"It is easier to rob by setting up a bank than by holding up a bank clerk." ~~ Bertolt Brecht
"If I want to be free from any other man’s dictation, I must understand that I can have no other man under my control." ~~ William Graham Sumner
"My definition of a free society is a society where it is safe to be unpopular." ~~ Adlai Stevenson
"No professional politician is ever actually in favor of public economy. It is his implacable enemy, and he knows it. All professional politicians are dedicated wholeheartedly to waste and corruption. They are the enemies of every decent man." ~~ H.L. Mencken
"There is no nonsense so arrant that it cannot be made the creed of the vast majority by adequate governmental action." ~~ Bertrand Russell
Saturday, April 16, 2011
Friday, April 15, 2011
TSA Agent's Invasive Security Search of a 6 year old girl
(Sorry if you've already seen this a thousand times...
And she'd already gone through an airport body scanner. Really? This is the face of the enemy? A little girl? This is insane. This is paranoia of the nth degree. I would be livid were I there in person watching this. Shit!--jef)
Shocking employment figures: Fewer than 46% of Americans have jobs
By David Edwards - RAW Story
Thursday, April 14th, 2011
The percentage of Americans who have jobs has fallen to the lowest point in three decades and now hovers just above 45 percent of the total population, according to an analysis of labor data published by USA Today.
The report, based on figures provided by the Census and the Bureau of Labor Statistics, showed that at 36.7 percent, Mississippi had the lowest percentage of population working.
Employment rates were also low in California and Arizona, where just over 37 percent had jobs. At 55.8 percent, North Dakota had the highest rate of employed residents.
Overall, 45.4 percent of Americans were working, the lowest since 1983. Employment peaked at 49.3 percent in 2000.
"The bad economy, an aging population and a plateau in women working are contributing to changes that pose serious challenges for financing the nation's social programs," the paper noted.
The news comes at a time when Republican senators have unveiled a plan to raise the retirement age, which would force more Americans to search for jobs that just aren't there.
Freshman tea party-backed Sens. Mike Lee (R-UT) and Rand Paul (R-KY) -- along with Sen. Lindsey Graham (R-SC) -- have joined the call, seeking to raise the retirement age to 70 in the next 20 years.
"If you talk to young people in America - they've already accepted this," Paul said Wednesday.
(Rand Paul, the Tea Party douche, is nothing like his dad.--jef)
Thursday, April 14th, 2011
The percentage of Americans who have jobs has fallen to the lowest point in three decades and now hovers just above 45 percent of the total population, according to an analysis of labor data published by USA Today.
The report, based on figures provided by the Census and the Bureau of Labor Statistics, showed that at 36.7 percent, Mississippi had the lowest percentage of population working.
Employment rates were also low in California and Arizona, where just over 37 percent had jobs. At 55.8 percent, North Dakota had the highest rate of employed residents.
Overall, 45.4 percent of Americans were working, the lowest since 1983. Employment peaked at 49.3 percent in 2000.
"The bad economy, an aging population and a plateau in women working are contributing to changes that pose serious challenges for financing the nation's social programs," the paper noted.
The news comes at a time when Republican senators have unveiled a plan to raise the retirement age, which would force more Americans to search for jobs that just aren't there.
Freshman tea party-backed Sens. Mike Lee (R-UT) and Rand Paul (R-KY) -- along with Sen. Lindsey Graham (R-SC) -- have joined the call, seeking to raise the retirement age to 70 in the next 20 years.
"If you talk to young people in America - they've already accepted this," Paul said Wednesday.
+++++++++++++++
(Rand Paul, the Tea Party douche, is nothing like his dad.--jef)
The Real Housewives of Wall Street
Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?
April 12, 2011
America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we're broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year's retirees from the IRS, the SEC and the Department of Energy.
April 12, 2011
Most Americans know about that budget. What they don't know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the "official" budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.
Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."
But if you want to get a true sense of what the "shadow budget" is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall's haul doesn't seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn't seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called "giving already stinking rich people gobs of money for no fucking reason at all." If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.
In August 2009, John Mack, at the time still the CEO of Morgan Stanley, made an interesting life decision. Despite the fact that he was earning the comparatively low salary of just $800,000, and had refused to give himself a bonus in the midst of the financial crisis, Mack decided to buy himself a gorgeous piece of property — a 107-year-old limestone carriage house on the Upper East Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million. Either Mack had plenty of cash on hand to close the deal, or he got some help from his wife, Christy, who apparently bought the house with him.
The Macks make for an interesting couple. John, a Lebanese-American nicknamed "Mack the Knife" for his legendary passion for firing people, has one of the most recognizable faces on Wall Street, physically resembling a crumpled, half-burned baked potato with a pair of overturned furry horseshoes for eyebrows. Christy is thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies. Her major philanthropic passion is endowments for alternative medicine, and she has attained the level of master at Reiki, the Japanese practice of "palm healing." The only other notable fact on her public résumé is that her sister was married to Charlie Rose.
It's hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that's exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan's penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.
So how did the government come to address a financial crisis caused by the collapse of a residential-mortgage bubble by giving the wives of a couple of Morgan Stanley bigwigs free money to make essentially risk-free investments in student loans and commercial real estate? The answer is: by degrees. The history of the bailout era reads like one of those awful stories about what happens when a long-dormant criminal compulsion goes unchecked. The Peeping Tom next door stares through a few bathroom windows, doesn't get caught, and decides to break in and steal a pair of panties. Next thing you know, he's upgraded to homemade dungeons, tri-state serial rampages and throwing cheerleaders into a panel truck.
It was the same with the bailouts. They started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. What started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was "free money for shit," says Barry Ritholtz, author of Bailout Nation. "It turned into 'Give us your crap that you can't get rid of otherwise.' "
The impetus for this sudden manic expansion of the bailouts was a masterful bluff by Wall Street executives. Once the money started flowing from the Federal Reserve, the executives began moaning to their buddies at the Fed, claiming that they were suddenly afraid of investing in anything — student loans, car notes, you name it — unless their profits were guaranteed by the state. "You ever watch soccer, where the guy rolls six times to get a yellow card?" says William Black, a former federal bank regulator who teaches economics and law at the University of Missouri. "That's what this is. If you have power and connections, they will give you a freebie deal — if you're good at whining."
This is where TALF fits into the bailout picture. Created just after Barack Obama's election in November 2008, the program's ostensible justification was to spur more consumer lending, which had dried up in the midst of the financial crisis. But instead of lending directly to car buyers and credit-card holders and students — that would have been socialism! — the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free. In other words, the government lent taxpayer money to the same assholes who caused the crisis, so that they could then lend that money back out on the market virtually risk-free, at an enormous profit.
Cue your Billy Mays voice, because wait, there's more! A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don't pay the Fed back, it's no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.
This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed's books. If the securities lose money, you leave them on the Fed's lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed. "Remember that crazy guy in the commercials who ran around covered in dollar bills shouting, 'The government is giving out free money!' " says Black. "As crazy as he was, this is making it real."
This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it's insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can't make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.
In the case of Waterfall TALF Opportunity, here's what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here's the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.
The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called "Credit Suisse Commercial Mortgage Trust Series 2007-C2" — but that data is meaningless without knowing how many units were bought. It's like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. "There's no way of validating or invalidating the Fed's process in TALF without this pricing information," says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.
In early April, in an attempt to learn exactly how much Mack and Karches made on the TALF deals, Sen. Chuck Grassley of Iowa wrote a letter to Waterfall asking 21 detailed questions about the transactions. In addition, Sen. Sanders has personally asked Fed chief Bernanke to provide more complete information on the TALF loans given not only to Christy Mack but to gazillionaires like former Miami Dolphins owner H. Wayne Huizenga and hedge-fund shark John Paulson. But Bernanke bluntly refused to provide the information — and the Fed has similarly stonewalled other oversight agencies, including the General Accounting Office and TARP's special inspector general.
Christy Mack and Susan Karches did not respond to requests for comments for this story. But even without more information about the loans they got from the Fed, we know that TALF wasn't the only risk-free money being handed over to Wall Street. During the financial crisis, the Fed routinely made billions of dollars in "emergency" loans to big banks at near-zero interest. Many of the banks then turned around and used the money to buy Treasury bonds at higher interest rates — essentially loaning the money back to the government at an inflated rate. "People talk about how these were loans that were paid back," says a congressional aide who has studied the transactions. "But when the state is lending money at zero percent and the banks are turning around and lending that money back to the state at three percent, how is that different from just handing rich people money?"
Those kinds of deals were the essence of the bailout — and the vast mountains of near-zero government cash turned companies facing bankruptcy into monstrous profit machines. In 2008 and 2009, while Christy Mack was busy getting her little TALF loans for $220 million, her husband's bank hauled in $2 trillion in emergency Fed loans. During the same period, Goldman borrowed nearly $800 billion. Shortly afterward, the two banks reported a combined annual profit of $14.5 billion.
As crazy as it is to lend to banks at near zero percent and borrow back from them at three percent, one could at least argue that the policy may have aided American companies by providing banks more cash to lend. But how do you explain the host of other bailout transactions now being examined by Congress? Like the Fed's massive purchases of securities in foreign automakers, including BMW, Volkswagen, Honda, Mitsubishi and Nissan? Or the nearly $5 billion in cheap credit the Fed extended to Toyota and Mitsubishi? Sure, those companies have factories and dealerships in the U.S. — but does it really make sense to give them free cash at the same time taxpayers were being asked to bail out Chrysler and GM? Seems a little crazy to fund the competition of the very automakers you're trying to rescue.
And then there are the bailout deals that make no sense at all. Republicans go mad over spending on health care and school for Mexican illegals. So why aren't they flipping out over the $9.6 billion in loans the Fed made to the Central Bank of Mexico? How do we explain the $2.2 billion in loans that went to the Korea Development Bank, the biggest state bank of South Korea, whose sole purpose is to promote development in South Korea? And at a time when America is borrowing from the Middle East at interest rates of three percent, why did the Fed extend $35 billion in loans to the Arab Banking Corporation of Bahrain at interest rates as low as one quarter of one point?
Even more disturbing, the major stakeholder in the Bahrain bank is none other than the Central Bank of Libya, which owns 59 percent of the operation. In fact, the Bahrain bank just received a special exemption from the U.S. Treasury to prevent its assets from being frozen in accord with economic sanctions. That's right: Muammar Qaddafi received more than 70 loans from the Federal Reserve, along with the Real Housewives of Wall Street.
Perhaps the most irritating facet of all of these transactions is the fact that hundreds of millions of Fed dollars were given out to hedge funds and other investors with addresses in the Cayman Islands. Many of those addresses belong to companies with American affiliations — including prominent Wall Street names like Pimco, Blackstone and . . . Christy Mack. Yes, even Waterfall TALF Opportunity is an offshore company. It's one thing for the federal government to look the other way when Wall Street hotshots evade U.S. taxes by registering their investment companies in the Cayman Islands. But subsidizing tax evasion? Giving it a federal bailout? What the fuck?
As America girds itself for another round of lunatic political infighting over which barely-respirating social program or urgently necessary federal agency must have their budgets permanently sacrificed to the cause of billionaires being able to keep their third boats in the water, it's important to point out just how scarce money isn't in certain corners of the public-spending universe. In the coming months, when you watch Republican congressional stooges play out the desperate comedy of solving America's deficit problems by making fewer photocopies of proposed bills, or by taking an ax to budgetary shrubberies like NPR or the SEC, remember Christy Mack and her fancy new carriage house. There is no belt-tightening on the other side of the tracks. Just a free lunch that never ends.
Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."
But if you want to get a true sense of what the "shadow budget" is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall's haul doesn't seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn't seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called "giving already stinking rich people gobs of money for no fucking reason at all." If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.
In August 2009, John Mack, at the time still the CEO of Morgan Stanley, made an interesting life decision. Despite the fact that he was earning the comparatively low salary of just $800,000, and had refused to give himself a bonus in the midst of the financial crisis, Mack decided to buy himself a gorgeous piece of property — a 107-year-old limestone carriage house on the Upper East Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million. Either Mack had plenty of cash on hand to close the deal, or he got some help from his wife, Christy, who apparently bought the house with him.
The Macks make for an interesting couple. John, a Lebanese-American nicknamed "Mack the Knife" for his legendary passion for firing people, has one of the most recognizable faces on Wall Street, physically resembling a crumpled, half-burned baked potato with a pair of overturned furry horseshoes for eyebrows. Christy is thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies. Her major philanthropic passion is endowments for alternative medicine, and she has attained the level of master at Reiki, the Japanese practice of "palm healing." The only other notable fact on her public résumé is that her sister was married to Charlie Rose.
It's hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that's exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan's penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.
So how did the government come to address a financial crisis caused by the collapse of a residential-mortgage bubble by giving the wives of a couple of Morgan Stanley bigwigs free money to make essentially risk-free investments in student loans and commercial real estate? The answer is: by degrees. The history of the bailout era reads like one of those awful stories about what happens when a long-dormant criminal compulsion goes unchecked. The Peeping Tom next door stares through a few bathroom windows, doesn't get caught, and decides to break in and steal a pair of panties. Next thing you know, he's upgraded to homemade dungeons, tri-state serial rampages and throwing cheerleaders into a panel truck.
It was the same with the bailouts. They started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. What started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was "free money for shit," says Barry Ritholtz, author of Bailout Nation. "It turned into 'Give us your crap that you can't get rid of otherwise.' "
The impetus for this sudden manic expansion of the bailouts was a masterful bluff by Wall Street executives. Once the money started flowing from the Federal Reserve, the executives began moaning to their buddies at the Fed, claiming that they were suddenly afraid of investing in anything — student loans, car notes, you name it — unless their profits were guaranteed by the state. "You ever watch soccer, where the guy rolls six times to get a yellow card?" says William Black, a former federal bank regulator who teaches economics and law at the University of Missouri. "That's what this is. If you have power and connections, they will give you a freebie deal — if you're good at whining."
This is where TALF fits into the bailout picture. Created just after Barack Obama's election in November 2008, the program's ostensible justification was to spur more consumer lending, which had dried up in the midst of the financial crisis. But instead of lending directly to car buyers and credit-card holders and students — that would have been socialism! — the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free. In other words, the government lent taxpayer money to the same assholes who caused the crisis, so that they could then lend that money back out on the market virtually risk-free, at an enormous profit.
Cue your Billy Mays voice, because wait, there's more! A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don't pay the Fed back, it's no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.
This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed's books. If the securities lose money, you leave them on the Fed's lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed. "Remember that crazy guy in the commercials who ran around covered in dollar bills shouting, 'The government is giving out free money!' " says Black. "As crazy as he was, this is making it real."
This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it's insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can't make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.
In the case of Waterfall TALF Opportunity, here's what we know: The company was founded in June 2009 with $14.87 million of investment capital, money that likely came from Christy Mack and Susan Karches. The two Wall Street wives then used the $220 million they got from the Fed to buy up a bunch of securities, including a large pool of commercial mortgages managed by Credit Suisse, a company John Mack once headed. Those securities were valued at $253.6 million, though the Fed refuses to explain how it arrived at that estimate. And here's the kicker: Of the $220 million the two wives got from the Fed, roughly $150 million had not been paid back as of last fall — meaning that you and I are still on the hook for most of whatever the Wall Street spouses bought on their government-funded shopping spree.
The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called "Credit Suisse Commercial Mortgage Trust Series 2007-C2" — but that data is meaningless without knowing how many units were bought. It's like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. "There's no way of validating or invalidating the Fed's process in TALF without this pricing information," says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.
In early April, in an attempt to learn exactly how much Mack and Karches made on the TALF deals, Sen. Chuck Grassley of Iowa wrote a letter to Waterfall asking 21 detailed questions about the transactions. In addition, Sen. Sanders has personally asked Fed chief Bernanke to provide more complete information on the TALF loans given not only to Christy Mack but to gazillionaires like former Miami Dolphins owner H. Wayne Huizenga and hedge-fund shark John Paulson. But Bernanke bluntly refused to provide the information — and the Fed has similarly stonewalled other oversight agencies, including the General Accounting Office and TARP's special inspector general.
Christy Mack and Susan Karches did not respond to requests for comments for this story. But even without more information about the loans they got from the Fed, we know that TALF wasn't the only risk-free money being handed over to Wall Street. During the financial crisis, the Fed routinely made billions of dollars in "emergency" loans to big banks at near-zero interest. Many of the banks then turned around and used the money to buy Treasury bonds at higher interest rates — essentially loaning the money back to the government at an inflated rate. "People talk about how these were loans that were paid back," says a congressional aide who has studied the transactions. "But when the state is lending money at zero percent and the banks are turning around and lending that money back to the state at three percent, how is that different from just handing rich people money?"
Those kinds of deals were the essence of the bailout — and the vast mountains of near-zero government cash turned companies facing bankruptcy into monstrous profit machines. In 2008 and 2009, while Christy Mack was busy getting her little TALF loans for $220 million, her husband's bank hauled in $2 trillion in emergency Fed loans. During the same period, Goldman borrowed nearly $800 billion. Shortly afterward, the two banks reported a combined annual profit of $14.5 billion.
As crazy as it is to lend to banks at near zero percent and borrow back from them at three percent, one could at least argue that the policy may have aided American companies by providing banks more cash to lend. But how do you explain the host of other bailout transactions now being examined by Congress? Like the Fed's massive purchases of securities in foreign automakers, including BMW, Volkswagen, Honda, Mitsubishi and Nissan? Or the nearly $5 billion in cheap credit the Fed extended to Toyota and Mitsubishi? Sure, those companies have factories and dealerships in the U.S. — but does it really make sense to give them free cash at the same time taxpayers were being asked to bail out Chrysler and GM? Seems a little crazy to fund the competition of the very automakers you're trying to rescue.
And then there are the bailout deals that make no sense at all. Republicans go mad over spending on health care and school for Mexican illegals. So why aren't they flipping out over the $9.6 billion in loans the Fed made to the Central Bank of Mexico? How do we explain the $2.2 billion in loans that went to the Korea Development Bank, the biggest state bank of South Korea, whose sole purpose is to promote development in South Korea? And at a time when America is borrowing from the Middle East at interest rates of three percent, why did the Fed extend $35 billion in loans to the Arab Banking Corporation of Bahrain at interest rates as low as one quarter of one point?
Even more disturbing, the major stakeholder in the Bahrain bank is none other than the Central Bank of Libya, which owns 59 percent of the operation. In fact, the Bahrain bank just received a special exemption from the U.S. Treasury to prevent its assets from being frozen in accord with economic sanctions. That's right: Muammar Qaddafi received more than 70 loans from the Federal Reserve, along with the Real Housewives of Wall Street.
Perhaps the most irritating facet of all of these transactions is the fact that hundreds of millions of Fed dollars were given out to hedge funds and other investors with addresses in the Cayman Islands. Many of those addresses belong to companies with American affiliations — including prominent Wall Street names like Pimco, Blackstone and . . . Christy Mack. Yes, even Waterfall TALF Opportunity is an offshore company. It's one thing for the federal government to look the other way when Wall Street hotshots evade U.S. taxes by registering their investment companies in the Cayman Islands. But subsidizing tax evasion? Giving it a federal bailout? What the fuck?
As America girds itself for another round of lunatic political infighting over which barely-respirating social program or urgently necessary federal agency must have their budgets permanently sacrificed to the cause of billionaires being able to keep their third boats in the water, it's important to point out just how scarce money isn't in certain corners of the public-spending universe. In the coming months, when you watch Republican congressional stooges play out the desperate comedy of solving America's deficit problems by making fewer photocopies of proposed bills, or by taking an ax to budgetary shrubberies like NPR or the SEC, remember Christy Mack and her fancy new carriage house. There is no belt-tightening on the other side of the tracks. Just a free lunch that never ends.
AT-AT for America
Mike Kohler of Oklahoma City has a dream: to reinvigorate America through the construction of a fully operational, full scale Star Wars AT-AT walker. One week ago he posted his dream on his AT-AT for America Tumblr, and now the Internet, that slumbering giant of nerdic energy, awakens, ready to make that dream a reality. The only question: will the imminent Kickstarter project (watch the Tumblr for the announcement) fund even faster than Detroit’s Robocop statue?
via Frank Escamilla
(from Laughing Squid)
US banks to settle on financial crisis penalties
(Bastards!--jef)
US banks to settle on financial crisis penalties: report
By Agence France-Presse
Friday, April 15th, 2011
NEW YORK (AFP) – Several major US banks are close to an agreement with the Wall Street regulator to settle fraud allegations related to the "toxic" mortgages behind the 2008 financial crisis, a report said Friday.
An initial agreement with the Securities and Exchange Commission (SEC) could be settled next week, the Wall Street Journal said, citing sources close to the case, noting penalties would likely vary for different institutions.
Among the banks in negotiations with the SEC are JPMorgan Chase, Citigroup, Morgan Stanley, Merrill Lynch, Bank of America and UBS.
Few of the settlements are likely to top the $550-million penalty imposed on the Goldman Sachs Group in 2010 over allegations it misled investors over a mortgage investment program, the Journal said.
The financial crisis that stemmed from trillions of dollars in risky mortgages promoted by the top Wall Street firms has engulfed the globe and cost millions of jobs in the years since.
That mortgage bubble grew, burst and infected banks' balance sheets thanks to the magnifying effect of complex financial derivatives, noted an official US report issued earlier this year.
The Financial Crisis Inquiry Commission, after reviewing millions of pages of documents and interviewing around 700 witnesses, concluded in January that bankers, lawmakers, regulators and irresponsible borrowers all helped plunge the world into financial panic.
"This financial crisis was avoidable. The crisis was the result of human action and inaction, not Mother Nature or computer models gone haywire," the report said.
The Two-Tiered Justice System: An Illustration
Friday, April 15, 2011 by Salon.com
by Glenn Greenwald
by Glenn Greenwald
Of all the topics on which I've focused, I've likely written most about America's two-tiered justice system -- the way in which political and financial elites now enjoy virtually full-scale legal immunity for even the most egregious lawbreaking, while ordinary Americans, especially the poor and racial and ethnic minorities, are subjected to exactly the opposite treatment: the world's largest prison state and most merciless justice system. That full-scale destruction of the rule of law is also the topic of my forthcoming book. But The New York Times this morning has a long article so perfectly illustrating what I mean by "two-tiered justice system" -- and the way in which it obliterates the core covenant of the American Founding: equality before the law -- that it's impossible for me not to highlight it.
The article's headline tells most of the story: "In Financial Crisis, No Prosecutions of Top Figures." It asks: "why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?" And it recounts that not only have no high-level culprits been indicted (or even subjected to meaningful criminal investigations), but few have suffered any financial repercussions in the form of civil enforcements or other lawsuits. The evidence of rampant criminality that led to the 2008 financial crisis is overwhelming, but perhaps the clearest and most compelling such evidence comes from long-time Wall-Street-servant Alan Greenspan; even he was forced to acknowledge that much of the precipitating conduct was "certainly illegal and clearly criminal" and that "a lot of that stuff was just plain fraud."
Despite that clarity and abundance of the evidence proving pervasive criminality, it's entirely unsurprising that there have been no real criminal investigations or prosecutions. That's because the overarching "principle" of our justice system is that criminal prosecutions are only for ordinary rabble, not for those who are most politically and financially empowered. We have thus created precisely the two-tiered justice system against which the Founders most stridently warned and which contemporary legal scholars all agree is the hallmark of a lawless political culture. Lest there be any doubt about that claim, just consider the following facts and events:
When Bush officials were revealed to have established a worldwide torture regime (including tactics which Obama's Attorney General flatly stated were illegal) and spied on Americans without the warrants required by law (which Obama himself insisted was criminal), what happened? This, from The New York Times, January 11, 2009:
And when Spanish prosecutors decided, in light of Obama's refusal, that it would criminally investigate the torture by American officials to which its citizens were subjected by the U.S., what happened? This, from Mother Jones, December 1, 2010:
When telecoms get caught participating in Bush's illegal eavesdropping program in violation of multiple federal statutes, what happened? This, from TPM, February 12, 2008:
And that, in turn, led to this, from The New York Times, June 3, 2009:
And when the CIA got caught destroying videotapes of its "interrogation" sessions with accused Terrorists even in the face of multiple court orders directing that they preserve such evidence -- acts which even the establishment-serving, rhetorically restrained co-Chairmen of the 9/11 Commission strongly suggested constituted "obstruction" of justice -- what happened? This, from Politico, November 9, 2010:
And when it came time to decide what to do with one of the most brazen and egregious lawbreakers in the financial world -- former Countrywide CEO Angelo Mozilo, whose fraud was so glaring that he was one of the very few to suffer any consequences (forced to pay a paltry $40 million out of his $500 million fortune) -- what happened? This, from AP, February 10, 2011:
All of that stands in the starkest possible contrast to how ordinary Americans -- especially the poor and racial and ethnic minorities -- are treated by this same "justice system": with incomparably harsh and merciless punishment. From The New York Times, April 23, 2008:
The virtually full-scale immunity now vested in political and financial elites stands in just as stark contrast to the treatment received by those who reveal wrongdoing, corruption and illegality by those elites -- from The New York Times, June 11, 2010:
And, from CBS News, March 11, 2011:
And this overflowing forgiveness and generosity toward elites stands in starkest contrast to foreign nationals accused of Terrorism, who are literally rendered non-persons and denied all rights - from The Washington Post, March 11, 2011:
And, from the ACLU, September 15, 2009:
In a 1795 letter, George Washington vowed that "the executive branch of this government never has, nor will suffer, while I preside, any improper conduct of its officers to escape with impunity." Thomas Jefferson -- in an April 16, 1784, letter to Washington -- argued that the foundation on which American justice must rest is "the denial of every preeminence." It's literally difficult to imagine how we could be further away from those core principles. That the culprits who caused one of the worst financial crises in modern history have been fully shielded from the consequences of their acts -- set along side the torturers and illegal eavesdroppers who have been similarly protected -- illustrates that quite compellingly.
The article's headline tells most of the story: "In Financial Crisis, No Prosecutions of Top Figures." It asks: "why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?" And it recounts that not only have no high-level culprits been indicted (or even subjected to meaningful criminal investigations), but few have suffered any financial repercussions in the form of civil enforcements or other lawsuits. The evidence of rampant criminality that led to the 2008 financial crisis is overwhelming, but perhaps the clearest and most compelling such evidence comes from long-time Wall-Street-servant Alan Greenspan; even he was forced to acknowledge that much of the precipitating conduct was "certainly illegal and clearly criminal" and that "a lot of that stuff was just plain fraud."
Despite that clarity and abundance of the evidence proving pervasive criminality, it's entirely unsurprising that there have been no real criminal investigations or prosecutions. That's because the overarching "principle" of our justice system is that criminal prosecutions are only for ordinary rabble, not for those who are most politically and financially empowered. We have thus created precisely the two-tiered justice system against which the Founders most stridently warned and which contemporary legal scholars all agree is the hallmark of a lawless political culture. Lest there be any doubt about that claim, just consider the following facts and events:
When Bush officials were revealed to have established a worldwide torture regime (including tactics which Obama's Attorney General flatly stated were illegal) and spied on Americans without the warrants required by law (which Obama himself insisted was criminal), what happened? This, from The New York Times, January 11, 2009:
And when Spanish prosecutors decided, in light of Obama's refusal, that it would criminally investigate the torture by American officials to which its citizens were subjected by the U.S., what happened? This, from Mother Jones, December 1, 2010:
When telecoms get caught participating in Bush's illegal eavesdropping program in violation of multiple federal statutes, what happened? This, from TPM, February 12, 2008:
And that, in turn, led to this, from The New York Times, June 3, 2009:
And when the CIA got caught destroying videotapes of its "interrogation" sessions with accused Terrorists even in the face of multiple court orders directing that they preserve such evidence -- acts which even the establishment-serving, rhetorically restrained co-Chairmen of the 9/11 Commission strongly suggested constituted "obstruction" of justice -- what happened? This, from Politico, November 9, 2010:
And when it came time to decide what to do with one of the most brazen and egregious lawbreakers in the financial world -- former Countrywide CEO Angelo Mozilo, whose fraud was so glaring that he was one of the very few to suffer any consequences (forced to pay a paltry $40 million out of his $500 million fortune) -- what happened? This, from AP, February 10, 2011:
All of that stands in the starkest possible contrast to how ordinary Americans -- especially the poor and racial and ethnic minorities -- are treated by this same "justice system": with incomparably harsh and merciless punishment. From The New York Times, April 23, 2008:
The virtually full-scale immunity now vested in political and financial elites stands in just as stark contrast to the treatment received by those who reveal wrongdoing, corruption and illegality by those elites -- from The New York Times, June 11, 2010:
And, from CBS News, March 11, 2011:
And this overflowing forgiveness and generosity toward elites stands in starkest contrast to foreign nationals accused of Terrorism, who are literally rendered non-persons and denied all rights - from The Washington Post, March 11, 2011:
And, from the ACLU, September 15, 2009:
In a 1795 letter, George Washington vowed that "the executive branch of this government never has, nor will suffer, while I preside, any improper conduct of its officers to escape with impunity." Thomas Jefferson -- in an April 16, 1784, letter to Washington -- argued that the foundation on which American justice must rest is "the denial of every preeminence." It's literally difficult to imagine how we could be further away from those core principles. That the culprits who caused one of the worst financial crises in modern history have been fully shielded from the consequences of their acts -- set along side the torturers and illegal eavesdroppers who have been similarly protected -- illustrates that quite compellingly.
House Passes GOP Plan to Erase Medicare, Cripple Medicaid
Friday, April 15, 2011 by Agence France-Presse
US House Passes Republican Spending Plan
WASHINGTON — President Barack Obama's Republican foes in the US House of Representatives muscled their politically risky budget to passage Friday, calling it the cure to out-of-control government spending.
US Speaker of the House John Boehner. The GOP budget, put forth by Congressman Paul Ryan of Wisconsin, slashes taxes on the richest Americans and corporations while cutting the Medicare and Medicaid health programs for the elderly, poor, and disabled. In an almost perfectly party-line vote, lawmakers voted 235-193 to approve the non-binding spending blueprint crafted by Republican Representative Paul Ryan and roundly denounced by Democrats from Obama on down.
Ryan's budget aims to cut some $4.4 trillion from deficits over the next decade, slash taxes on the richest Americans and corporations, and cut the Medicare and Medicaid health programs for the elderly, poor, and disabled.
"It's a serious step in the right direction. And I'm really hopeful that the president will take his job as seriously as we're taking ours," Republican House Speaker John Boehner said ahead of the vote.
The measure seemed sure to die in the Democratic-held Senate.
Democrats have pounded away at the Medicare and Medicaid cuts, warning elderly voters who helped Republicans rout them in November elections that enacting the blueprint would destroy the popular health programs.
"Do you realize that your leadership is asking you to cast a vote today to abolish Medicare as we know it?" Democratic House Minority Leader Nancy Pelosi said in a speech on the House floor.
Ryan's plan aims to limit the potential political damage by keeping benefits intact for people currently 55 years old or over while selling younger voters on the idea that the cuts are the price of saving the popular programs.
Ryan's plan would privatize the Medicare health program for older Americans, providing payments directly to private insurance plans, and turn the Medicaid health program for the poor from a partnership between Washington and the states into block grants from the federal government.
Critics have charged that the Medicare approach is a recipe for cost controls by rationing care, and that the Medicaid plan would starve states of cash if an economic downturn forces more people to seek shelter in that program.
The two programs, enacted in 1965, reach nearly 100 million Americans and are critical parts of the fraying US social safety net, burdened by a surge in retirees and swollen by growing ranks of newly poor in the 2008 economic crisis.
US House Passes Republican Spending Plan
WASHINGTON — President Barack Obama's Republican foes in the US House of Representatives muscled their politically risky budget to passage Friday, calling it the cure to out-of-control government spending.
US Speaker of the House John Boehner. The GOP budget, put forth by Congressman Paul Ryan of Wisconsin, slashes taxes on the richest Americans and corporations while cutting the Medicare and Medicaid health programs for the elderly, poor, and disabled. In an almost perfectly party-line vote, lawmakers voted 235-193 to approve the non-binding spending blueprint crafted by Republican Representative Paul Ryan and roundly denounced by Democrats from Obama on down.
Ryan's budget aims to cut some $4.4 trillion from deficits over the next decade, slash taxes on the richest Americans and corporations, and cut the Medicare and Medicaid health programs for the elderly, poor, and disabled.
"It's a serious step in the right direction. And I'm really hopeful that the president will take his job as seriously as we're taking ours," Republican House Speaker John Boehner said ahead of the vote.
The measure seemed sure to die in the Democratic-held Senate.
Democrats have pounded away at the Medicare and Medicaid cuts, warning elderly voters who helped Republicans rout them in November elections that enacting the blueprint would destroy the popular health programs.
"Do you realize that your leadership is asking you to cast a vote today to abolish Medicare as we know it?" Democratic House Minority Leader Nancy Pelosi said in a speech on the House floor.
Ryan's plan aims to limit the potential political damage by keeping benefits intact for people currently 55 years old or over while selling younger voters on the idea that the cuts are the price of saving the popular programs.
Ryan's plan would privatize the Medicare health program for older Americans, providing payments directly to private insurance plans, and turn the Medicaid health program for the poor from a partnership between Washington and the states into block grants from the federal government.
Critics have charged that the Medicare approach is a recipe for cost controls by rationing care, and that the Medicaid plan would starve states of cash if an economic downturn forces more people to seek shelter in that program.
The two programs, enacted in 1965, reach nearly 100 million Americans and are critical parts of the fraying US social safety net, burdened by a surge in retirees and swollen by growing ranks of newly poor in the 2008 economic crisis.
Thursday, April 14, 2011
Criminal Charges Loom For Goldman Sachs After Scathing Senate Report
Thursday, April 14, 2011 by Forbes
by Halah Touryalai
In fact, Levin is referred to that very testimony yesterday saying he doesn’t think Goldman executives were being truthful about its activity, and that he would refer the testimony to the Department of Justice and the Securities and Exchange Commission for possible criminal investigations.
“In my judgment, Goldman clearly misled their clients and they misled the Congress,” he said.
Goldman isn’t alone in feeling Levin’s wrath though. The report also points to Deutsche Bank AG (DB) saying the Frankfurt-based company created a $1.1 billion CDO with assets that its traders referred to as “crap” and “pigs” but then attempted to sell “before the market falls off a cliff.”
Not even credit rating agencies are spared in this report which concluded that “the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills.”
Here’s more:
At this stage, do we think the SEC can handle that?
by Halah Touryalai
A Senate panel released a damning report accusing the likes of Goldman Sachs of engaging in massive conflicts of interest, contaminating the U.S. financial system with toxic mortgages and undermining public trust in U.S. markets in the months leading up to the financial crisis.
Senator Carl Levin says Goldman execs may have committed perjury in their Senate testimony last year. Just when you thought Washington lawmakers were over that whole financial crisis thing, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla, blast Wall Street in a 635-page report stemming from a 2-year bipartisan investigation on the key causes of the crisis.
The report comes at a time when much of the feeling from lawmakers in Washington is that Wall Street is being over-regulated by the new Dodd-Frank rules.
The report from the Senate’s Permanent Subcommittee on Investigations however takes an opposite view by citing internal documents and private communications of bank executives, regulators, credit ratings agencies and investors to depict an industry that was rife with conflicts of interest and reckless during the mortgage surge.
Senator Levin said in the release yesterday:
Hear Levin say “shitty deal” numerous times:
Senator Carl Levin says Goldman execs may have committed perjury in their Senate testimony last year. Just when you thought Washington lawmakers were over that whole financial crisis thing, Senator Carl Levin, D-Mich., and Senator Tom Coburn M.D., R-Okla, blast Wall Street in a 635-page report stemming from a 2-year bipartisan investigation on the key causes of the crisis.
The report comes at a time when much of the feeling from lawmakers in Washington is that Wall Street is being over-regulated by the new Dodd-Frank rules.
The report from the Senate’s Permanent Subcommittee on Investigations however takes an opposite view by citing internal documents and private communications of bank executives, regulators, credit ratings agencies and investors to depict an industry that was rife with conflicts of interest and reckless during the mortgage surge.
Senator Levin said in the release yesterday:
“Using emails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” said Levin. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets. Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them. Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”The report takes specific issue with the way Goldman Sachs touted investments to clients on one end but bet against them on the other. A similar accusation against Goldman by the SEC lead to a $550 settlement last year, but Levin and his team don’t think that punishment fits the crime. From the report:
When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities. At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions.This isn’t the first time Levin is gunning for Goldman. Back in April 2010, the Senator had a memorable back-and-forth with a Goldman executive during a testimony where the two discussed a “shitty deal” the firm was selling to clients.
New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests. For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement.
New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.
Hear Levin say “shitty deal” numerous times:
In fact, Levin is referred to that very testimony yesterday saying he doesn’t think Goldman executives were being truthful about its activity, and that he would refer the testimony to the Department of Justice and the Securities and Exchange Commission for possible criminal investigations.
“In my judgment, Goldman clearly misled their clients and they misled the Congress,” he said.
Goldman isn’t alone in feeling Levin’s wrath though. The report also points to Deutsche Bank AG (DB) saying the Frankfurt-based company created a $1.1 billion CDO with assets that its traders referred to as “crap” and “pigs” but then attempted to sell “before the market falls off a cliff.”
Not even credit rating agencies are spared in this report which concluded that “the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills.”
Here’s more:
Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.” Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect.Among the 19 recommendations from the panel on how to handle the problems is one suggestion that asks the SEC to rank credit rating agencies according to the accuracy of their ratings.
They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings. The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006.
When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.
At this stage, do we think the SEC can handle that?
The False Debate on the Debt
Wednesday, April 13, 2011 by TruthDig.com
by Robert Scheer
In the ever-so-smug company of the rich and powerful it is a given that there is never to be any expression of remorse or other acknowledgement of the pain they have inflicted on the lesser mortals they so cavalierly plunder. It’s convenient for them that the media and the politicians, which they happen to own, rarely connect the dots between the scams that made the rich so rich and the alarming rise in the federal debt that is crushing this nation.
The result of this purchased public myopia is that we are left with an absurd debate over how deeply to cut teachers’ pensions and seniors’ medical benefits while preserving tax breaks for the superrich and their large corporations. At a time when 10 million American families will have lost their homes by year’s end, when $5.6 trillion in home equity has been wiped out, when most Americans face steep unemployment rates and stagnant wages, a Democratic president is likely to compromise with Republican ideologues who insist that further cuts in taxes for the rich is the way to bring back jobs.
Let’s deal right off with that canard. There is currently no shortage of corporate profits or excessive executive compensation to explain away the failure of the private sector to create jobs. On the contrary, as The New York Times reports, “In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.” And to add insult to injury, the top executives, who seem unable or unwilling to create jobs or adequately reward their workers, have increased their own compensation by a whopping 12 percent over the previous year, setting the median pay at $9.6 million per year for those in control of the leading 200 companies. The Times adds that “C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all of those taxpayer-financed bailouts.”
Lost in this faux debate is the reality that our debt now looms so large because the government had to bail out many of those same corporations, quite a few of which, like General Electric and AIG, pay no taxes and have no problem paying truly obscene amounts to their top executives. GE CEO Jeffrey Immelt, whom President Barack Obama named chairman of the Council on Jobs and Competitiveness, is making as much as he did before the recession hit, a recession that his GE Capital division did much to cause with its reckless loans. AIG, saved with a government infusion of $170 billion, has just lavishly rewarded its top executives but has providing no relief for the homeowners ripped off by its phony credit default swaps.
The AIG deal was engineered by then-President of the New York Fed Timothy Geithner, who was rewarded for his efforts to save the bankers by being named Obama’s treasury secretary. Geithner, an energetic member of the team of Robert Rubin and Lawrence Summers that ran Treasury when the Bill Clinton administration cooperated with congressional Republicans in gutting regulation of the financial community, is proud of saving the banks from the wreckage that they and the Clinton policies caused. Last October he proclaimed the TARP banker bailout program “the most effective government program in recent memory.”
What he is referring to is that in order to escape the federal restrictions on executive compensation, the banks have been eager to pay back the TARP funds. What he and other apologists for the Obama and George W. Bush administrations’ Bankers First program choose to ignore—as Paul Atkins and two other members of the Congressional Oversight Panel for the Troubled Asset Relief Program revealed in a damning Wall Street Journal column titled “TARP Was No Win for the Taxpayers”—is that the banks are not paying back the trillions of dollars in non-TARP governmental assistance that saved them from bankruptcy. ” … It hides the full story of the government’s financial crisis effort, of which TARP is but a minor part,” the Op-Ed column said of the maneuvering. The major part is the $1.1 trillion in toxic-mortgage-based securities that the Fed purchased, relieving the banks of their obligations, and the $380 billion bailout of Fannie Mae and Freddie Mac, organizations that backed those securities, along with “other Fed and FDIC programs [that] added another $2 trillion of taxpayer money at risk to the 19 stress-tested banks alone. …”
What Geithner celebrates is a shell game of his own construction in which far more costly federal programs, with no serious restrictions on banker greed, were used by the banks to “repay” the TARP funds. Nothing was obtained in return from those banks in the way of mortgage cramdowns to keep people in their homes or any restrictions on the interest rates that banks charge on credit cards: Clearly usurious rates of more than 25 percent are now the norm for those struggling to keep their families above water. No wonder consumer confidence is down, the housing market is expected to decline an additional 10 percent over the next year, and the job market is predicted by most of the experts to stagnate for years to come. Continued tax breaks for the 1 percent of the population that controls 40 percent of the nation’s wealth will do nothing to restore the confidence of the other 99 percent of consumers who are suffering so.
This at least Obama seems to understand, but count on him to betray his own better instincts by once again following the advice of his treasury secretary and the Wall Street crowd that contributed so lavishly to his first presidential campaign and whose support he seeks once again.
by Robert Scheer
In the ever-so-smug company of the rich and powerful it is a given that there is never to be any expression of remorse or other acknowledgement of the pain they have inflicted on the lesser mortals they so cavalierly plunder. It’s convenient for them that the media and the politicians, which they happen to own, rarely connect the dots between the scams that made the rich so rich and the alarming rise in the federal debt that is crushing this nation.
The result of this purchased public myopia is that we are left with an absurd debate over how deeply to cut teachers’ pensions and seniors’ medical benefits while preserving tax breaks for the superrich and their large corporations. At a time when 10 million American families will have lost their homes by year’s end, when $5.6 trillion in home equity has been wiped out, when most Americans face steep unemployment rates and stagnant wages, a Democratic president is likely to compromise with Republican ideologues who insist that further cuts in taxes for the rich is the way to bring back jobs.
Let’s deal right off with that canard. There is currently no shortage of corporate profits or excessive executive compensation to explain away the failure of the private sector to create jobs. On the contrary, as The New York Times reports, “In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.” And to add insult to injury, the top executives, who seem unable or unwilling to create jobs or adequately reward their workers, have increased their own compensation by a whopping 12 percent over the previous year, setting the median pay at $9.6 million per year for those in control of the leading 200 companies. The Times adds that “C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all of those taxpayer-financed bailouts.”
Lost in this faux debate is the reality that our debt now looms so large because the government had to bail out many of those same corporations, quite a few of which, like General Electric and AIG, pay no taxes and have no problem paying truly obscene amounts to their top executives. GE CEO Jeffrey Immelt, whom President Barack Obama named chairman of the Council on Jobs and Competitiveness, is making as much as he did before the recession hit, a recession that his GE Capital division did much to cause with its reckless loans. AIG, saved with a government infusion of $170 billion, has just lavishly rewarded its top executives but has providing no relief for the homeowners ripped off by its phony credit default swaps.
The AIG deal was engineered by then-President of the New York Fed Timothy Geithner, who was rewarded for his efforts to save the bankers by being named Obama’s treasury secretary. Geithner, an energetic member of the team of Robert Rubin and Lawrence Summers that ran Treasury when the Bill Clinton administration cooperated with congressional Republicans in gutting regulation of the financial community, is proud of saving the banks from the wreckage that they and the Clinton policies caused. Last October he proclaimed the TARP banker bailout program “the most effective government program in recent memory.”
What he is referring to is that in order to escape the federal restrictions on executive compensation, the banks have been eager to pay back the TARP funds. What he and other apologists for the Obama and George W. Bush administrations’ Bankers First program choose to ignore—as Paul Atkins and two other members of the Congressional Oversight Panel for the Troubled Asset Relief Program revealed in a damning Wall Street Journal column titled “TARP Was No Win for the Taxpayers”—is that the banks are not paying back the trillions of dollars in non-TARP governmental assistance that saved them from bankruptcy. ” … It hides the full story of the government’s financial crisis effort, of which TARP is but a minor part,” the Op-Ed column said of the maneuvering. The major part is the $1.1 trillion in toxic-mortgage-based securities that the Fed purchased, relieving the banks of their obligations, and the $380 billion bailout of Fannie Mae and Freddie Mac, organizations that backed those securities, along with “other Fed and FDIC programs [that] added another $2 trillion of taxpayer money at risk to the 19 stress-tested banks alone. …”
What Geithner celebrates is a shell game of his own construction in which far more costly federal programs, with no serious restrictions on banker greed, were used by the banks to “repay” the TARP funds. Nothing was obtained in return from those banks in the way of mortgage cramdowns to keep people in their homes or any restrictions on the interest rates that banks charge on credit cards: Clearly usurious rates of more than 25 percent are now the norm for those struggling to keep their families above water. No wonder consumer confidence is down, the housing market is expected to decline an additional 10 percent over the next year, and the job market is predicted by most of the experts to stagnate for years to come. Continued tax breaks for the 1 percent of the population that controls 40 percent of the nation’s wealth will do nothing to restore the confidence of the other 99 percent of consumers who are suffering so.
This at least Obama seems to understand, but count on him to betray his own better instincts by once again following the advice of his treasury secretary and the Wall Street crowd that contributed so lavishly to his first presidential campaign and whose support he seeks once again.
House Progressives: End The Wars, Save The Economy
Wednesday, April 13, 2011 by TalkingPointsMemo
by Evan McMorris-Santoro
Representatives from the 77-member House Progressive Caucus gathered at the Capitol on Wednesday to roll out their plan to cut the deficit and put the budget back into balance. Their simple solution: pull the troops out of Iraq and Afghanistan, install a public option for health care, raise taxes on the wealthy and corporations and voila, America is fixed.
The caucus plan, known as The People's Budget, was explained in some detail by Columbia University economist Jeffrey Sachs last week.
Today, progressive members extolled the virtues of the plan as members sat waiting for President Obama to introduce a deficit reduction plan many Democrats worried would sacrifice necessary spending on the altar of a mistaken understanding of fiscal responsibility.
Sachs was on hand at Wednesday's presser. He called the progressive plan "the only budget proposal that makes sense in this country."
The Republican budget plan authored by Rep. Paul Ryan (R-WI) "obviously would destroy our government and hit the poorest people in this country all for the sake, the obsessive sake, of lowering tax rates further for the richest people in this country."
"And unfortunately, the President goes halfway," Sachs added. "When he speaks today, he's also talking about freezing, cutting the civilian discretionary budget in this country."
The members said their budget fixes things the right way.
"We feel [our budget] is rooted in fairness, recognizing that if this country's going to work, it's got to work for everyone," Rep. Raul Grijalva (D-AZ), co-chair of the caucus, said.
Grijalva said the American people want a budget that will "preserve Social Security" and "enhance Medicare and Medicaid." Americans want "education to be invested in" and they want "policies that will create jobs."
The way to get there, Grijalva and the rest of the caucus members at the press event today said, is through an increase in taxes and ending the wars.
"We want to cut," Grijalva added. What's on the progressive caucus chopping block? "Eliminating unnecessary weapons systems from the Defense Department, eliminating huge tax credits for oil and gas industries, eliminating subsidies for new nuclear power plans," Grijalva said.
The plan would "eliminate the deficit," supporters say, and put the nation budget in surplus by 2021. Read the whole plan here.
"Budgets set priorities," Rep. Keith Ellison (D-MN), the other chair of the caucus, explained. "You can look at any nation's budget, or any family's budget and you can determine what they value, what they think really matters."
"Now what we think in the progressive caucus matters...is equity," he continued. "That means we ask the most wealthy Americans to help us carry the load of the expense of this nation. Another key value we care about is peace. So we're getting out of these wars, they're not bringing peace to America and they're incredibly expensive, not only in dollars but in the lives of our American soldiers."
This is the fourth time the caucus has introduced its own budget, and Grijalva told reporters that though a budget predicated on tax increases and an end to the wars is a decided longshot on Capitol Hill, introducing it puts the progressive message into the debate over how to clean up the national budget mess.
"The motivation was to compare and contrast," he said. "We are trying with this budget to say that there are other choices out there for the American people. It's not always the choice of compromising in the middle or playing around the edges."
Rep. John Conyers (R-MI), a member of the caucus and a veteran of his share of longshot political fights, said that the only way plans like his caucus' budget will come to pass is if progressives fight for it in the way the tea party has fought for policies similar to the Ryan budget.
"It's about time we start joining with our allies and marching, and protesting and going to the White House," he said. "The rhetoric is beautiful, the speeches are great, but until we start protesting with thousands of people backing up the Progressive Caucus, we're just another group that issues press releases on Wednesday."
by Evan McMorris-Santoro
Representatives from the 77-member House Progressive Caucus gathered at the Capitol on Wednesday to roll out their plan to cut the deficit and put the budget back into balance. Their simple solution: pull the troops out of Iraq and Afghanistan, install a public option for health care, raise taxes on the wealthy and corporations and voila, America is fixed.
The caucus plan, known as The People's Budget, was explained in some detail by Columbia University economist Jeffrey Sachs last week.
Today, progressive members extolled the virtues of the plan as members sat waiting for President Obama to introduce a deficit reduction plan many Democrats worried would sacrifice necessary spending on the altar of a mistaken understanding of fiscal responsibility.
Sachs was on hand at Wednesday's presser. He called the progressive plan "the only budget proposal that makes sense in this country."
The Republican budget plan authored by Rep. Paul Ryan (R-WI) "obviously would destroy our government and hit the poorest people in this country all for the sake, the obsessive sake, of lowering tax rates further for the richest people in this country."
"And unfortunately, the President goes halfway," Sachs added. "When he speaks today, he's also talking about freezing, cutting the civilian discretionary budget in this country."
The members said their budget fixes things the right way.
"We feel [our budget] is rooted in fairness, recognizing that if this country's going to work, it's got to work for everyone," Rep. Raul Grijalva (D-AZ), co-chair of the caucus, said.
Grijalva said the American people want a budget that will "preserve Social Security" and "enhance Medicare and Medicaid." Americans want "education to be invested in" and they want "policies that will create jobs."
The way to get there, Grijalva and the rest of the caucus members at the press event today said, is through an increase in taxes and ending the wars.
"We want to cut," Grijalva added. What's on the progressive caucus chopping block? "Eliminating unnecessary weapons systems from the Defense Department, eliminating huge tax credits for oil and gas industries, eliminating subsidies for new nuclear power plans," Grijalva said.
The plan would "eliminate the deficit," supporters say, and put the nation budget in surplus by 2021. Read the whole plan here.
"Budgets set priorities," Rep. Keith Ellison (D-MN), the other chair of the caucus, explained. "You can look at any nation's budget, or any family's budget and you can determine what they value, what they think really matters."
"Now what we think in the progressive caucus matters...is equity," he continued. "That means we ask the most wealthy Americans to help us carry the load of the expense of this nation. Another key value we care about is peace. So we're getting out of these wars, they're not bringing peace to America and they're incredibly expensive, not only in dollars but in the lives of our American soldiers."
This is the fourth time the caucus has introduced its own budget, and Grijalva told reporters that though a budget predicated on tax increases and an end to the wars is a decided longshot on Capitol Hill, introducing it puts the progressive message into the debate over how to clean up the national budget mess.
"The motivation was to compare and contrast," he said. "We are trying with this budget to say that there are other choices out there for the American people. It's not always the choice of compromising in the middle or playing around the edges."
Rep. John Conyers (R-MI), a member of the caucus and a veteran of his share of longshot political fights, said that the only way plans like his caucus' budget will come to pass is if progressives fight for it in the way the tea party has fought for policies similar to the Ryan budget.
"It's about time we start joining with our allies and marching, and protesting and going to the White House," he said. "The rhetoric is beautiful, the speeches are great, but until we start protesting with thousands of people backing up the Progressive Caucus, we're just another group that issues press releases on Wednesday."
Wednesday, April 13, 2011
Putting People to Work
The Kind of Stimulus We Need
By ALAN NASSER
Ben Bernanke's second round of bond buying, QE2, has been a grand flop. Housing sales and prices are falling at an unhealthy clip, foreclosures and bankruptcies continue to mount and QE2 has had no measurable impact on the dismal employment picture. Nor should we expect it to. A study by the highly reliable Macroeconomic Advisors indicates that even an additional $1.5 trillion bond purchase by the Fed would reduce unemployment by a mere two tenths of one percent. (J. Hilsenrath, "Fed Fires $660 Billion Stimulus Shot", Wall Street Journal, November 4, 2010)
Progressives and all Leftists feel vindicated in their insistence that fiscal stimulus is the order of the day. Obama's February 2009 stimulus, it is argued, was on the right track. It saved the economy from a major collapse and created as many as 2 million jobs. But it was not enough to bring the economy to anything close to full employment or to reverse the housing decline and restore homeowners' equity.
The deficit doves conclude from this that a far bigger stimulus was required. The only problem with the administration's stimulus was its size. The notion that the principal Keynesian agenda is to stimulate aggregate demand is taken to be axiomatic. But it isn't.
Two Kinds of Fiscal Stimulus: Keynesian and Conventional/Neoliberal
The problem is not merely the size of the stimulus. The kind of stimulus adopted can make all the difference. Indeed, the kind of fiscal stimulus is what is at issue. This is overlooked by those who see that the impotence of monetary policy justifies the promotion of a fiscal alternative. But it's not enough to know that. For there are two kinds of fiscal stimulus corresponding to two possible policy goals. One has been demonstrated to work. The other has not fared so well.
Policy goals have to be precisely stated. Government might aim to close the "output gap", the difference between what the economy could be producing given existing resources, including of course the employable labor force, and what the economy is producing. This aim would require stimulating the production of total output. Government would take measures to stimulate the growth of Gross Domestic Product (GDP). But there is an alternative goal. Government might seek to close the employment gap, the different between the number of employable workers and the number of workers actually employed. The difference between these two aims of stimulus policy is not merely semantic.
Closing the output gap is a general and somewhat vague objective. It aims to stimulate "aggregate demand" or "growth". Closing the employment gap requires a specifically targeted stimulus, intended to stimulate not merely aggregate demand, but "effective demand". This was the kind of stimulus Keynes had in mind as his remedy for chronic unemployment. Aggregate demand stimulation is not authentically Keynesian. Keynes was explicit that the goal of macroeconomic stabilization policy is "a closer approximation of full employment as nearly as is practicable." (The General Theory, p. 378-379) He was unambiguous as to the principal effective means of accomplishing this goal: direct government job creation through public works projects.
The fiscal stimulus agenda of the Obama administration has been to stimulate aggregate demand. This is what some of the most prominent "Keynesian" economists urge. Paul Krugman writes that "we need policies to sustain aggregate demand." (New York Times Blog, January 19, 2011) And Joseph Stiglitz tells us that "the deficit increase has been caused by the enormous shortfall between the economy's potential and actual output." (Politico, March 28, 2011) Framing the problem this way reinforces the notion that the desireable goal is to increase the magnitude of the GDP. This policy has been ineffective in its stated purpose, to reduce unemployment. But the problem is not merely that the stimulus was not large enough.
The Achilles heel of aggregate demand policy is its implicit reliance on the market, and hence on a form of trickle-down theory. If the goal is merely to stimulate the production of GDP, government will provide incentives to companies to hire workers and to banks to provide credit. The former alternative consists of tax breaks and the latter of gifts of liquidity to the banks. We have seen that these policies do not work. The financial incentives do not trickle down to wage earners because employers will not hire and lenders will not lend to households with strikingly insufficient purchasing power. In a word, the problem is lack of effective demand.
The aggregate demand approach is what has passed as Keynesian policy since the end of the Second World War. Liberal champions of fiscal policy have sought to stabilize household incomes and consumption, and investment. There has been no direct effort to "stabilize", i.e. boost, employment. Jobs would be created, it was assumed, as a byproduct of stimulating household and business spending.
The Inadequacy of Conventional Market-Based Aggregate Demand Fiscal Policy
Is there any reason to believe that macroeconomic pump-priming has over the years significantly ameliorated capitalism's nagging unemployment problem? The key challenge here is to find a measure that gives a revealing picture of the situation of the unemployed over a three or four decade period. The recent record has been unarguably dismal. Obama's stimulus, The American Recovery and Reinvestment Act (ARRA) of early 2009, was touted as the launch of a strong jobs recovery. The Romer-Bernstein Report, released shortly after the ARRA legislation was passed, argued that without ARRA the unemployment rate would have peaked at 9 percent, and projected that with the stimulus unemployment would peak at no higher than 8 percent and would quickly fall through 2009 and into 2010. In fact, unemployment peaked at 10 percent after ARRA was passed and has hovered between 9 and 10 percent ever since.
To the extent that the unemployment rate has stabilized, i.e. not risen further, the predominant causal factor has been the great increase in discouraged workers who have given up looking for work. We are now witnessing the longest running decline in the labor force participation rate in postwar history. The employment-to-population ratio has not been as low as it is now -58 percent- since the Reagan-Volcker recession of the early 1980s.
Two current trends suggest a good measure of the long-term effectiveness of conventional fiscal policy. We are seeing both the mass destruction of full-time jobs, many of which will never return, and record levels of long-term unemployment (unemployed for 15 weeks or longer). Most revealing is that long-term unemployment has been rising since the late 1960s, and the short-term unemployed have been a shrinking percentage of all unemployed throughout the entire postwar period. Looking at the business cycle over the last forty years, a striking and ominous trend emerges: in each business-cyclical expansion, the long-term unemployment rate remains either at or above the level of the previous expansion. In a word, for the last forty years the short-term unemployed have been a declining, and the long-term unemployed an increasing, percentage of all unemployed. Is this what we should expect from successful conventional fiscal policy? (1)
The Virtues of Effective Demand Policy and Elite Resistance To It
If we want to close the employment gap, i.e. the labor demand gap, and not merely the output gap, the agenda should be to boost effective demand, not just overall output. This sharpens the policy objective. The unemployed are not evenly distributed across the country, and all cities and states are not distressed in the same way. This particular labor market is especially loose, that particular city is in especially dire straits. To be sure, desperation is evident across the board, but many of the illnesses and so the remedies are so to speak site-specific. Keynes recommended stimulus where it is needed. Jobs are needed for this specific infrastructure project, in this region, which requires workers with these skills and equipment of this kind.
If boosting effective demand is the explicit goal of fiscal policy, then work projects and the jobs they require must be provided directly by government. A resurrected Works Progress Administration is what will do the trick. It's a reasonable bet that attempts to stimulate the abstraction Aggregate Demand will do nothing for working people.
Aggregate demand policies work through the market; effective demand policies are initiated and implemented by government. Obama has repeatedly affirmed that any politically acceptable remedy for intractable joblessness must be market-based. His administration is commited to the view that "[While] government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector." In the same speech, he admonished those who push for a government jobs program "to face the fact that our resources are limited…It's not going to be possible for us to have a huge second stimulus, because frankly, we just don't have the money." (Speech at "jobs summit", December 3, 2009) The "critical role" that Obama assigns to government is of course giving tax breaks to companies and cash to banks.
The Obama administration has thus rejected effective demand management. Washington has pledged allegiance to its owners, the owning class. Logical arguments and steel-trap reasoning will not move the ruling class to adopt a policy whose first priority is to meet the specific needs of the working class. A genuinely Keynesian fiscal policy was embraced by FDR only after the mass actions of the 1930s. The labor actions of 1934 came close to a general strike. In that year San Francisco longshoremen called a West coast strike in defiance of their union leaders. 14,000 longshoremen and 25,000 maritime workers struck from Seattle to San Francisco. On the East coast textile workers coordinated a strike all along the coast. There were strikes by Auto-Lite workers in Toledo and Teamsters in Minneapolis. Sufficient fear of worker radicalization was struck in FDR to motivate the creation of Social Security and the large-scale public spending, employment-generating New Deal projects initiated less than a year after the labor upheavals, in 1935.
The key issue for the Left is clear: what are the present obstacles to mass mobilization, and how can they be overcome?
By ALAN NASSER
"Our greatest primary task is to put people to work."No reasonable economist denies that the economy's problems are grave and that some kind of remedial stimulus is required. Stimuli are of two kinds, fiscal and monetary. Fiscal stimuli subdivide into two types, one aiming to boost aggregate demand, the other to stimulate effective demand. Both types require, in a sustained recession, large-scale government deficit spending, which is presently ridiculed in Washington and Wall Street and given no serious consideration. On the contrary, policy makers' priority is to give deficit reduction the highest priority. This leaves but one alternative, to stimulate hiring and spending by monetary means, which has meant purchases by the Federal Reserve of Treasury bonds, now termed Quantitive Easing (QE).
-- Franklin Delano Roosevelt's 1933 inauguration address
Ben Bernanke's second round of bond buying, QE2, has been a grand flop. Housing sales and prices are falling at an unhealthy clip, foreclosures and bankruptcies continue to mount and QE2 has had no measurable impact on the dismal employment picture. Nor should we expect it to. A study by the highly reliable Macroeconomic Advisors indicates that even an additional $1.5 trillion bond purchase by the Fed would reduce unemployment by a mere two tenths of one percent. (J. Hilsenrath, "Fed Fires $660 Billion Stimulus Shot", Wall Street Journal, November 4, 2010)
Progressives and all Leftists feel vindicated in their insistence that fiscal stimulus is the order of the day. Obama's February 2009 stimulus, it is argued, was on the right track. It saved the economy from a major collapse and created as many as 2 million jobs. But it was not enough to bring the economy to anything close to full employment or to reverse the housing decline and restore homeowners' equity.
The deficit doves conclude from this that a far bigger stimulus was required. The only problem with the administration's stimulus was its size. The notion that the principal Keynesian agenda is to stimulate aggregate demand is taken to be axiomatic. But it isn't.
Two Kinds of Fiscal Stimulus: Keynesian and Conventional/Neoliberal
The problem is not merely the size of the stimulus. The kind of stimulus adopted can make all the difference. Indeed, the kind of fiscal stimulus is what is at issue. This is overlooked by those who see that the impotence of monetary policy justifies the promotion of a fiscal alternative. But it's not enough to know that. For there are two kinds of fiscal stimulus corresponding to two possible policy goals. One has been demonstrated to work. The other has not fared so well.
Policy goals have to be precisely stated. Government might aim to close the "output gap", the difference between what the economy could be producing given existing resources, including of course the employable labor force, and what the economy is producing. This aim would require stimulating the production of total output. Government would take measures to stimulate the growth of Gross Domestic Product (GDP). But there is an alternative goal. Government might seek to close the employment gap, the different between the number of employable workers and the number of workers actually employed. The difference between these two aims of stimulus policy is not merely semantic.
Closing the output gap is a general and somewhat vague objective. It aims to stimulate "aggregate demand" or "growth". Closing the employment gap requires a specifically targeted stimulus, intended to stimulate not merely aggregate demand, but "effective demand". This was the kind of stimulus Keynes had in mind as his remedy for chronic unemployment. Aggregate demand stimulation is not authentically Keynesian. Keynes was explicit that the goal of macroeconomic stabilization policy is "a closer approximation of full employment as nearly as is practicable." (The General Theory, p. 378-379) He was unambiguous as to the principal effective means of accomplishing this goal: direct government job creation through public works projects.
The fiscal stimulus agenda of the Obama administration has been to stimulate aggregate demand. This is what some of the most prominent "Keynesian" economists urge. Paul Krugman writes that "we need policies to sustain aggregate demand." (New York Times Blog, January 19, 2011) And Joseph Stiglitz tells us that "the deficit increase has been caused by the enormous shortfall between the economy's potential and actual output." (Politico, March 28, 2011) Framing the problem this way reinforces the notion that the desireable goal is to increase the magnitude of the GDP. This policy has been ineffective in its stated purpose, to reduce unemployment. But the problem is not merely that the stimulus was not large enough.
The Achilles heel of aggregate demand policy is its implicit reliance on the market, and hence on a form of trickle-down theory. If the goal is merely to stimulate the production of GDP, government will provide incentives to companies to hire workers and to banks to provide credit. The former alternative consists of tax breaks and the latter of gifts of liquidity to the banks. We have seen that these policies do not work. The financial incentives do not trickle down to wage earners because employers will not hire and lenders will not lend to households with strikingly insufficient purchasing power. In a word, the problem is lack of effective demand.
The aggregate demand approach is what has passed as Keynesian policy since the end of the Second World War. Liberal champions of fiscal policy have sought to stabilize household incomes and consumption, and investment. There has been no direct effort to "stabilize", i.e. boost, employment. Jobs would be created, it was assumed, as a byproduct of stimulating household and business spending.
The Inadequacy of Conventional Market-Based Aggregate Demand Fiscal Policy
Is there any reason to believe that macroeconomic pump-priming has over the years significantly ameliorated capitalism's nagging unemployment problem? The key challenge here is to find a measure that gives a revealing picture of the situation of the unemployed over a three or four decade period. The recent record has been unarguably dismal. Obama's stimulus, The American Recovery and Reinvestment Act (ARRA) of early 2009, was touted as the launch of a strong jobs recovery. The Romer-Bernstein Report, released shortly after the ARRA legislation was passed, argued that without ARRA the unemployment rate would have peaked at 9 percent, and projected that with the stimulus unemployment would peak at no higher than 8 percent and would quickly fall through 2009 and into 2010. In fact, unemployment peaked at 10 percent after ARRA was passed and has hovered between 9 and 10 percent ever since.
To the extent that the unemployment rate has stabilized, i.e. not risen further, the predominant causal factor has been the great increase in discouraged workers who have given up looking for work. We are now witnessing the longest running decline in the labor force participation rate in postwar history. The employment-to-population ratio has not been as low as it is now -58 percent- since the Reagan-Volcker recession of the early 1980s.
Two current trends suggest a good measure of the long-term effectiveness of conventional fiscal policy. We are seeing both the mass destruction of full-time jobs, many of which will never return, and record levels of long-term unemployment (unemployed for 15 weeks or longer). Most revealing is that long-term unemployment has been rising since the late 1960s, and the short-term unemployed have been a shrinking percentage of all unemployed throughout the entire postwar period. Looking at the business cycle over the last forty years, a striking and ominous trend emerges: in each business-cyclical expansion, the long-term unemployment rate remains either at or above the level of the previous expansion. In a word, for the last forty years the short-term unemployed have been a declining, and the long-term unemployed an increasing, percentage of all unemployed. Is this what we should expect from successful conventional fiscal policy? (1)
The Virtues of Effective Demand Policy and Elite Resistance To It
If we want to close the employment gap, i.e. the labor demand gap, and not merely the output gap, the agenda should be to boost effective demand, not just overall output. This sharpens the policy objective. The unemployed are not evenly distributed across the country, and all cities and states are not distressed in the same way. This particular labor market is especially loose, that particular city is in especially dire straits. To be sure, desperation is evident across the board, but many of the illnesses and so the remedies are so to speak site-specific. Keynes recommended stimulus where it is needed. Jobs are needed for this specific infrastructure project, in this region, which requires workers with these skills and equipment of this kind.
If boosting effective demand is the explicit goal of fiscal policy, then work projects and the jobs they require must be provided directly by government. A resurrected Works Progress Administration is what will do the trick. It's a reasonable bet that attempts to stimulate the abstraction Aggregate Demand will do nothing for working people.
Aggregate demand policies work through the market; effective demand policies are initiated and implemented by government. Obama has repeatedly affirmed that any politically acceptable remedy for intractable joblessness must be market-based. His administration is commited to the view that "[While] government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector." In the same speech, he admonished those who push for a government jobs program "to face the fact that our resources are limited…It's not going to be possible for us to have a huge second stimulus, because frankly, we just don't have the money." (Speech at "jobs summit", December 3, 2009) The "critical role" that Obama assigns to government is of course giving tax breaks to companies and cash to banks.
The Obama administration has thus rejected effective demand management. Washington has pledged allegiance to its owners, the owning class. Logical arguments and steel-trap reasoning will not move the ruling class to adopt a policy whose first priority is to meet the specific needs of the working class. A genuinely Keynesian fiscal policy was embraced by FDR only after the mass actions of the 1930s. The labor actions of 1934 came close to a general strike. In that year San Francisco longshoremen called a West coast strike in defiance of their union leaders. 14,000 longshoremen and 25,000 maritime workers struck from Seattle to San Francisco. On the East coast textile workers coordinated a strike all along the coast. There were strikes by Auto-Lite workers in Toledo and Teamsters in Minneapolis. Sufficient fear of worker radicalization was struck in FDR to motivate the creation of Social Security and the large-scale public spending, employment-generating New Deal projects initiated less than a year after the labor upheavals, in 1935.
The key issue for the Left is clear: what are the present obstacles to mass mobilization, and how can they be overcome?
Tuesday, April 12, 2011
Madison WI activists' resolution to deny constitutional rights to corporations
By Sahil Kapur - RAW Story - Tuesday, April 12th, 2011
Wisconsin activists are promoting a symbolic resolution in the city of Madison to build support for the belief that corporations don't deserve constitutional rights like people.
"Only human beings, not corporations, are entitled to constitutional rights," reads the terse resolution offered by the group Move To Amend. "Money is not speech, and therefore regulating political contributions and spending is not equivalent to limiting political speech."
The Supreme Court's decision last year in Citizens United vs. FEC granted corporations the right to spend unlimited amounts of money to influence elections -- federal law would legally override attempts by cities and states to reverse it.
The move was covered by the local Isthmus newspaper and heralded in a letter to the editor published in another Madison paper. "It’s time to say 'no' to the court's decision," wrote Jacqueline Kelley. "On April 5, we can vote 'yes' twice for the amendment as residents of both Madison and Dane County. Our future could depend upon a proper outcome."
The full text of the resolution follows.
Wisconsin activists are promoting a symbolic resolution in the city of Madison to build support for the belief that corporations don't deserve constitutional rights like people.
"Only human beings, not corporations, are entitled to constitutional rights," reads the terse resolution offered by the group Move To Amend. "Money is not speech, and therefore regulating political contributions and spending is not equivalent to limiting political speech."
The Supreme Court's decision last year in Citizens United vs. FEC granted corporations the right to spend unlimited amounts of money to influence elections -- federal law would legally override attempts by cities and states to reverse it.
The move was covered by the local Isthmus newspaper and heralded in a letter to the editor published in another Madison paper. "It’s time to say 'no' to the court's decision," wrote Jacqueline Kelley. "On April 5, we can vote 'yes' twice for the amendment as residents of both Madison and Dane County. Our future could depend upon a proper outcome."
The full text of the resolution follows.
####
"RESOLVED, the City of Madison, Wisconsin, calls for reclaiming democracy from the corrupting effects of undue corporate influence by amending the United States Constitution to establish that:
1. Only human beings, not corporations, are entitled to constitutional rights, and
2. Money is not speech, and therefore regulating political contributions and spending is not equivalent to limiting political speech."
How Obama's Cave in to GOP Extremists Will Devastate the Economy
Obama's failure to challenge the Right's economic mythology is both inexcusable, and a sign that the White House isn't prepared for the major battles to come.
By Joshua Holland, AlterNet
Posted on April 11, 2011
The deal Obama struck with GOP leaders last week will cost our moribund economy around 400,000 jobs. It was a tragic compromise with an unyielding ideological opposition, yet Obama hailed it as “historic,” prompting the Wall Street Journal's plutocratic editorial board to crow that the president has now “agreed to a pair of tax cut and spending deals that repudiate his core economic philosophy and his agenda of the last two years.” They painted it as proof that “Republicans in Washington have reversed the nation's fiscal debate.”
Then came the news today that Obama will introduce a long-term deficit reduction plan, which might include “reforming” (read: cutting) Medicare and Medicaid.
The reality is that slashing public spending while private consumer demand remains in a deep trough is tantamount to economic suicide – every business survey conducted in the past two years has found that business's biggest problem is a lack of customers. Cutting programs that put dollars into the pockets of the poor and jobless and adding to the number of unemployed Americans is the worst thing we can do.
One can argue that the pain that would have been inflicted by a complete shutdown of government would have been so great, and the likelihood of the GOP caucus blinking under relentless pressure from its Tea Party base so slight, that Obama was nonetheless justified in cutting the deal. But his failure to challenge the Right's economic mythology is both inexcusable, and a sign that the White House is not prepared for the next two major battles to come.
The White House reads the polls, and according to Pew research (PDF), four in 10 Americans “said that major cuts in spending this year would not have much of an effect on the job situation.” Another especially confused 18 percent said deep cuts would actually help create jobs.
But that's simply the result of a self-fulfilling prophesy: the administration has conceded the idea that focusing on deficit reduction in this economic climate is something other than insane. They've framed the debate as a choice between deep, “irresponsible” cuts the Tea Party wants to make with a hatchet and intelligent trims the administration would make with a scalpel – Democratic center-right technocracy versus the crazy-right Republican “revolution” inspired by Ayn Rand.
That doesn't portend well for the fights ahead. In the next month or so, Congress will have to raise the debt ceiling – the maximum amount of public debt the government can hold – or face a possible default on the government's obligations. And then Washington will turn to the 2012 budget battle.
Increasing the debt ceiling is usually a routine matter, and the consequences for failing to do so are potentially catastrophic – it would wreak havoc on the financial markets and send an already shaky recovery into a steep backslide. But Republicans are nevertheless expected to once again attach onerous conditions to the bill – holding the economy hostage in exchange for extremely painful cuts to social safety net programs and other, unrelated items on their ideological wish-list.
It will be the result of a Republican party having been emboldened by the administration’s past concessions. Robert Reich compared it to handing over one's lunch money to a bully every day rather than confronting him in a bloody schoolyard fight: it may seem like the least painful approach in the short-term, but it's actually the very worst way to manage the situation.
What the administration should be doing appears clear, at least from the outside. Analysts agree that Obama needs a credible strategy for dealing with this form of extortion going forward. Matt Yglesias suggests a two-pronged approach. First, a “credible, repeated commitment not to surrender anything in exchange for getting congress to agree to the debt ceiling being increased.” Every serious person in Congress knows the ceiling must be raised, and therefore “there's nothing to bargain over.”
The second part is educating the public about what's really at stake in these battles, and in the most dramatic way. Yglesias notes that failing to raise the debt ceiling wouldn't force the government to shut down, it would only limit its ability to cut checks, which would mean that the administration “will be able to selectively stiff people.”
So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich.
It's the right way to play it, but it was also the case that the battle could have been avoided altogether had the Democrats played hardball last fall when, with control of the House and the polling in their favor, they didn't hang tough in the battle over the Bush tax cuts and failed to pass a 2011 budget. There is little reason to believe they will suddenly grow a backbone with the GOP in control of the House.
But the bigger problem is that it may be too late in the game to articulate an alternative vision for how to restart the economy. They've accepted the terms of the debate – that we have a “deficit crisis” and addressing it, now or in the near future, is integral to our economic future (this assumes that Obama is not himself a dedicated deficit hawk, as some believe). They've validated the conservative myth that we can't afford to keep our elderly out of poverty and provide health care to those who can't afford it. It was Obama who convened the bipartisan “catfood commission” headed by Alan Simpson and Erskine Bowles. Pushing back against these narratives now would represent a heavy lift.
They could have gone another way early on – eschewing the false value of “bipartisanship” and educating the public about what's really at stake. They could have staked out a position that all of this deficit madness is ultimately a way of enacting unpopular policies favored by Wall Street. Over two-thirds of the American public think lobbyists, “major corporations” and “banks and financial institutions” have “too much power,” according to Gallup. But Obama's handlers obviously determined to go another way – to take credit for implementing the Right's disastrous economic voodoo.
In heading off a government shutdown, they may have been right in terms of the short-term political calculus. Polls show that the public would have spread the blame for a shutdown on both parties equally, and although the Democratic base wants a harder fight, the administration nonetheless retains its support.
But accepting the Right's economic discourse as being grounded in reality will result in real and lasting economic pain. And in November 2012, with unemployment still high, the foreclosure crisis continuing unabated and a president who appears weak in the face of a determined conservative movement, the Democrats are destined for a well deserved thumping as a reward for their lack of political acumen, even if Obama himself wins another term by default.
By Joshua Holland, AlterNet
Posted on April 11, 2011
The deal Obama struck with GOP leaders last week will cost our moribund economy around 400,000 jobs. It was a tragic compromise with an unyielding ideological opposition, yet Obama hailed it as “historic,” prompting the Wall Street Journal's plutocratic editorial board to crow that the president has now “agreed to a pair of tax cut and spending deals that repudiate his core economic philosophy and his agenda of the last two years.” They painted it as proof that “Republicans in Washington have reversed the nation's fiscal debate.”
Then came the news today that Obama will introduce a long-term deficit reduction plan, which might include “reforming” (read: cutting) Medicare and Medicaid.
The reality is that slashing public spending while private consumer demand remains in a deep trough is tantamount to economic suicide – every business survey conducted in the past two years has found that business's biggest problem is a lack of customers. Cutting programs that put dollars into the pockets of the poor and jobless and adding to the number of unemployed Americans is the worst thing we can do.
One can argue that the pain that would have been inflicted by a complete shutdown of government would have been so great, and the likelihood of the GOP caucus blinking under relentless pressure from its Tea Party base so slight, that Obama was nonetheless justified in cutting the deal. But his failure to challenge the Right's economic mythology is both inexcusable, and a sign that the White House is not prepared for the next two major battles to come.
The White House reads the polls, and according to Pew research (PDF), four in 10 Americans “said that major cuts in spending this year would not have much of an effect on the job situation.” Another especially confused 18 percent said deep cuts would actually help create jobs.
But that's simply the result of a self-fulfilling prophesy: the administration has conceded the idea that focusing on deficit reduction in this economic climate is something other than insane. They've framed the debate as a choice between deep, “irresponsible” cuts the Tea Party wants to make with a hatchet and intelligent trims the administration would make with a scalpel – Democratic center-right technocracy versus the crazy-right Republican “revolution” inspired by Ayn Rand.
That doesn't portend well for the fights ahead. In the next month or so, Congress will have to raise the debt ceiling – the maximum amount of public debt the government can hold – or face a possible default on the government's obligations. And then Washington will turn to the 2012 budget battle.
Increasing the debt ceiling is usually a routine matter, and the consequences for failing to do so are potentially catastrophic – it would wreak havoc on the financial markets and send an already shaky recovery into a steep backslide. But Republicans are nevertheless expected to once again attach onerous conditions to the bill – holding the economy hostage in exchange for extremely painful cuts to social safety net programs and other, unrelated items on their ideological wish-list.
It will be the result of a Republican party having been emboldened by the administration’s past concessions. Robert Reich compared it to handing over one's lunch money to a bully every day rather than confronting him in a bloody schoolyard fight: it may seem like the least painful approach in the short-term, but it's actually the very worst way to manage the situation.
What the administration should be doing appears clear, at least from the outside. Analysts agree that Obama needs a credible strategy for dealing with this form of extortion going forward. Matt Yglesias suggests a two-pronged approach. First, a “credible, repeated commitment not to surrender anything in exchange for getting congress to agree to the debt ceiling being increased.” Every serious person in Congress knows the ceiling must be raised, and therefore “there's nothing to bargain over.”
The second part is educating the public about what's really at stake in these battles, and in the most dramatic way. Yglesias notes that failing to raise the debt ceiling wouldn't force the government to shut down, it would only limit its ability to cut checks, which would mean that the administration “will be able to selectively stiff people.”
So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich.
It's the right way to play it, but it was also the case that the battle could have been avoided altogether had the Democrats played hardball last fall when, with control of the House and the polling in their favor, they didn't hang tough in the battle over the Bush tax cuts and failed to pass a 2011 budget. There is little reason to believe they will suddenly grow a backbone with the GOP in control of the House.
But the bigger problem is that it may be too late in the game to articulate an alternative vision for how to restart the economy. They've accepted the terms of the debate – that we have a “deficit crisis” and addressing it, now or in the near future, is integral to our economic future (this assumes that Obama is not himself a dedicated deficit hawk, as some believe). They've validated the conservative myth that we can't afford to keep our elderly out of poverty and provide health care to those who can't afford it. It was Obama who convened the bipartisan “catfood commission” headed by Alan Simpson and Erskine Bowles. Pushing back against these narratives now would represent a heavy lift.
They could have gone another way early on – eschewing the false value of “bipartisanship” and educating the public about what's really at stake. They could have staked out a position that all of this deficit madness is ultimately a way of enacting unpopular policies favored by Wall Street. Over two-thirds of the American public think lobbyists, “major corporations” and “banks and financial institutions” have “too much power,” according to Gallup. But Obama's handlers obviously determined to go another way – to take credit for implementing the Right's disastrous economic voodoo.
In heading off a government shutdown, they may have been right in terms of the short-term political calculus. Polls show that the public would have spread the blame for a shutdown on both parties equally, and although the Democratic base wants a harder fight, the administration nonetheless retains its support.
But accepting the Right's economic discourse as being grounded in reality will result in real and lasting economic pain. And in November 2012, with unemployment still high, the foreclosure crisis continuing unabated and a president who appears weak in the face of a determined conservative movement, the Democrats are destined for a well deserved thumping as a reward for their lack of political acumen, even if Obama himself wins another term by default.
GOP Elites Point a Gun at the Middle Class
'Shock Doctrine': Paul Ryan's attack against the middle class might have been expected to draw an outraged response. Instead, the punditry rallied around the GOP Rep.
By Dean Baker, AlterNet
Posted on April 12, 2011
House Budget Committee Chairman Paul Ryan put out a budget proposal last week that will leave the vast majority of future retirees without decent health care by ending Medicare as we know it. According to the Congressional Budget Office (CBO) analysis, most middle-income retirees would have to pay almost half of their income to purchase a Medicare equivalent insurance package by 2030. They would be paying much more than half of their income in later years.
This sort of broadside against the living standards of the middle class might have been expected to draw an outraged response in a nation that exalts the lifestyle and values of the middle class. Instead, the punditry rallied around Mr. Ryan's plan to deal with the problem of runaway entitlement spending, crediting it for being "serious" even if they did not embrace all the details.
If there is any doubt that our political system is controlled by an elite who is completely removed from the bulk of the population, this response to the Ryan plan ended it. There is nothing at all serious about the Ryan plan. It is a naked attempt to redistribute yet more money to the country's rich at the expense of everyone else.
The proposal to end Medicare relies on market efficiencies to get health care costs under control, as though we had not tried this before. Has Representative Ryan never heard of Medicare Advantage or Medicare Plus Choice? Doesn't he know that we already have the opportunity to see the effectiveness of private insurers in containing health care costs in the vast non-Medicare insurance market?
Based on this extensive experience, we know that the private insurance market does not control costs. This is why the CBO calculated that Ryan's plan would hugely raise the cost of health care for seniors. If every senior got a Medicare equivalent policy under Representative Ryan's plan (which most will not be able to afford), the added cost of his system would be more than $20 trillion over the next 75 years.
This comes to more than $60,000 for every man, woman and child in the country. That would be money out of the pocket of ordinary workers and retirees that will go to the insurance and pharmaceutical industries, highly paid medical specialists, and other health care providers.
When it comes to redistributing money upward, the bar for intellectual coherence is set very low. Pundits from across the political spectrum had a hard time containing their enthusiasm for Ryan's plan even if few were willing to embrace it in its entirety. And if there was not enough substance over which to get excited, then there was always the 37 footnotes which Washington Post columnist Charles Krauthammer trumpeted last week.
In principle, the country's elite should be laying low right now. After all, their greed and ineptitude has given us the worst economic collapse since the Great Depression. But after getting the Wall Street banks back on their feet with trillions of dollars of government subsidized loans, the elite are once again making a full-frontal assault on the living standards of the middle class. Last week it was Medicare, but they promise to be back to attack Social Security in the not too distant future.
The ostensible rationale for this attack is the country's huge budget deficit. This is garbage. As all the pundits know, the country has a huge deficit today because the Wall Street boys drove the economy off a cliff. If the government deficit were not propping up the economy, we would be looking at 11 or 12 percent unemployment, rather than 8.9 percent. Spending creates jobs, and at this point, it is not coming from the private sector, so the government must fill the hole.
Over the longer term, the projections of huge deficits are driven by the projected explosion in health care costs. President Obama's health care reform took steps toward constraining these costs, although probably not enough. Remarkably, Ryan's plan abandons these cost control measures, virtually guaranteeing that quality health care becomes unaffordable for all but a small elite.
And the pundits call Ryan's plan "serious." Yes, it is very serious. It is a serious plan for taking tens of trillions of dollars from low-income and middle-income people and giving them away as tax breaks to the rich and to the health care industry. It is about as serious as a robber with a gun pointed at your head.
By Dean Baker, AlterNet
Posted on April 12, 2011
House Budget Committee Chairman Paul Ryan put out a budget proposal last week that will leave the vast majority of future retirees without decent health care by ending Medicare as we know it. According to the Congressional Budget Office (CBO) analysis, most middle-income retirees would have to pay almost half of their income to purchase a Medicare equivalent insurance package by 2030. They would be paying much more than half of their income in later years.
This sort of broadside against the living standards of the middle class might have been expected to draw an outraged response in a nation that exalts the lifestyle and values of the middle class. Instead, the punditry rallied around Mr. Ryan's plan to deal with the problem of runaway entitlement spending, crediting it for being "serious" even if they did not embrace all the details.
If there is any doubt that our political system is controlled by an elite who is completely removed from the bulk of the population, this response to the Ryan plan ended it. There is nothing at all serious about the Ryan plan. It is a naked attempt to redistribute yet more money to the country's rich at the expense of everyone else.
The proposal to end Medicare relies on market efficiencies to get health care costs under control, as though we had not tried this before. Has Representative Ryan never heard of Medicare Advantage or Medicare Plus Choice? Doesn't he know that we already have the opportunity to see the effectiveness of private insurers in containing health care costs in the vast non-Medicare insurance market?
Based on this extensive experience, we know that the private insurance market does not control costs. This is why the CBO calculated that Ryan's plan would hugely raise the cost of health care for seniors. If every senior got a Medicare equivalent policy under Representative Ryan's plan (which most will not be able to afford), the added cost of his system would be more than $20 trillion over the next 75 years.
This comes to more than $60,000 for every man, woman and child in the country. That would be money out of the pocket of ordinary workers and retirees that will go to the insurance and pharmaceutical industries, highly paid medical specialists, and other health care providers.
When it comes to redistributing money upward, the bar for intellectual coherence is set very low. Pundits from across the political spectrum had a hard time containing their enthusiasm for Ryan's plan even if few were willing to embrace it in its entirety. And if there was not enough substance over which to get excited, then there was always the 37 footnotes which Washington Post columnist Charles Krauthammer trumpeted last week.
In principle, the country's elite should be laying low right now. After all, their greed and ineptitude has given us the worst economic collapse since the Great Depression. But after getting the Wall Street banks back on their feet with trillions of dollars of government subsidized loans, the elite are once again making a full-frontal assault on the living standards of the middle class. Last week it was Medicare, but they promise to be back to attack Social Security in the not too distant future.
The ostensible rationale for this attack is the country's huge budget deficit. This is garbage. As all the pundits know, the country has a huge deficit today because the Wall Street boys drove the economy off a cliff. If the government deficit were not propping up the economy, we would be looking at 11 or 12 percent unemployment, rather than 8.9 percent. Spending creates jobs, and at this point, it is not coming from the private sector, so the government must fill the hole.
Over the longer term, the projections of huge deficits are driven by the projected explosion in health care costs. President Obama's health care reform took steps toward constraining these costs, although probably not enough. Remarkably, Ryan's plan abandons these cost control measures, virtually guaranteeing that quality health care becomes unaffordable for all but a small elite.
And the pundits call Ryan's plan "serious." Yes, it is very serious. It is a serious plan for taking tens of trillions of dollars from low-income and middle-income people and giving them away as tax breaks to the rich and to the health care industry. It is about as serious as a robber with a gun pointed at your head.
Governors Cut Taxes — and Medical Aid to the Poor
Tuesday, April 12, 2011 by The Los Angeles Times
In Maine and elsewhere, it's an early test for 'tea-party'-backed Republicans who say the strategy will create jobs and boost state economies.
by Noam N. Levey
AUGUSTA, Maine— In their drive to cut medical assistance to the poor while pushing tax breaks benefiting the affluent, congressional Republicans are following the lead of a group of governors who have championed this approach to balance state budgets.
The strategy — reprising the supply-side economics of the Ronald Reagan era — has caught on with conservatives who say that lowering taxes for corporations and wealthy taxpayers will boost state economies.
But the moves are sparking a debate in capitols from Arizona to Wisconsin to Maine over who is being asked to sacrifice and whether the strategy will produce more jobs.
The issue is also emerging as an early test for "tea party"-backed governors and legislators who swept to power on pledges to remake government by cutting taxes and slashing government programs.
In Washington, House Budget Committee Chairman Paul D. Ryan (R-Wis.) took up that standard last week with a plan to cut $5.8 trillion in federal spending, in large measure by scaling back Medicaid, Medicare and other health programs while also slashing the top tax rate for wealthy households and corporations.
In Maine, where November victories gave Republicans control of both the governor's office and the Legislature for the first time since 1967, a debate over that approach is underway.
Gov. Paul LePage, a pugnacious newcomer to state politics who spent part of his childhood homeless, took the reins of a relatively poor state with serious budget pressures and one of the nation's most generous healthcare safety nets.
Maine provides subsidized health coverage to more than a quarter of its residents. Today about 90% of residents have health insurance, compared with 83% nationally.
Providing that support hasn't been cheap. Maine also has some of the highest taxes in the country. Families with incomes as low as $39,550 a year are subject to an 8.5% state income tax.
That reflects the state's values, said Christopher St. John, executive director of the left-leaning Maine Center for Economic Policy. "Maine has a high-cost system because the state made a decision to expand its public-sector coverage.… It was something that Maine residents decided was a priority."
But with the state struggling from the lingering effects of the recession and the decline of historic industries such as timber, fishing and shipbuilding, taxes have become an increasingly popular target.
"It is like a red flag for anyone looking to locate here," said Christopher Hall, vice president of the Portland Regional Chamber, one of the state's leading business groups. Hall is among many Maine residents who have concluded that without more jobs, the state has to make changes.
"We built an edifice we can't support," he said.
The new governor's budget proposal would begin cutting back taxes, lowering the top income tax from 8.5% to 7.95%.
Among other tax breaks, the governor wants to exempt estates worth less than $2 million from Maine's inheritance tax. Currently, only estates under $1 million are exempt.
Unveiling his budget, LePage called it a "jobs bill" that "makes tough choices and puts people first." But there is a price for the $200 million in tax relief that LePage has proposed.
The governor's budget takes aim at programs that support residents like Mary Nason, a 47-year-old working mother from Winslow, whose family receives subsidized health coverage through MaineCare, the state's Medicaid program.
Nason, who counsels people suffering from depression, and her husband, who works at Home Depot, cannot afford the health insurance that his employer offers.
Nor could they go without coverage. Nason was diagnosed 16 years ago with bipolar disorder. Her husband has heart disease, and their 5-year-old son suffers from asthma. The family's 10 prescriptions would cost more than $800 a month without insurance, she said.
With an income of about $36,000 a year, Nason and her husband, who lost their house last year, earn just under twice the federal poverty level, making them eligible in Maine for Medicaid.
LePage is proposing to cut off eligibility for parents who make between 133% and 200% of the poverty level. That would mean Nason could stay on the program for now, but if her family income rose above $37,000 a year, she and her husband wouldn't be able to get back onto MaineCare.
"If we face the choice, I'd have to stop working," Nason said, explaining that she and her husband would have to keep their incomes down to stay on the government program. "I want to work. … But we can't go without health insurance."
LePage's critics say people like Nason illustrate why slashing healthcare programs can stunt job growth, not stimulate it.
"No one seems to be asking about the potential unintended consequences here," said state Rep. Peggy Rotundo, a Democrat. "It's a penny-wise, pound-foolish approach."
LePage declined through a spokeswoman to be interviewed. But Tarren Bragdon, a top LePage advisor who also heads the conservative Maine Heritage Policy Center, said the cuts would ultimately help the state's neediest people.
"You have to make tough choices if you want to build a better future," he said. "If you cut welfare without cutting taxes, you're just being mean."
LePage, meanwhile, is barreling forward. He also wants to scale back a program that helps low-income seniors and disabled people pay Medicare premiums.
At least 48,000 poor residents could lose some healthcare aid under the governor's proposals, according to estimates from the Maine Department of Health and Human Services.
LePage is not the only governor pushing to reduce healthcare assistance and taxes.
Pennsylvania Gov. Tom Corbett has already allowed a state-subsidized insurance program for 41,000 working poor to lapse, citing the state's "very, very tight budget."
Gov. Jan Brewer of Arizona is looking to cut more than 100,000 people from her state's Medicaid rolls.
And New Jersey Gov. Chris Christie and Wisconsin Gov. Scott Walker are developing their own plans to scale back Medicaid.
All four Republican governors have also championed corporate tax breaks. Christie also has proposed to cut inheritance taxes on wealthy estates.
In Maine, newly empowered Republicans in the Legislature say they have no choice.
"We have been providing services that other states are not. We are an outlier," state Senate President Kevin Raye said from his office off the Senate chamber. "Our highest priority is to make Maine more attractive for business."
In Maine and elsewhere, it's an early test for 'tea-party'-backed Republicans who say the strategy will create jobs and boost state economies.
by Noam N. Levey
AUGUSTA, Maine— In their drive to cut medical assistance to the poor while pushing tax breaks benefiting the affluent, congressional Republicans are following the lead of a group of governors who have championed this approach to balance state budgets.
The strategy — reprising the supply-side economics of the Ronald Reagan era — has caught on with conservatives who say that lowering taxes for corporations and wealthy taxpayers will boost state economies.
But the moves are sparking a debate in capitols from Arizona to Wisconsin to Maine over who is being asked to sacrifice and whether the strategy will produce more jobs.
The issue is also emerging as an early test for "tea party"-backed governors and legislators who swept to power on pledges to remake government by cutting taxes and slashing government programs.
In Washington, House Budget Committee Chairman Paul D. Ryan (R-Wis.) took up that standard last week with a plan to cut $5.8 trillion in federal spending, in large measure by scaling back Medicaid, Medicare and other health programs while also slashing the top tax rate for wealthy households and corporations.
In Maine, where November victories gave Republicans control of both the governor's office and the Legislature for the first time since 1967, a debate over that approach is underway.
Gov. Paul LePage, a pugnacious newcomer to state politics who spent part of his childhood homeless, took the reins of a relatively poor state with serious budget pressures and one of the nation's most generous healthcare safety nets.
Maine provides subsidized health coverage to more than a quarter of its residents. Today about 90% of residents have health insurance, compared with 83% nationally.
Providing that support hasn't been cheap. Maine also has some of the highest taxes in the country. Families with incomes as low as $39,550 a year are subject to an 8.5% state income tax.
That reflects the state's values, said Christopher St. John, executive director of the left-leaning Maine Center for Economic Policy. "Maine has a high-cost system because the state made a decision to expand its public-sector coverage.… It was something that Maine residents decided was a priority."
But with the state struggling from the lingering effects of the recession and the decline of historic industries such as timber, fishing and shipbuilding, taxes have become an increasingly popular target.
"It is like a red flag for anyone looking to locate here," said Christopher Hall, vice president of the Portland Regional Chamber, one of the state's leading business groups. Hall is among many Maine residents who have concluded that without more jobs, the state has to make changes.
"We built an edifice we can't support," he said.
The new governor's budget proposal would begin cutting back taxes, lowering the top income tax from 8.5% to 7.95%.
Among other tax breaks, the governor wants to exempt estates worth less than $2 million from Maine's inheritance tax. Currently, only estates under $1 million are exempt.
Unveiling his budget, LePage called it a "jobs bill" that "makes tough choices and puts people first." But there is a price for the $200 million in tax relief that LePage has proposed.
The governor's budget takes aim at programs that support residents like Mary Nason, a 47-year-old working mother from Winslow, whose family receives subsidized health coverage through MaineCare, the state's Medicaid program.
Nason, who counsels people suffering from depression, and her husband, who works at Home Depot, cannot afford the health insurance that his employer offers.
Nor could they go without coverage. Nason was diagnosed 16 years ago with bipolar disorder. Her husband has heart disease, and their 5-year-old son suffers from asthma. The family's 10 prescriptions would cost more than $800 a month without insurance, she said.
With an income of about $36,000 a year, Nason and her husband, who lost their house last year, earn just under twice the federal poverty level, making them eligible in Maine for Medicaid.
LePage is proposing to cut off eligibility for parents who make between 133% and 200% of the poverty level. That would mean Nason could stay on the program for now, but if her family income rose above $37,000 a year, she and her husband wouldn't be able to get back onto MaineCare.
"If we face the choice, I'd have to stop working," Nason said, explaining that she and her husband would have to keep their incomes down to stay on the government program. "I want to work. … But we can't go without health insurance."
LePage's critics say people like Nason illustrate why slashing healthcare programs can stunt job growth, not stimulate it.
"No one seems to be asking about the potential unintended consequences here," said state Rep. Peggy Rotundo, a Democrat. "It's a penny-wise, pound-foolish approach."
LePage declined through a spokeswoman to be interviewed. But Tarren Bragdon, a top LePage advisor who also heads the conservative Maine Heritage Policy Center, said the cuts would ultimately help the state's neediest people.
"You have to make tough choices if you want to build a better future," he said. "If you cut welfare without cutting taxes, you're just being mean."
LePage, meanwhile, is barreling forward. He also wants to scale back a program that helps low-income seniors and disabled people pay Medicare premiums.
At least 48,000 poor residents could lose some healthcare aid under the governor's proposals, according to estimates from the Maine Department of Health and Human Services.
LePage is not the only governor pushing to reduce healthcare assistance and taxes.
Pennsylvania Gov. Tom Corbett has already allowed a state-subsidized insurance program for 41,000 working poor to lapse, citing the state's "very, very tight budget."
Gov. Jan Brewer of Arizona is looking to cut more than 100,000 people from her state's Medicaid rolls.
And New Jersey Gov. Chris Christie and Wisconsin Gov. Scott Walker are developing their own plans to scale back Medicaid.
All four Republican governors have also championed corporate tax breaks. Christie also has proposed to cut inheritance taxes on wealthy estates.
In Maine, newly empowered Republicans in the Legislature say they have no choice.
"We have been providing services that other states are not. We are an outlier," state Senate President Kevin Raye said from his office off the Senate chamber. "Our highest priority is to make Maine more attractive for business."
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