The jobs bill is going to happen. The House will likely pass a bill in December, and the Senate will match in January or February after the health care bill is done. Rather than "if" it will happen, the major questions for the jobs bill are how large it will be, what will be in the bill, and how the bill will be funded.
Relating to the latter, I recently had a chance to ask Representative Alan Grayson if there was any legal barrier to using the remaining Wall Street bailout money to fund the bill. He did not believe there was any such legal barrier, and indicated that political barriers would be more significant.
The lack of legal barriers is virtually self-evident. TARP funds have already been used for a variety of non-Wall Street related projects, including the auto bailout and assistance for struggling homeowners. Further, the Obama administration has said it is interested in using some of the funds to pay down the debt, and using others to increase lending to small businesses. Clearly, there is a lot of flexibility in how the money can be used.
By proposing financial reforms that won't curb Wall Street excess, U.S. policymakers have offered an unacceptably weak response to our enormous financial crisis. If voters don't demand that their elected representatives help workers and consumers instead of simply boosting corporate profits, the economic downturn will last for several more years and leave the economy vulnerable to another bank-induced meltdown.
The banks have unbelievable lobbying clout. In an interview with Cenk Uyger of The Young Turks, Heather Booth, executive director of Americans for Financial Reform, describes how one-sided the Wall Street reform fight has been. Despite broad public support for a fundamental financial overhaul, going up against the bank lobby is, as Booth describes, "a David and Goliath fight." It's basically Americans for Financial Reform against every major corporation in the U.S.
Booth notes that the Chamber of Commerce has vowed to spend $100 million on a campaign to defend the "so-called free enterprise system"-you know, the "free market"-in which corporate lobbyists spend millions of dollars to write the rules of the economic game. Just seven financial lobby groups have spent a massive $147 million peddling influence over the past two years.
In fact, as Janine Wedel observes for Salon, the U.S. economic system is starting to look an awful lot like the clannish systems of government that looted Eastern European countries in the early 1990s. Today, the public good takes a backseat to the narrow interests of powerful corporations.
With the Obama administration working with advisers from Citigroup and Goldman Sachs, we're not just watching Wall Street write its own regulations. We're watching the financial sector re-write the official role of the government in the economy. In this new role, the government's top priority is securing profits for corporate America.
"The intertwined coterie of financial and policy deciders in the United States is creating not only the financial architecture of the future, backed by the power and billions of the state, but, more generally, new relationships between the bureaucracy and the market," Wedel writes.
GRITtv's Laura Flanders echoes this theme in an interview with John Perkins, author of Confessions of an Economic Hit Man, and journalist Russ Baker. Lobbyists have so thoroughly hijacked the U.S. economy, Perkins argues, that the nation's government now resembles those of Latin American nations he worked with in the 1980s and 1990s.
"I don't think the U.S. president has much power these days, to be honest with you. . . . It's the big corporate executives who call the shots today, and let's face it, they financed Obama's campaign," Perkins says.
The very efforts the government deployed to save the financial system are being perverted to create another disaster. In a five-part interview with Paul Jay of The Real News, Jane D'Arista, an influential economist and author of The Evolution of U.S. Finance, explains how Wall Street destroyed itself over the past decade. By borrowing massive amounts of money, Wall Street was able to place bigger bets in the capital markets casino, resulting in huge profits when those bets paid off. But when the bets backfired, the losses were just as massive. Companies couldn't pay them off, so the government stepped in to support them.
One of those support mechanisms came from the Federal Reserve, which began making incredibly cheap loans to firms that engaged predominantly in speculative trading. The Fed used to lend exclusively to commercial banks, which used the money to make loans that helped grow the real economy. But now those loans are being used to support risky securities trading, so we're seeing big profits in the financial sector, without much help for workers and consumers. This is a major long-term problem-if the economy can't keep pace with the Wall Street casino, those speculative trades are going to backfire and we'll be right back to the chaos of September 2008, only with an even weaker economy.
All hope is not lost. As Perkins and Baker emphasize in their interview with Flanders, citizens have to demand corporate accountability and a government that actually serves the public good. For much of the past decade in Latin America, governments have been elected that stood up to major corporations and demanded that they stop pillaging their nation's resources at the people's expense.
In addition to demanding much stronger reforms for the financial sector, we have to demand that the government respond seriously to problems facing workers. With the unemployment rate at 10.2% and expected to go still higher, we need jobs. As Steve Benen notes for The Washington Monthly, Obama's economic stimulus package helped stave off total economic devastation. What we need now is another stimulus to get people back to work, not just slow the pace of job losses.
"A bold, ambitious jobs bill can make a huge difference-the stimulus got us out of the ditch, a new effort can get us going in the right direction again," Benen writes.
And the only argument against this plan is that we "can't afford it." That is-the government's fiscal deficit is too high, and we just can't spend money to help people in real economic trouble.
But as Christopher Hayes writes for The Nation, the deficit excuse is pretty pathetic. Economic stimulus bolsters economic growth, thus improving tax returns for the government in the future. And any spending on any project can be taken out of the budget from other measures. Hayes notes that our massive military spending is almost never included in discussions about "fiscal responsibility." If we were really worried about how much it would cost to fix the economy, we could stop spending so much money killing people.
"Fiscal conservatism and deficit concern is nearly always code speak in Washington for something else," Hayes writes. "Most often, when someone in Washington says they're concerned about the deficit, what they're really saying is, 'I would like to make sure we have a government that focuses maximally on blowing people up.'"
The government has to start saying 'no' to corporate America. Corporate profits are not the same thing as a strong economy. We need to demand an economic policy that answers to workers, not just bank balance sheets.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
As posted last night in Quick Hits by Daniel de Groot, the Obama administration want to use leftover TARP funds to pay down the debt. I guess the idea is that China's economy needs more stimulating than our own:
The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.(...)
The Treasury Department said about $210 billion in TARP funds remains unspent, including about $70 billion returned from financial institutions. A further $50 billion is expected to be repaid in the next 12 to 18 months.
This is a terrible, terrible idea. There are times when paying down the debt is prudent--like the early part of this decade--but right now we need that money to create jobs. Immediately.
Paying down the debt now would just send the $210 billion left in the TARP funds to China and other countries to who we owe money. A much better use would be for it fund a $200 billion jobs package that Congress is looking to move over the next one to three months.
Unfortunately, the administration's idea of using the remaining bailout money to pay down the debt is already catching on with Blue Dogs and Republicans. Anti-health care, pro-coathanger, Representative Larry Kissell has introduced, and is gathering cosponsors for, a bill in Congress to match the Obama administration's plans. Here is a Dear Colleague letter he is circulating in the House right now, trying to gather more co-sponsors on top of the four Republicans, four Blue Dogs, and freshman Ann Kirkpatrick who have already joined up:
(The letter Kissell is sending to other House members can be found in the extended entry.)
In the next one to three months, Congress will go forward with a $100-$200 billion "jobs bill." In short order, it will become the biggest political story in the country, as well as an enormous political opportunity for progressives.
The reason it is such a big opportunity is because the plan is completely unformed. In a conversation last night with a source on Capitol Hill, I learned the following:
Right along with Harry Reid in the Senate, the Democratic leadership in the House is also pursuing this idea. So, its going to happen.
The Democratic leadership does not currently know what we will be in the bill, and are actively soliciting suggestions of almost any sort from the caucus membership. So really, start making suggestions.
It could range in size from $100 to $200 billion, which is a wide range. Again, we can play a role in determining how big it becomes.
Some members of Congress, including the leadership, are open to using TARP bailout money (still $317 billion of it left) as the primary funding mechanism. This would make the bill a huge political winner, as the bailout is directed away from Wall Street and toward Second Street (which is actually the most common street name in the United States).
It will happen quickly. In the House, it might even happen before the month long, December-January holiday break, as members look to tell their constituents they have passed a jobs bill as quickly as possible.
A report from the TARP's official watchdog estimated that there is $317 billion left in the program, a sum that includes funds paid back to the government by some banks.
Couldn't the Obama administration just keep using TARP money for stimulus related programs, such as the ones described above, and effectively make it a second stimulus package that does not require Congressional approval?
On April 8, 1935, the United States Congress passed the Emergency Relief Appropriation Act. The Emergency Relief Appropriation Act was part of President Franklin Delano Roosevelt's New Deal. Roosevelt hoped that his New Deal would allow Americans to cope with the Great Depression, would help end the current economic downturn, and would help prevent another depression from occurring in the future.
We know at this point that the stimulus needed another $600 billion in spending to combat the effects of the recession. Smart pundits like Paul Krugman, Matthew Yglesias and the Center on Budget and Policy Priorities keep talking about the need for a new WPA, a new Civilian Conservation Corps, and more grants to state and local governments to plug their budget gaps. Can't the Obama administration just use the remaining TARP money to just start programs like these, immediately?
Over the next few years, the TARP fund should grow by at least another $200 billion, as banks, automakers, homeowners and small businesses continue to pay back their loans. So, not only do we have short-term funding to start up a new WPA and / or a new CCC, there is long-term funding to keep them operational, too.
This would not only help alleviate the increasingly dire unemployment situation, but diverting Wall Street bailout money directly into jobs for main street would be a huge, huge political winner. Not to mention that a program for young people, like a new CCC, might be exactly what is needed not only to help the demographic hardest hit by the recession, but also to get Democratic-leaning young voters back to the polls in 2010.
Are there any legal restrictions preventing this? Is the Obama administration just sitting on funds that could be used for a second, more effective stimulus package? There might be internal opposition within the administration, but right now I am just looking for legal problems. If anyone can think of any legal barriers to using TARP funds to create new jobs programs that harken back to the days of FDR, please say so in the comments. Otherwise, this is a campaign we need to start ASAP.
Update: To clarify, what we need to do is figure out the legal limits of what this money can be spent on. Any advice on that front is greatly appreciated.
Bailout pay czar Ken Feinberg raised a ruckus last week when he announced plans to slash cash payouts to executives at seven companies that have received massive levels of taxpayer support. While better oversight of the bailout barons is helpful, the best way to change Wall Street pay practices is to adopt a set of tough, comprehensive regulations that cover everything from the executive suite to the loan department. As is, many of the executives Feinberg cracked down on will still make millions this year from stocks and other perks, while the very banks that depend the most on bailout money are spending like mad to lobby against reform.
Feinberg's new salary limits only apply to executives at Citigroup, Bank of America, AIG, GM, Chrysler, GMAC and Chrysler Financial. But while these new rules are an effort to reduce the incentive for executives to take big risks for short-term gains, the rules of the game for non-bailout barons haven't changed at all. Risky securities trading and unenforced consumer protection regulations still allow financiers to make a killing by gambling on mortgages and credit cards.
As Greg Kaufmann explains for The Nation, Feinberg has been barred from altering some of the most egregious bonus arrangements at even the biggest fund recipients, as the employment contracts were signed prior to the government's bailout. AIG plans to pay out $198 million in bonuses in March 2010, and none of Feinberg's recent rulings will change that. As Kaufmann also notes, back in March, AIG agreed to pay pack $45 million of the bonuses it shelled out early this year. After over seven months, just $19 million has been repaid.
The government's hands-off approach to AIG employment contracts is a rather flagrant display of deference to executives. Nothing stopped the government from renegotiating contracts for union laborers when it bailed out Chrysler and GM, as Dean Baker notes for The American Prospect.
Lest we forget, the government literally owns AIG, and would own both Citigroup and Bank of America had it demanded a market rate of return for its investment. Taxpayers injected several times the stock market values of both Citi and BofA into the troubled banks, but settled for a 36% stake in Citi and preferred stock in BofA. As Mike Madden emphasizes for Salon, Feinberg is still letting executives make several times the median household income in cash alone-nevermind stock-and it's unlikely that his move will spark changes among bankers outside the handful of companies ordered to make changes.
"Executives are still taking home paychecks that dwarf what the average American earns. And it's not clear whether any other companies will get on board with the Treasury plan unless they're forced to," Madden writes.
Congress hasn't taken any significant steps to curb Wall Street paydays since the crisis broke, but lawmakers did take two other important steps toward banking reform this week. Two different House committees passed bills to rein in the wild world of derivatives trading and establish a new Consumer Financial Protection Agency (CFPA). In a video piece for the Huffington Post Investigative Fund, Amanda Zamora and Lagan Sebert detail the legislative battle to create a CFPA, which has faced an enormous lobbying push from both banks and the top lobby group for the corporate executive class, the U.S. Chamber of Commerce.
Zamora and Sebert note that top bank lobbyist Ed Yingling is arguing that if regulators simply enforced the existing consumer protection laws, all of the major abuses in mortgage lending and credit cards would have been prevented. Even for a corporate lobbyist, Yingling's disingenuousness is absolutely breathtaking. He acknowledges that existing regulators are not enforcing consumer protection laws, says he wants the laws enforced, and then says it would be a bad idea to create a new agency to enforce those laws.
The CFPA won't have any mysterious new powers. It will have the same authorities on credit cards and mortgages that existing federal regulators have. But the current regulators are focused primarily on bank profits, which often run directly contrary to fair play with consumers. Yingling and Wall Street are really afraid of a serious regulator who will stand up for consumers. They're terrified that the CFPA will actually enforce consumer protection rules against powerful banks-but are talking as if all they want is effective enforcement. It's a lie, pure and simple.
On Monday and Tuesday, thousands took to the streets in Chicago to protest a meeting of Yingling's lobby group, the American Bankers Association (ABA). Esther Kaplan details the protests in a piece for The Nation, complete with video footage. The ABA retaliated against Kaplan's reporting by revoking her press credentials, but it appears to have been worth it, as her piece describes everything from citizen outrage to police intimidation and awkward banker solidarity. As Democracy Now! explains, the ABA has spent decades lobbying against rules to strengthen the economy and prevent banker abuses, and is now at the heart of an effort to use taxpayer bailout money to lobby Congress against financial reforms.
So far, their efforts seem to be paying off. Last week, one of the CFPA's chief advocates, Rep. Brad Miller (D-NC), co-authored an amendment significantly restricting the agency's enforcement powers. As Sebert and Zamora note, Miller agreed to exempt banks with $10 billion or less in assets from regulatory examinations by the CFPA-roughly 98% of all banks. The existing, corrupted regulators who didn't lift a finger to prevent the subprime mortgage crisis will be the people actually going to the banks and reviewing their books. While the CFPA could send along one of its own regulators to participate in the exam, the new agency can't tax the bank to pay for it, which would make it very difficult for the CFPA to keep an eye on smaller banks.
Even worse, there is nothing to prevent a giant bank like Bank of America from moving all of its most egregiously predatory activities into a series of small corporate subsidiaries. By exploiting this loophole, 100% of U.S. banks could be exempt from CFPA enforcement, including the giant banks most heavily involved in subprime mortgage abuses.
The other big piece of Obama-backed financial legislation to make its way through Committee last week had to do with derivatives, also known as the wild Wall Street securities that brought down AIG. The best way to fix the derivatives mess is to require that derivatives be traded on an exchange the same way stocks are, so that companies can't make crazy bets without regulatory and market scrutiny. But Obama only wants "standardized" derivatives to be processed through a central clearinghouse-like an exchange, except without any public pricing information. And so long as a derivative contract can be deemed "customized," it would be totally exempt from even this limited reform.
But as Art Levine notes for AlterNet, the derivatives bill actually got worse in committee. Plenty of non-financial businesses use derivatives to legitimately hedge real risks: Airlines try to insure themselves against swings in oil prices, for instance. Lawmakers agreed to exempt any contract with these companies, termed "end-users" in the financial jargon, from central clearing requirements. The trouble is, big Wall Street hedge funds and private equity firms can be classified as "end-users," opening a fatal loophole in the legislation. The five banks who control 95% of the derivatives market will just conduct all of their most reckless trades with hedge funds and avoid oversight entirely.
A modest reform on paychecks for bailout recipients is nowhere near sufficient to protect our economy from banker excess. If Wall Street is going to serve any productive economic function, it has to be subject to serious consumer protection rules, and its derivatives casino has to be dismantled.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
I have been opposed to the $700 billion Wall Street bailout for the past year. My objections to it have primarily rested on two grounds:
We gave large financial institutions the money without first securing guarantees of new regulations to protect consumers, reduce executive pay, and prevent reckless speculation in the future. Really, we should have gotten the guarantees first, and given the money second.
Fortunately, and surprisingly, new developments suggest that both of these objections can be at least partially put to rest. This is because today, the Obama administration has announced both a re-direction of bailout funds away from Wall Street, and also steep cuts in executive compensation for firms receiving bailout money.
More on these positive developments in the extended entry.
The $810 billion Wall Street Bailout is a loadstone hanging around the neck of the Democratic Party. It thwarting what should have been a realigning moment in American electoral politics. Upon regaining control over the federal government following the 2008 elections, Democrats should have been able to cement their image as, in the words of Al Gore, "the people versus the powerful." Instead, we have become complicit in perpetuating a federal government that is more responsive to the wishes of powerful moneyed interests at the expense of the vast majority of Americans. And so, our chances at realignment are slipping away.
The economic free-fall is finally slowing down, although nobody expects the recovery to be very pleasant. Job losses and foreclosures are expected to increase well into next year. But even if our economic system gets back to normal, it's important to remember that gross inequalities are embedded in the global order. At home, minorities face significant barriers to economic security, while abroad, children in poor countries are denied access to basic nutrition. This is especially disheartening in the wake of the G-20 meeting in Pittsburgh, which demonstrated that the world's economic leaders are more focused on bailing out banks than eradicating global poverty.
Robert Reich sums up the domestic economic scenario succinctly for Salon. The stock market is humming along, even as most Americans are tightening their belts. It's a counterintuitive situation: Wall Street is celebrating an economic recovery, but the consumers that drive our economy are still cutting back. Reich explains that the government has stepped in to fill the hole caused by consumer spending. Business executives may scream "Socialism!" when the tax man comes around, but without massive government help, those same CEOs would be watching their earnings and companies collapse.
Without the jobs and tax cuts created by President Barack Obama's economic stimulus package, we'd see more red ink from just about every industry. The entire U.S. mortgage market is currently supported by the federal government via Fannie Mae and Freddie Mac, while other special initiatives like the Cash for Clunkers program brought the auto industry out of its recession-induced coma this summer.
The trouble is, while a few programs have been good for ordinary citizens, most of the government's economic salvage operations are aimed at giant corporations. Of all the paradoxes in today's economy, the most significant can be found in the financial sector. Bank stocks are up, even though banks are in serious trouble. Their customers are broke, foreclosures are soaring, and analysts are predicting a fresh round of multi-billion-dollar losses on commercial real estate loans soon. So what makes an investor want to buy a bank stock right now? Nothing but the government's limitless willingness to bail out banks.
How much bailout money did the government actually spend? We've all heard about the $700 billion Troubled Asset Relief Program (TARP), but the real haul for bankers is much, much bigger, as Nomi Prins and Christopher Hayes detail in a piece for The Nation. A whopping $17.5 trillion has been dedicated to subsidies, guarantees, below-market-rate loans, and other special perks for the financial industry. That's roughly one-fourth of the entire global economic output for a full year, and more than the entire annual productivity of the U.S.
Prins and Hayes make use of a clever thought experiment: What if, instead of spending the money on big institutions, the money had gone to a small-time gambler? It's an apt comparison. Taxpayer money went to financial speculators who used our homes and neighborhoods as poker chips in a global casino. The dozen or so bailouts the government has enacted seem absurd when we think of them as cheap financing for bets on the craps table. The number of programs is staggering. Bank executives love to proclaim that their banks didn't really need TARP money, they just accepted it because the government wanted them to. Next time you hear that boast (sometimes it sounds more like a whine), remember that every big bank in the country issued debt guaranteed by the government, then scored ridiculously cheap loans from the Federal Reserve while others got federal help through AIG, Fannie and Freddie.
"A fraction of the $17.5 trillion bailout could have been used to cut the principal of homeowners' mortgages (using homes, even devalued ones, as collateral) and cover student loans at zero percent interest," Prins and Hayes write. "Rather than pouring it into the top layers-the banks-a people's bailout would have cost less and been more humane. And it likely would have prevented the ongoing increase in defaults, foreclosures and general economic anxiety."
There are very good reasons to maintain a healthy financial sector, but only if banks actually do something useful. Banks are supposed to lend money to enable socially productive economic activity. This bailout money has not been spent on anything socially productive. Instead, it's covered losses from predatory lending and boneheaded speculation.
The dominant cause of the recession was the collapse of an $8 trillion housing bubble, which banks helped inflate with all outrageous loans. For decades, the value of a family's house was the foundation of most American middle-class wealth. When home prices took a nosedive, so did the spending power of every homeowner. Even borrowers who had affordable mortgage payments were hit hard. For borrowers stuck with expensive, predatory mortgages, the result was a wave of foreclosures. Writing for Mother Jones, Andy Kroll highlights a hard reality: Recovery in the housing market will not lead to middle-class financial security. It will be at least a decade before home prices reach pre-crash levels.
It's critical to remember how the recession is deepening existing inequalities, particularly along racial lines. In a post for In These Times, Michelle Chen explains how African Americans and Latinos are consistently paid less than whites during boom times, and are pushed even further down the ladder when things go bust. Communities of color are more likely to be targeted by predatory lending, which can devastate entire neighborhoods for generations. That means people of color are more likely to be foreclosed on, more likely to be laid off, and less likely to have access to basic necessities like health insurance.
The statistics are stark. In a story for New America Media, Christina Fernandez-Pereda, notes that while the overall unemployment stands at 9.7%, for minorities, the actual number is much higher. A full 15.1% of Blacks are unemployed, while unemployment among Asian Americans has doubled since early 2007. A full third of Latinos between the ages of 16 and 29 are unemployed.
The bank bailout has done nothing to improve the status of the global poor. The G-20 made grand promises to help those who need it most in developing countries this year, but so far, the talk has resulted in very little action. As Hayley Hathaway explains at Sojourners, only $50 billion has been dedicated to the 78 countries where humanitarian risk is greatest. As Hathaway notes, that's less than 25% of the TARP money received by the 20 largest U.S. banks.
Without major action, between 1.4 million and 2.8 million children will die of malnutrition in the next five years. Instead of pushing major humanitarian aid, the G-20 has promised $750 billion to the International Monetary Fund. The IMF was supposed to act as an international lender of last resort-if a nation's financial woes got really bad, they could get a loan from the IMF while they restructured. But IMF money ends up flowing to private-sector banks, and governments in need are forced to cut spending on programs that help the poor. When the G-20 met in Pittsburgh last week, a major topic of discussion involved giving developing nations a greater voice in IMF policies. But despite this talk, wealthy nations remain committed to the status quo, protecting the interests of their bankers eyeing future international bailouts.
For most people, it will be a long time before our economic recovery is a reality. But as the economy crawls out of the ditch, it's critical to build our future on a stronger foundation, one where we don't allow millions children to starve and where skin color does not determine economic security.
Low-wage workers are struggling to navigate the current recession. A new study conducted by a team of academics reveals that the majority of workers at the bottom of the economic ladder have been shorted on their paychecks as recently as last week. But the compensation crisis looks very different on Wall Street, where excessive pay tied to risky activities helped set the economy on its crash course. Despite the resulting deep recession, pay for high-level U.S. financiers remains over-the-top, even as low wage workers struggle to navigate the downturn.
The U.S. has made a few gestures toward scaling back executive compensation for banks that it bailed out under the Troubled Asset Relief Program, but the rules have amounted to little more than window-dressing, according to a paper published last week by the Institute for Policy Studies. The paper's authors, Sarah Anderson and Sam Pizzigati, found that ten of the 20 largest bailout banks have reported stock option compensation for 2009, and the top five executives at those companies have scored a full $90 million so far this year. That's just through stock options. The number gets even more obscene if you include bonuses, salary and other payouts.
As Anderson and Pizzigati explain in a companion piece published in AlterNet, bank executives collected huge bonuses based on the profits from subprime loans during the housing bubble. Since subprime mortgages were more expensive than traditional loans, profits were high-until borrowers stopped being able to pay back their predatory, unaffordable debt. Suddenly the banks were all busted, but the executives had already made a killing.
Katrina vanden Huevel emphasizes in The Nation that the U.S. government doesn't even try to tax this kind of income, much less regulate its connection to risk-taking. Billions of dollars in tax revenue are lost each year as financiers hide payouts in offshore tax havens, while on-the-books income from financial activities are taxed at arbitrarily low rates. Capital gains like stock price increases, for instance, are taxed at just 15%, while income from an ordinary paycheck is taxed at 35% for the wealthiest individuals.
While the U.S. dallies on executive pay, key leaders in Europe are moving to rein in risky compensation practices in the financial sector, as detailed in this video report over at The Real News. President Barack Obama will meet with U.K. Prime Minister Gordon Brown, French President Nicholas Sarkozy, German Chancellor Angela Merkel and other leaders of the G-20 in Pittsburgh later this month, and financial regulatory reform will be at the top of the agenda.
For ordinary workers, there are few positive signs in the current economy. The Washington Monthly's Steve Benen dissects the latest batch of unemployment numbers from the Labor Department. The good news is that the overall pace of layoffs seems to be abating. The bad news? The U.S. still lost a whopping 216,000 jobs in August. And broader measures of workplace woe are even worse. The unemployment rate does not include discouraged workers who have stopped looking for a job, and it doesn't include those who want to work full-time but have to settle for part-time employment. That statistic actually declined slightly in July, giving some economists cause for optimism. But the metric soared again in August, reaching the highest level on record.
And unemployment is not the only problem workers face. Both Tim Fernholz of The American Prospect and Elizabeth Palmberg of Sojourners highlight a New York Times story by labor reporter Steven Greenhouse, which details how low-wage workers are routinely cheated by their employers. According to a recent study, a full 68% of these workers report having experienced an illegal workplace abuse in the past week, such as being denied overtime pay or being required to work for less than minimum wage. On average, workers lost 15% of their weekly income as a result of this exploitation.
We have good laws to protect workers, but they just aren't being enforced. Companies have successfully intimidated their employees into not reporting blatantly illegal pay practices. The best way to resolve this situation is to expand unionization and give workers a stronger voice in the workplace, making it safe to speak out against abuses. And the best way to expand unionization is to enact the Employee Free Choice Act, which lowers barriers to creating a union. But the legislative process has been delayed by a smear campaign organized by executives and managers claiming that unions, and not corporate elites, are the actual source of workplace coercion.
"It ought to make your blood boil-especially as people decry union thugs 'intimidating' people into joining unions when that doesn't happen and most workers want to join a union," Fernholz writes.
The U.S. needs to get its economic priorities in order. We should be protecting low-wage workers from executive excess, not the other way around. President Obama will have an opportunity to coordinate that effort globally at the G-20 summit later this month. Let's hope he doesn't squander it.
This is the first in a three-part series today that compares political conditions in 1993-1994 to our current environment. I argue that the current situation is much more favorable to Democrats than the one 16 years ago--Chris
Background Perot voters were an essential part of the 1994 Republican turnaround--perhaps the essential part. Forming 12% of the congressional electorate in both 1992 and 1994 (40% of Perot voters skipped the House vote in 1992), they swung from evenly split between the two major parties (see 38%-38% in the presidential and Rep 37%--32% Dem in the House) to voting 67% for Republicans in 1994.
By itself, this swing formed an overall 3-4% Republican gain in the national House vote. Given that the GOP went up a total of 5.1% from 1992 to 1994 in the national House vote (from 44.8% to 49.9%), their gains from Perot voters represented roughly two-thirds of all their gains that year.
The NAFTA Disaster The role of NAFTA in this swing difficult to overestimate. As I noted yesterday, just before NAFTA was passed in the House in late 1993, a plurality opposed it, 38%--46%. Notably, Perot voters opposed it overwhelmingly, 26%--63%. As Thomas Frank argued in What's the Matter With Kansas, Democratic support for NAFTA might have made both parties seem just as bad on economics to Perot voters. With equivalence on economic matters, Perot supporters may well have turned to Republicans because they tended to be populist, American-exceptionalist, cultural supremacists.
Granted, a much lower percentage of House Democrats voted in favor of NAFTA than House Republicans (40% for Dems, 75% for Reps). However, given that NAFTA was championed by the Clinton administration for months in the media, passed through a Democratic Congress, and climaxed with a famous CNN debate between Vice-President Al Gore and Ross Perot himself, Perot supporters would have had a justifiable sense of equivalence between the two major parties on NAFTA. Heck, given that Democrats were the public face of NAFTA, many probably blamed only Democrats for it.
****
Are we in for a repeat? I consider this possibility in the extended entry.
It's enough to make the average taxpayer's head spin. But here's another outrage:the Daily News reported Monday that Goldman-Sachs could soon receive up to $321 million in city and state taxpayer dollars as part of an incentive program to keep their offices near Ground Zero. That's on top of $1.6 billion the investment firm has already received in tax breaks and publicly backed bonds for its shimmering new downtown headquarters.
Wells Fargo is a roadblock to economic recovery. That's what members of the United Electrical, Radio, and Machine Workers (UE) are claiming, as they literally blocked a busy Rock Island, Illinois intersection late last week to protest Wells Fargo's decision to cut off credit to the Quad City Die Casting factory.
100 Quad City factory employees risk losing their jobs if Wells Fargo doesn't extend tens of thousands of dollars in credit to continue day-to-day operating costs. So why won't Wells Fargo use some of its $25 billion in bailout funds to keep this factory afloat, particularly when the Illinois-Iowa Quad Cities region is losing $6.1 million in wages and tax revenue annually? According to UE organizer Leah Fried, "[Wells Fargo] want[s] to get out from under the TARP money because they want to get out from the scrutiny. They're hoarding." Wells Fargo has even gone so far as to prevent the company from paying the wages and benefits owed to its employees, which prompted UE to file charges with the National Labor Relations Board last week.
Across the country, we're seeing more and more protests this one. As journalist/labor activist Mike Elk recently noted, these public demonstrations are highly effective ways of bringing national attention to the bailed out banks that are cutting off credit and have done pathetically little to jump-start our ailing economy. We saw this last December, when laid-off UE workers held sit-ins at Republic Windows and Doors in Chicago because Bank of America and JPMorgan Chase wouldn't fork over credit for the company to pay severance.
The past year has revealed a comprehensive philosophy of government championed by conservatives and moderates when they oppose major progressive economic reforms. I call it "crime and reward." The philosophy is summed up as follows:
The flaw in progressive legislative proposals is that they don't give enough money to the corporations that caused the problem(s) which overall legislative effort is supposedly trying to solve.
It applies in all major cases. Check it out:
The way to lower health care costs is to give companies that have increased health care costs even more money: As Olympia Snowe and many others have articulated, the problem with a public option is that it lowers the cost of health insurance rather than increasing the amount of money private health insurers generate in revenue. While one would think that the purpose of health care reform legislation is to lower the price of health insurance, it appears that for many the purpose is actually to make sure that the companies ratcheting up health care costs receive even more money from the process (ie, through mandates to buy their over-priced insurance and no lower priced, public option).
The way to fix climate change is to give the companies that are the main cause of climate change even more money: As Collin Peterson and Claire McCaskill have articulated, the problem with climate change legislation is that it doesn't give enough money to the energy and agricultural conglomerates that are primarily responsible for global warming.
The way to fix the financial crisis is to give the financial institutions that caused the financial crisis even more money: This one is pretty straightforward and has been covered extensively. From the Wall Street bailout program itself, to making sure that Congress doesn't pass laws restricting executive bonuses out fear that financial institutions won't take our money, the government's solution to fixing the financial crisis is to give the people and companies that caused the financial crisis even more money. The progressive alternative, temporary nationalization, should be opposed because it wouldn't make enough money for shareholders.
On the three major areas of public policy that were addressed by the federal government over the last twelve months--health care, climate change, financial crisis--the "moderate" solution has consistently been to give hundreds of billions of dollars to the corporations that caused climate change, the financial crisis, and skyrocketing health care costs. It is a crime and reward ideology. When powerful private sector companies cause major national and global problems, the "moderate" solution is to give those who caused the problem hundreds of billions of dollars.
Crime and reward. Through a conservative-moderate alliance, it is the system of government under which we live, even in the era of the Democratic trifecta.
President Obama wants billions more of our taxdollar money.
Not to create jobs.
Not to provide healthcare to Americans.
Not to help our teachers and cops and firefighters to keep their jobs.
Not to increase unemployment compensation or pay for the healthcare for the un- and underemployed.
Not to fund daycare for working parents.
Not to pay for Americans to get such simple (but expensive) tests as mammograms and colonoscopies, which could save thousands of lives every year if only Americans could afford the tests.
Not to give jobs to the newly-unemployed auto workers, not to convert the auto factories into new green industries, not to create economic zones and employment education and training programs for our most-devastated regions like the Rust Belt.
Not to fund organic farms to stop agri-business with their Frankenstein laboratory-manufactured food-stuff which is taking over the world and probably will kill us all.
Not to provide flu shots for all of us. Not to fund the world Aids programs, as President Obama promised he would when he took office.
Not to provide medical care for injured vets, or jobs for those whose tours of duty are over.
Not to fund the international war crimes tribunal that we should be conducting right now to have investigations, hearings, prosecutions, imprisonment of every person from the Bush administration who participated in starting the war of aggression against Iraq, and all those who directed, authorized, approved, ratified torture.
Not to fund the financial crimes tribunals that we should be conducting right now to seize the assets of every person who worked on Wall Street during the past 10 years, arrest them, prosecute them, throw them in prison to rot for the rest of their useless and despicable lives.
Nope.
President Obama wants more money for more wars.
And he wants to send $100 Billion of U.S. Taxpayer Money to his friends, the Eurotrash who run Europe's version of Wall Street.
I call it the "War-And-Eurotrash-Bailout-Bill."
Just like our Wall Street Criminals need multi-million dollar bonuses to pay for their summers in the Hamptons, so too the Eurotrash Financial Criminals need multi-million dollar bonuses to pay for their summers at Lake Como. Maybe while he was in Paris last week, Obama learned that simply nobody stays in Paris in August, so returned to the states with a renewed sense of urgency about the need to send $100 Billion of U.S. Taxpayer Money to his Eurotrash friends in Europe.
Think I'm kidding? See the articles below.
Firedoglake has a link to some key representatives that people should call and urge to vote against this combo War-And-EuroTrash-Bailout-Bill. The site is a little confusing, but I think if you just call any of those representatives and ask them to vote against this bill, you would be helping to stop it.
http://action.firedoglake.com/...
No money for the Eurotrash. And you know what? Let's just end the wars and bring the troops home. Do we have to go so deep in debt trying to help the oil corporations destroy the entire middle east that we will all, for generations, sleep in gutters and beg for crumbs. Are the Democrats as insane as the Republicans were? Do all Americans need to die for Empire, in service of the Corporate Dictatorship? I'm sick of it. End the Wars. Now, not ten years from now. Now.
The International Monetary Fund ("IMF") is like a financial hitman that serves the corporate dictatorships of the U.S. and Western European countries in trying to take over all the resources of the world. Basically they are an arm of the uber-rich and are used to help set up puppet regimes and dictatorships to steal everything from local populations, turn over the resources of a country to western corporations, and charge obscene amounts to bankrupt the country and leave the people poor and helpless.
Now President Obama is trying to sneak through a big give-away of U.S. taxpayer money to the IMF. But he does not want a stand-alone bill that just says: "Steal Money From Americans, Send It To Eurotrash." Instead, he snuck this provision inside a new War Funding Bill. Trying to sneak it through. Supposedly the money would go to the IMF which would turn around and immediately give it to the biggest financial institutions in Europe -- European Wall Street -- to bail out their billionaire Eurotrash. With our money.
More money for war. More money for the rich. Nothing for working people.
"The Next Big Taxpayer Bailout? IMF Could Get Hundreds of Billions for European BanksBy Mark Weisbrot"
June 8, 2009, Firedoglake
"The bailout of private banks and financial institutions has become a touchy political issue in the United States, ever since President Bush's Treasury Secretary and former Goldman Sachs CEO Hank Paulson asked Congress for a $700 billion dollar blank check last September."
"Now the Obama administration is asking the Congress for $108 billion for the International Monetary Fund. This was in accordance with a plan that the administration has helped organize to raise $500 billion in additional funds for the IMF. This would add to the approximately $200 billion that the IMF has on hand, $100 billion in gold reserves, and another $250 billion that the Fund will create in its own currency. These are enormous sums of money that the IMF has never come close to before. "
"What is all this money for? There is an answer staring us in the face from the financial press: European banks."
Notice how every single economic move by the big boys since Clinton got into office consists of looting and plundering the U.S. -- taking all the money out of our country, leaving us with nothing. Hedge funds (secret private banks for rich people), "offshore" private equity funds, secret Swiss bank accounts, major companies moving all their investments into third world countries. I'm beginning to think they're getting ready to nuke us -- not North Korea, but "our" people. Why else are they stealing all our money and leaving us with nothing?
Let the Eurotrash steal from their own people, just like the Wall Street Criminals steal from us. I'm sick of this betrayal by all our politicians and even more sick of bail-outs for the rich and powerful. And I'm really tired of these wars.
McClatchy has an article up noting that the government has turned a (very) small profit on the bailout funds that are being repaid. Great. That's nice.
However, the $700 billion in junior loans to financial institutions was never really the point. The cost of the financial meltdown is not the $700 billion bailout, but rather the recession itself. Even thought he bailout went through, that cost still hasn't been repaid, and no measures have been taken to prevent it from happening again.
The point is that, before we handed out a bunch of junior loans to prop up the financial institution status quo, we needed first to pass regulations that provided insurance against any such financial meltdown from happening again. Further, if there were financial institutions that refused to take any loans if it meant also accepting new regulations on, say, executive pay, then they really didn't need the bailouts at all. Rather, the current proprietors of such institutions were just looking for another way to get paid.
So, we made money off the loans. Yippie! That two or three billion dollars in profit does not lower the U3 measure of unemployment from 9.4%, the U6 from 16.4%, does not wipe away the retraction in GDP that we have suffered, and does not return hundreds of thousands of people to their foreclosed homes. Those are the real costs of the financial meltdown.
The status quo in the financial sector has been maintained by the bailout. However, we are still suffering from the recession the financial meltdown caused, and we still have no protections against the exact same thing happening again. And so, while banks are still showing profits, as a country we are still at their mercy should the collective actions of the financial sector once against cause the overall economic system to melt down once again.
I've just interviewed Les Leopold, who blames the recent financial disasters on trends that began over 30 years ago, explains how a great deal of Wall Street's "investing" has had as much connection to the real economy as fantasy baseball has to baseball, diagnoses the failures of labor and the left to resist the financialization of the economy, views the current situation with genuine optimism as a rare moment in which we might be able to make necessary changes to regulate finance and to shift money from a tiny group of billionaires to the rest of society, and explains why that latter step is needed to stabilize any economy.
With teach-ins planned everywhere on June 10th and people trying to educate each other on exactly what just happened to trillions of our children's dollars, you could do a lot worse than to gather some friends together, read or listen to, and discuss, this interview, and then take appropriate actions.
If you're like me you find it at least a bit disturbing that we're giving trillions of dollars to save the economy to the very people who wrecked it, and more disturbing that we're doing so without any solid basis for expecting to get much of it back and without making fundamental changes to prevent a repetition. But if you're like me, you also aren't 100 percent certain how a credit default swap works with a cubed collateralized debt obligation, much less whether such a monstrosity needs to be eliminated or reformed. What to do?
In the closing days of the 2008 campaign, John McCain repeatedly warned against the supposed dangers of one-party rule. His argument was not particularly convincing at the time, but it did echo a longstanding political legend about the benefits of one-party rule. Supposedly, a divided government limits government spending and corruption. This argument was popular in the 1990's, and some conservatives were echoing it back in 2007 even before the presidential election seemed a foregone conclusion. In 2009, it has become a common mantra for Republican elected officials and operatives.
The main problem with this argument is that recent events have proven it false. Government spending does not increase at a slower rate when one party controls the White House and another party controls Congress. This argument was turned into a laughingstock only five weeks before the presidential election, when both McCain and Obama supported the Wall Street bailout, a majority of Senators of both parties supported the bailout, and when 73% of House Democrats and 46% of House Republicans supported the bailout. No matter which party controlled the House, the Senate, or the White House, with numbers like that the bailout would have passed anyway.
During the final year of divided government--FY 2008 to FY 2009--federal spending increased by 6.67% of GDP, mainly because of the bailout. Outside of the two world wars, that was more than double the spending increase of any other year in the history of the country. It was larger than the increase in federal spending during the previous fifty years (1949 to 2008) combined, during which time federal spending grew by 5.87% of GDP. By virtue of the bi-partisan Wall Street bailout, that one year of divided government increased government spending--and facilitated the corruption behind the financial meltdown--more than the twenty years of one-party government had done combined.
Republicans may decry one-party rule, but the argument simply won't work after the bi-partisan Wall Street bailout increased government spending and complicity in corruption at an all-time record level. In 2012, rather than decrying one-party rule, they will probably need to find a nominee who opposed the bailout all along in order to have a shot at ending one-party rule (continuing economic difficulty for the country will also be required, of course). That could be the real Howard Dean moment for the right-wing grassroots to throw off the shackles of their party leadership. Unfortunately for Republicans, the list of their Senators who opposed the bailout is not exactly loaded with presidential material:
The "stress test" results are in. If accurate, they imply that the nation's banks don't need to raise all that much in the way of new, private capital. The amount might be less than $10 billion, almost all of which would need to go to auto-company relative GMAC:
The nation's largest banks collectively need another $75 billion in equity to ride out potential losses due to the recession, according to long awaited government stress tests released this afternoon.
Nine of the 19 banks do not need any new capital at all, including J.P Morgan Chase and Goldman Sachs. Another eight banks can fulfill their capital needs by raising money privately or, if they can't, by converting existing government investments into common stock. That list includes Bank of America, which needs $33.9 billion, and Wells Fargo, which needs $13.7 billion.
That leaves only two firms that must actually raise more cash. GMAC, the auto finance company that is historically tied to General Motors, needs an additional $9.1 billion in new capital. Regions Financial Corp., a regional bank based in Alabama, needs another $400 miliion.
A specific list of the banks that need to raise more capital can be found here. Treasury Secretary Geithner's statement on the matter can be found here..
The results showed that losses at the banks under 'more adverse" economic conditions than most economists anticipate could total $599.2 billion over two years. Mortgage losses present the biggest part of the risk, at $185.5 billion. Trading accounts were the second-largest vulnerability, with potential losses of $99.3 billion.(...)
Banks that need to raise capital under the government's stress tests will have until June 8 to develop a plan and until Nov. 9 to implement it.(...)
The 19 banks in the test hold two-thirds of the assets and more than one-half of the loans in the U.S. banking system, regulators said.
Examiners used an "adverse scenario" of a 3.3 percent decline in gross domestic product this year, and an average unemployment rate of 8.9 percent this year and 10.3 percent in 2010.
Forecasters see a 2.5 percent decline in output this year, and average unemployment rates of 8.9 percent this year and 9.4 percent next year, according to the median estimates in a Bloomberg News survey.
Overall, the stress test results paint a relatively (compared to the overall economic mood) rosy picture of a financial industry that is on the brink of recovery.
I am not going to pretend to know whether or not the tests are just bullshit. What I do know is that they better not just be bullshit, or there will massively negative political consequences for the entire Democratic Party as a result. If it turns out that way more capital is needed than these tests forecast, and the economy doesn't recover very quickly, then the "stress tests" will be viewed as a blatant case of either administration incompetence and / or mendacity. The result will be Democrats losing in droves--probably even those who opposed the bailouts--pushing our congressional majorities back to around 2007-2008 levels.
