forecast by Meredith Whitney.
While he thinks a deal in Washington will be reached in time for the U.S. to make its mid-August debt payments as scheduled, Grohowski is actually underweight everything but municipals and TIPS (Treasury Inflation Protected Securities) in the fixed income asset class, including investment grade corporates, high yield and U.S. treasuries.
While Macke likens the "disproportionate power" of rating agencies to "3-year-olds with guns," Grohowski says they still play a role and you need to use them, but formulate your own view too. "Investors do understand that states and municipalities are under pressure and so you connect the dots and say, 'that's an asset class I shouldn't be in right now', and that creates an opportunity," according to Grohowski.
It doesn't take a derivative trader to see that 3-4% from a high quality tax-free bond is superior to 3% taxable on a 10-year treasury. Even so, Grohowski says "there will be more downgrades than upgrades effecting the principal value of bonds" and that investors now need to have the mindset of holding them to maturity. "You used to be able to ladder the maturities and be done with it," he says. And even though you can't do that anymore, doesn't mean you avoid the asset class (munis) all together.
Jul 04, 2011 | Calculated Risk
Recoveries following a housing/credit bubble and financial crisis are usually sluggish - so these numbers are not a surprise - but this is a reminder that the top priorities for policymakers remains jobs, jobs and jobs.
Employment Statistics (Thousands or Percent)1 May-11 Dec-07 Change Civilian noninstitutional population (16 and over) 239,313 233,156 6,157 Civilian labor force 153,693 153,936 -243 Total nonfarm Payroll 131,043 137,983 -6,940 Private Payroll 108,916 115,606 -6,690 Unemployment Rate 9.1% 5.0% 4.1% Unemployed 13,914 7,664 6,250 Part-Time for Economic Reasons 8,548 4,638 3,910 Marginally Attached to Labor Force2 2,206 1,395 811 Discouraged Workers2 822 363 459 U-6 Unemployment rate3 15.8% 8.8% 7.0% Unemployed for 27 Weeks & over 6,200 1,327 4,873
Feb. 14 2011 | Forbes
Last week, the federal government reported that the U.S. trade deficit grew by 33 percent in 2010 to nearly half a trillion dollars. Most of the gap resulted from an imbalance in trade with China, which shipped $365 billion in goods to America but only bought $92 billion in U.S. goods. The resulting U.S. deficit of $273 billion in bilateral trade with Beijing reflects a persistent feature of the Sino-American relationship since China joined the World Trade Organization in 2001. Over the last ten years, China has mounted the biggest challenge to the U.S. manufacturing sector ever seen, threatening producers of steel, chemicals, glass, paper, drugs and any number of other items with prices they cannot match. Not coincidentally, the United States has lost an average of 50,000 manufacturing jobs every month during the same period.
There are usually other things happening in the economy that obscure what China is doing to the U.S. industrial base. For instance, some of the job losses were traceable to steady increases in industrial productivity since 2001, eliminating the need for many workers. Last year’s increase in the trade deficit resulted in large measure from higher prices on imported oil (the average cost per barrel rose from $57 to $75) and a greater propensity of consumers to spend as economic recovery strengthened. Exports of services, consumer products and industrial supplies rose to record levels, even though imports rose faster. But when the impact of transient factors is removed it becomes clear that the underlying narrative of U.S. manufacturing in the new millennium is mostly a story of decline. Competition from China is rapidly eroding the industrial foundations of American economic power.
Amazon.com
D. A. Wolter "I shoulda knew" (Louisville, KY): Where to from here?, June 10, 2010
Being 76 years old I have been aware, incrementally, of the sea of greed and corruption our country has been sailing in for most of its history. It is very uncomfortable for me to admit that the crimes committed in the name of Democracy and Freedom are no more than propaganda, bought and paid for with the lives and blood of the citizens not privileged enough to be in the top $250,000/per year income bracket.
Our modern elementary education system teaches nothing that protects our kids from the perils and pitfalls of life under the military/industrial/financial/media complex that passes for government in my country.
"Gods of Money", shows that this corrupt system has been around for a long time and its existance cannot be justified by the day dreams of mythologists like Ayn Rand, or snake oil salesmen like Limburger.
I would only hope that this book sheds enough light on our hypocracies that the younger generation can use that light to reveal the path to true government of, by, and for the People of the United States.
Citizen John (USA): Warning - This Book May Cause Nightmares, January 28, 2011
A fiat currency unit stands for a politically backed promise to pay. This money is backed by the issuing government's ability to extract value from its people, commonly in the form of direct taxation. However, the author shows how debt is ultimately supported by debtors that should reliably support it - as long as they have collateral intact.
The key to increasing money power has been success at encouraging borrowing in geometric proportion to every new currency unit produced. This is easy to understand once you think about it for awhile, but there is something about it that feels unnatural to me.
Engdahl says the dollar system is in crisis because it is bumping into limits on what can be plundered (his words) to prop up the increasing debt holding intact the political promises to pay. In other words, for the system to keep functioning, the overall debt must continually increase. But at some point the debt load itself becomes too large to service and the collateral against which most of it was created has collapsed. This is the end game where the author says we now find ourselves.
Gods of Money blames the dollar crisis for worldwide inflation because it is the reserve currency. People in many parts of the world spend a very large percentage of their income on food. Inflation in such circumstances can trigger uprisings. The international response, according to Engdahl, has been to start preparations for trade regimes that don't use the dollar.
However, the book explains that these international responses threaten a small group of elites in the U.S. that may force a military showdown in defense of their money power. These warnings are a constant theme in all of Endahl's books.
P. Lowe Jones: Diabolical Debt Merchants, January 9, 2011
On December 10, 1974, the United States National Security Council, under the Direction of Henry Kissinger, issued a report entitled National Security Study Memorandum 200: Implications of Worldwide Population Growth for U.S. Security and Overseas Interests (NSSM 200). It was adopted as official U.S. policy by Gerald Ford after Brent Scowcroft reviewed it and recommended its implementation in National Security Decision Memorandum 314 on November 26, 1975.
These directives grew out of the 1972 President's Commission on Population Growth and the American Future, headed by John D. Rockefeller III. Richard Nixon, the acting President at that time, as well as all of the aforementioned people: Kissinger, Scowcroft, and Ford, were political puppets of the Rockefeller family and its oil and banking interests.
A few years prior to these events, Henry Kissinger is reported to have said to a journalist,
"If you control oil, you control nations. If you control food, you control people. If you control money, you control the world."
Based on that comment and its subsequent implementation worldwide, F. William Engdahl began a long-term research project which resulted in his authorship of various books dealing with each aspect of that power equation - one book per control factor.
His first book dealt with oil geopolitics and was entitled A Century of War: Anglo-American Oil Politics and the New World Order. His second book dealt with control of the global food supply and was entitled Seeds of Destruction: The Hidden Agenda of Genetic Manipulation. He wrote a slim volume in the interim dealing with the military mechanisms whereby the control over these various areas is ultimately enforced entitled Full Spectrum Dominance: Totalitarian Democracy in the New World Order.
Now he has turned his attention to the third and final aspect of Kissinger's alleged quote regarding control - that of the money supply. And once again, through insightful analysis and extensive experience in geopolitical observation, he has produced a book which is required reading for anyone seeking to understand the broad scope and elaborate detail of our current global crisis.
He takes us back to 1791 and the young nation's first national bank designed by the first Treasury Secretary, Alexander Hamilton. It was modeled on the privately owned Bank of England, and was itself mostly owned by private investors - 80% private, 20% government. Over the ensuing years, ownership of the national currency went back and forth between a Constitutional Congressional issuance of money and an Unconstitutional private for-profit issuance. These struggles culminated in the Federal Reserve Act of 1913, wherein the Federal Reserve was unlawfully chartered on December 23rd at 11:45 p.m. when most members of Congress were long gone, on their way home for the holiday season - as they had to travel by train at the time.
A relative handful of aristocratic families have greatly benefitted from owning shares in the private Federal Reserve corporation, while the overwhelming majority of Americans have suffered immeasurably. These families - Rockefeller, Morgan, Mellon, Pratt, Harriman, Vanderbilt, DuPont, Astor, Lehman, Warburg, Rothschild and others have held a monopoly on the wealth and liberty which this once-great nation originally endowed every citizen with. We've been robbed by the very same people we are taught to admire. They control the financial systems of the world, and thereby control the political systems, the military, the media, the education, the agriculture, the oil, and every other resource - natural or otherwise.
The first step toward correcting any problem is to become aware that such a problem exists, then to learn about the ultimate cause and its many symptoms. This book is a very valuable contribution to that learning process. Help other customers find the most helpful reviews Was this review helpful to you? Yes No Report abuse | Permalink Comment Comment
Ila France Porcher (REAL NAME): To Understand what Happened to the Economy, Read This!, December 7, 2010
Gods of Money--Wall Street and the Death of the American Century is an admirably researched work which describes the activities of the international bankers and financiers over the past century.
While his earlier book, A Century of War, focused on how power was gained through the control of oil, this one presents the effort to control gold, then the money supply, and how paper money evolved into ever more complex financial products.
The importance of wars in enriching the financial sector and destroying other nations developing potential strength, and how money has flowed around the globe with the different events of history are described in a way that is clear and easy to understand. How extraordinary riches have been made by using debt as a commodity, and manipulating interest rates, are made understandable in this extraordinary work.
Finally, the way the financial sector, now centred in five Wall Street banks, became so bloated that it had the power to topple the economy of the world and had to be saved by the tax payers of America is revealed.
This is a truly epic work which should be read by all, in the interests of self protection as well as knowledge.
07/01/2011 | zero hedge
NotApplicable
The man still is a known womanizer, pompus, lying, twitt with aspirations of Godhood. I would not leave him alone with my daughters.
His ego is large enough to bridge the difference between the office held and who he is. He believed himself to be IMF.
You've just described nearly every person who holds a position of power.
Who care if he is innocent in this one case?
You've just described nearly every person who doesn't hold a position of power yet appreciates perversion of the law if it suits their biases. Nothing like the promotion of corruption to engage the enemy, while writing it all of as karma.
Good Jorb!
(and yet some people wonder why the "rule of law" fails so spectacularly)
So, what does this do to your karma, Mr. Punish the Innocent?
falak pema:
Wait till DSK tells the world his version... it will make him rich...maybe even powerful if the admittance to lying is accepted by prosecution. Their whole case is built on her 100% bona fide character as honest muslim woman, no pre-record, and totally devastated state after alleged "rape".
Cyrus VAnce built his whole strong suit on this. Now this all falls apart...He will have to look for another career, he blew it bad as did the NYPD investigation team who were "dead" sure. They suckered us all, he may also have been suckered by those who pull the strings on this woman.
As for DSK; if this lying thing is confirmed he will be back free in Paris with a vengeance as Monte Cristo, no longer Edmond Dantes, the damned. Watch out Sarko!, watch out.
July 1, 2011 | The Big Picture
“While insiders are willing to use corporate cash to try to support the value of their stock-based compensation, they don’t seem to think their stocks are attractively priced.“
-Charles Biderman, Trimtabs
Over the years, I have been critical of Trimtab’s Charles Biderman (See this, this, this and this). I suspect much of the visibility his model was dependent upon to track investor money flows had disappeared into dark pools or derivatives. Thus, the ability to peer into mutual funds asset buying and forecast equity movements was compromised.
My critiques of Biderman’s research has been he has lacked the data to support his views, which were too bullish heading into the 2007 peak, too bearish during the 103% rally. Examples include a late 2007 comment that “Fear and ignorance seem to be gripping retail investors” (Doh!) or the April 2008 claim that the economy was emerging from the recession (Um, not exactly).
However, in a recent research report, TrimTabs seems to have some ugly Insider Buying data that supports their bearish views.
Biderman observes that while US firms spent $124 billion in stock buybacks in Q2, insiders bought less than $2 billion of company stock with their own money. That 70:1 ratio is a sharp contrast between “what insiders are doing with their own money and what they’re doing with the money of the companies they manage.”
July 01, 2011
The Wageless, Profitable Recovery, by Steven Greenhouse, Economix: Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
July 01, 2011 | Economist's View
BDL:Confessions of a Financial Deregulator, by J. Bradford DeLong, Commentary, Project Syndicate: Back in the late 1990’s, in America at least, two schools of thought pushed for more financial deregulation...The first school of thought, broadly that of the United States’ Republican Party, was that financial regulation was bad because all regulation was bad. The second, broadly that of the Democratic Party, was somewhat more complicated... Depression-era restrictions on risk seemed less urgent, given the US Federal Reserve’s proven ability to build firewalls between financial distress and aggregate demand. New ways to borrow and to spread risk seemed to have little downside. More competition for investment-banking oligarchs from commercial bankers and insurance companies with deep pockets seemed likely to reduce the investment banking industry’s unconscionable profits.It seemed worth trying. It wasn’t.Analytically, we are still picking through the wreckage of this experiment. ... Moreover, how to restructure the financial system remains unclear. ... And central banks’ failure to regard their primary job to be the stabilization of nominal income – their failure not only to be good Keynesians, but even good monetarists – raises the question of whether central banking itself needs drastic reform. ...It may even be the case that we ought to return to the much more tightly regulated financial system of the first post-World War II generation. That system served the industrial core well, at least as far as we can tell from the macroeconomic aggregates. We know for certain that our more recent system has not.Mark A. Sadowsky:
Brad DeLong follows in the footsteps of a giant:
“When the facts change, I change my mind – what do you do, sir?" - John Maynard Keynes
We have learned that deregulation was a horrible mistake. Now let's make sure we correct it.
kievite:
Keynes quote is by-and-large unapplicable to the USA economic profession. Here you need to follow the money.
kievite:
A relevant comment from another forum: http://www.nakedcapitalism.com/2011/07/what-sexual-favors-were-exchanged-so-that-clinton-and-bloomberg-pimped-for-the-8-5-billion-bofa-mortgage-settlement.html#comment-418772
The damn puppeteers behind all this kabuki must be getting tired as hell.
Its too bad they aren’t going broke as well or that we would have less shills for their cause.
They are still winning and none are in jail.
June 30, 2011
The New York Times reports that even though the forensic evidence makes clear there was a sexual encounter between the former head of the IMF, Dominique Strauss-Kahn, the prosecutors (!) have found the witness to have told enough lies to them to put their case in jeopardy. She may have connections to drug dealers and criminal rings.
From the Times (hat tip Scott):
The sexual assault case against Dominique Strauss-Kahn is on the verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper who charged that he attacked her in his Manhattan hotel suite in May…
Since her initial allegation on May 14, the accuser has repeatedly lied…Among the discoveries, one of the officials said, are issues involving the asylum application of the 32-year-old housekeeper, who is Guinean, and possible links to criminal activities, including drug dealing and money laundering….
Alain Maronani:
Yup…
“The conspiracy theorists in France will have a field day with this development. And I must say, with good reason.”
French, living in Montreal I was always convinced DSK was framed by political ennemies or financial interest (banksters…).
It is only the beginning…I know Africa a lot and the lady came from a country where young girls are routinely rapped at age 12….they know what to do in this situation…
I am pretty shure that even charge for sexual encouter will be also dropped. Everything has been set up from the beginning…
DSK has lost the possibility, to be a candidate for the next election in 2012 and I can not discount that secret service or political gangster working for Nicolas Sarkozy were behind this sordid affair.
May be “The Perv..” is back in business…
I will be the lady I will be now fearfull for my life…
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