Why Society Is More Unequal Than Ever

Sunday, March 9, 2014 by The Guardian

Five years after The Spirit Level, its authors argue that research backs up their views on the iniquity of inequality

by Richard Wilkinson and Kate Pickett

 

A lot has happened in the five years since we published our book, The Spirit Level. New Labour were still perhaps too relaxed about people becoming "filthy rich". And there was an assumption that inequality mattered only if it increased poverty, and that for most people "real" poverty was a thing of the past.

But so much has changed. In the aftermath of the financial crash and the emergence of Occupy, there has been a resurgence of interest in inequality. Around 80% of Britons now think the income gap is too large, and the message has been taken up by world leaders.

According to Barack Obama, income inequality is the "defining challenge of our times", while Pope Francis states that "inequality is the roots of social ills".

The unexpected success of The Spirit Level owes more to luck than judgment. Although serious non-fiction books rarely sell well, for a week or so we even outsold Jeremy Clarkson. We now feel a bit like the dog being wagged by its tail: in the past five years, we've given over 700 seminars and conference lectures. We've talked to academics, religious groups, thinktanks of both right and left, and to international agencies such as the UN, WHO, OECD, EU and ILO.

The truth is that human beings have deep-seated psychological responses to inequality and social hierarchy. The tendency to equate outward wealth with inner worth means that inequality colours our social perceptions. It invokes feelings of superiority and inferiority, dominance and subordination – which affect the way we relate to and treat each other.

As we looked at the data, it became clear that, as well as health and violence, almost all the problems that are more common at the bottom of the social ladder are more common in more unequal societies – including mental illness, drug addiction, obesity, loss of community life, imprisonment, unequal opportunities and poorer wellbeing for children. The effects of inequality are not confined to the poor. A growing body of research shows that inequality damages the social fabric of the whole society. When he found how far up the income scale the health effects of inequality went, Harvard professor Ichiro Kawachi, one of the foremost researchers in this field, described inequality as a social pollutant. The health and social problems we looked at are between twice and 10 times as common in more unequal societies. The differences are so large because inequality affects such a large proportion of the population.

To the political defenders of inequality, the idea that too much inequality was an obstacle to a better society was a monstrous suggestion. They accused us of conjuring up the evidence with smoke and mirrors.
But since our book, research confirming both the basic pattern and the social mechanisms has mushroomed. It's not just rich countries or US states where greater equality is beneficial, it is also important in poorer countries. Even the more equal provinces of China do better than the less equal ones.

Most important has been the rapid accumulation of evidence confirming the psychosocial processes through which inequality gets under the skin. When we were writing, evidence of causality often relied on psychological experiments that showed how extraordinarily sensitive people are to being looked down on and regarded as inferior.

They demonstrated that social relationships, insecurities about social status and how others see us have powerful effects on stress, cognitive performance and the emotions. Almost absent were studies explicitly linking income inequality to these psychological states in whole societies. But new studies have now filled that gap. That inequality damages family life is shown by higher rates of child abuse, and increased status competition is likely to explain the higher rates of bullying confirmed in schools in more unequal countries.
We showed that mental illnesses are more prevalent in more unequal societies: this has now been confirmed by more specific studies of depression and schizophrenia, as well as by evidence that your income ranking is a better predictor of developing illness than your absolute income.

Strengthening community life is hampered by the difficulty of breaking the ice between people, but greater inequality amplifies the impression that some people are worth so much more than others, making us all more anxious about how we are seen and judged. Some are so overcome by lack of confidence that social contact becomes an ordeal. Others try instead to enhance self-presentation and how they appear to others. US data also show that narcissism increased in line with inequality. The economic effects of inequality have also gained more attention. Research has shown that greater inequality leads to shorter spells of economic expansion and more frequent and severe boom-and-bust cycles that make economies more vulnerable to crisis. The International Monetary Fund suggests that reducing inequality and bolstering longer-term economic growth may be "two sides of the same coin". And development experts point out how inequality compromises poverty reduction.

Lastly, inequality is being taken up as an important environmental issue; because it drives status competition, it intensifies consumerism and adds to personal debt.

In Britain, one of the few signs of real progress are the fairness commissions set up by local government in many cities to recommend ways of reducing inequalities. Partly as a result, many local authorities and companies now pay the living wage. But the coalition government has failed to reverse the continuing tendency for the richest 1% to get richer faster than the rest of society. The Equality Trust calculates that the richest 100 people in Britain now have as much wealth as the poorest 30% of households. The top-to-bottom pay ratios of around 300:1 in the FTSE 100 companies is not diminishing.

It is hard to think of a more powerful way of telling people at the bottom that they are almost worthless than to pay them one-third of one percent of what the CEO in the same company gets. Politicians must recognise that reducing inequality is about improving the psychosocial wellbeing of the whole society.

How Unregulated Banking Triggered the Crash of '08

Repo, Baby, Repo
by MIKE WHITNEY

“Repo has a flaw: It is vulnerable to panic, that is, ‘depositors’ may ‘withdraw’ their money at any time, forcing the system into massive deleveraging. We saw this over and over again with demand deposits in all of U.S. history prior to deposit insurance. This problem has not been addressed by the Dodd-Frank legislation. So, it could happen again.”

–Gary B. Gorton, Professor of Management and Finance, Yale School of Management (lifted from Repowatch)

Subprime mortgages did not cause the financial crisis, nor did the housing bubble or Lehman Brothers. The financial crisis originated in a corner of the shadow banking system called the repo market. That’s where the bank run occurred that froze the secondary market, sent prices on mortgage-backed assets plunging, and pushed the financial system into a death spiral. In the Great Crash of 2008, repo was ground zero, the epicenter of the global catastrophe. As analyst David Weidner noted in the Wall Street Journal, “The repo market wasn’t just a part of the meltdown. It was the meltdown.”
Regrettably, the Federal Reserve’s nontraditional monetary policies (ZIRP and QE) have succeeded in restoring the repo market to it’s precrisis level of activity, but without implementing any of the changes that would have made the system safer. Repo is as vulnerable and crisis-prone today as it was when the French bank PNB Paribas stopped redemptions in its off-balance sheet operations in 2007 kicking off the tumultuous bank run that would eventually implode the entire system and push the economy into the deepest slump since the Great Depression. By failing to rein in repo, the Fed has ensured that financial crises will be a regular feature in the future occurring every 15 or 20 years as was the case before banks were more strictly regulated and government backstops were put in place. Repo returns us to Wild West “anything goes” banking.

Why would the Fed be so reckless and pave the way for another disaster? We’ll get to that in a minute, but first, let’s give a brief explanation of repo and how the system works.

Repo is short for repurchase agreement. The repo market is where primary dealers sell securities with an agreement for the seller to buy back the securities at a later date. This sounds more complicated than it is. What’s really going on is the seller (primary dealers) are getting short-term loans from money market funds, securities firms, banks etc in order to maintain a position in securities in which they’re suppose to make markets. So, repo is like a loan that’s secured with collateral. (ie–the securities) It is a “funding mechanism”.

What touched off the Crash of 2008, was the discovery that the collateral that was being used for repo funding was “toxic”, that is, the securities were not Triple A after all, but subprime mortgage-backed gunk that would only fetch pennies on the dollar. So, when PNB Paribas stopped redemptions in its off-balance sheet operations on August 9, 2007, the rout began. Cash-heavy investors (like money markets) turned off the lending spigot, which reduced trillions of dollars of MBS to junk-status, precipitated massive fire sales of distressed assets that were dumped on the market pushing prices further and further down wiping out trillions in equity and reducing the financial system to a smoldering pile of rubble. That’s why the Fed stepped in, backstopped the system with explicit guarantees for both regulated and unregulated financial institutions and set about to reflate financial asset prices to their precrisis highs.

Newly appointed Fed chairman Janet Yellen summarized what happened in the panic in a speech she gave earlier this year. She said:

“The trigger for the acute phase of the financial crisis was the rapid unwinding of large amounts of short-term wholesale funding that had been made available to highly leveraged and/or maturity-transforming financial firms.”

In other words, the crisis began in repo. Unfortunately, Wall Street has fended off all attempts to fix the system, because repo is a particularly lucrative area of activity. And we are talking serious money here, too. Tri-party repo alone–which is a small subset of the larger repo market–represents “about $1.6 trillion in outstanding repos daily.” That means that the prospect of a big dealer dumping his portfolio of securities on the market at a moment’s notice igniting another panic, is never far away.

Why do banks borrow in the unregulated, shadow system instead of conducting their business in the light of day where regulators can check the quality of the underlying collateral, oversee the various transactions on public trading platforms, and make sure that capital requirements are maintained?

It’s because the banks want to deploy all their capital, leverage up to their eyeballs and play fast-and-loose with the rules. Here’s what the New York Fed has to say on the topic:

“One clear motivation for intermediation outside of the traditional banking system is for private actors to evade regulation and taxes. The academic literature documents that motivation explains part of the growth and collapse of shadow banking over the past decade…

Regulation typically forces private actors to do something which they would otherwise not do: pay taxes to the official sector, disclose additional information to investors, or hold more capital against financial exposures. Financial activity which has been re-structured to avoid taxes, disclosure, and/or capital requirements, is referred to as arbitrage activity.” (“Shadow Bank Monitoring“, Federal Reserve Bank of New York Staff Reports, September, 2013)

In other words, the banks are conducting their operations in the shadows because it’s cheaper. That’s what this is all about. Here’s more from the same report:

“While the fundamental reason for commercial bank runs is the sequential servicing constraint, for shadow banks the effective constraint is the presence of fire sale externalities. In a run, shadow banking entities have to sell assets at a discount, which depresses market pricing. This provides incentives to withdraw funding—before other shadow banking depositors arrive.”

Okay, so when there’s a run on the local bank, the bank may have to offload some of its illiquid assets (real estate, commercial property, etc) to meet the increased demand of depositors who want their money, but they can also rely on government backing. (deposit insurance). But with shadow banking–like repo– it’s a bit different; the problem is fire sales. For example, when repo lenders–like the big money markets–demanded more collateral from the banks in exchange for short-term funding; the banks were forced to dump more of their assets en masse pushing prices lower, eroding their equity and leaving many of the banks deep in the red. This is how the panic wiped out Wall Street and cleared the way for the $700 TARP bailout. It all started in repo.

The point is, had the system been adequately regulated with the appropriate safeguards in place, there would have been no fire sales, no panic, and no crisis. Regulators would have made sure that the underlying collateral was legit, that is, they would have made sure that the subprime borrowers were creditworthy and able to repay their loans. They would have made sure that repo borrowers (the banks) had sufficient capital to meet redemptions if problems arose. And regulators would have limited excessive leveraging of the securitized assets.

Regulation works. It provides safety, stability, and security as opposed to panic, bankruptcy and severe recession which is the scenario that Wall Street’s profiteers seem to prefer. Now check this out from the NY Fed:

“While leveraged lending collapsed in 2008 from a peak of $680 billion in 2007, it has rebounded very quickly, and is now at record levels of volume, projected to be larger than $1 trillion in 2013…” (NY Fed)

How’s that for progress, eh? So, Bernanke’s reflation efforts have effectively restored the same shabby, poorly designed system to its former glory putting all of us at risk again. Here’s more:

“One area of concern, however, is the significant increase in the fraction of covenant lite loans, which have increased dramatically from 0 percent in 2010 to 60 percent in 2013. This deterioration in loan underwriting has come hand-in-hand with an increased presence of retail investors in the leveraged loan market, through both CLOs and prime funds, as relatively sophisticated investors, like banks and hedge funds, are exiting the asset class.” (New York Fed)

Great. So now we are seeing the same problems that emerged in 2004 and 2005 with subprime mortgages, that is, there’s so much liquidity in the system–thanks to the Fed’s zero rates and QE– that investors are dabbling in all-types of risky garbage that you wouldn’t normally touch with a 10 foot dungpole. Check this out from Testosterone Pit:

“Shadow banking loans are estimated to have reached $15 trillion in the US. And among them is a particularly hot category: lending to highly leveraged companies with junk credit ratings. … the NY Fed found that these loans are increasingly issued in a loosey-goosey manner, with low underwriting standards. And issuance has soared...

Layered into these crappy and risky loans are the crappiest and riskiest of all loans, namely “covenant-lite” loans. Their covenants are so watered down and so full of holes that investors have few if any protections in case of default. If the Fed ever allows reality to set, and these companies stumble under their load of debt or can’t refinance it at ridiculously low rates, investors can kiss their money goodbye.” …

these desperate small investors…have unknowingly made a quantum leap in risk – allowing the smart money, which hears the hot air hissing from the credit bubble, to bail out. This must be one of the proudest moments in Chairman Bernanke’s glorious tenure.” (“Fed: Hedge Funds, Banks Sell Crappiest Debt To Small Investors (Before Credit Bubble Blows Up) ” Testosterone Pit)

Nice, eh? So the big boys are planning to vamoose before the whole house of cards comes tumbling down. Meanwhile, Mom and Pop are about to get reamed for the umpteenth time when the Fed “tapers” and these covenant lite IEDs blow up in their face taking another sizable chunk out of their retirement savings. Way to go, Bernanke. Here’s more from the NY Fed report:

“Shadow credit transformation increased from only 5 percent of total credit transformation in 1945 to a peak amount of 60 percent in 2008 before declining to 55 percent in 2011.”

So now the shadow players are generating more than half of all the nation’s credit via their dodgy, unregulated operations. Why? So a handful of ravenous banks can make bigger profits.

According to the Financial Stability Board (FSB) “credit intermediation that takes place in an environment where prudential regulatory standards and supervisory oversight are either not applied or are applied to a materially lesser or different degree than is the case for regular banks engaged in similar activities.” (FSB, 2011).

Read that over again. What they’re saying is that it’s a completely ridiculous, insane system. We’ve given the banks this outrageous privilege of creating private money out of thin air, (credit) and they spit in our face. They won’t even follow a few simple rules that would make the process safer for everyone. Keep in mind, that Dodd Frank does nothing to remedy the problems in repo.

One last thing (from the NY Fed):

“Intermediaries create liquidity in the shadow banking system by levering up the collateral value of their assets. However, the liquidity creation comes at the cost of financial fragility as fluctuations in uncertainty cause a flight to quality from shadow liabilities to safe assets. The collapse of shadow banking liquidity has real effects via the pricing of credit and generates prolonged slumps after adverse shocks.”

Repeat: “liquidity creation comes at the cost of financial fragility as fluctuations in uncertainty cause a flight to quality from shadow liabilities to safe assets.”

Can you believe it? The Fed doesn’t even try to deny what’s going on. They admit that letting the banks ratchet up their leverage increases “financial fragility ” which could precipitate another crash. (“flight to quality from shadow liabilities to safe assets.”) In other words, the Fed KNOWS the system is nuts, just like they know that it’s only a matter of time before the whole bloody thing blows up again and the economy goes off the cliff. Still, they’re not going to lift a finger to change the system.

Why?

You know why.

Because a few fatcats at the top like the way things are now, that’s why.

If that doesn’t make your blood boil, I don’t know what will.

Totally Corrupt America

Reckless Endangerment

by PAUL CRAIG ROBERTS

 

 

Last March I reviewed Matt Taibbi’s important book Griftopia, an entertaining account of the through-going financial fraud that gave us the financial crisis.  Taibbi shows that the US “superpower” can match any third world backwater in the magnitude of greed and fraud that is endemic in business and government. Taibbi’s Griftopia was published last year. This year Henry Holt publishers have provided us with Gretchen Morgenson and Joshua Rosner’s Reckless Endangerment.

Morgenson and Rosner tell the story again, but with less drama and provocation. Possibly, it might be more acceptable to those gullible Americans who wrap themselves in the flag and refuse to believe that their country could ever knowingly do anything that is wrong.

I am not suggesting that Morgenson and Rosner pull their punches.  To the contrary, the authors deliver enough knockouts to be contenders with Taibbi as world champions in exposing the reckless  fraud that the US financial sector and its regulators now epitomize.

The financial crisis, which is very much still with us, did not result from accident or miscalculation; neither did it result because of a flaw in Alan Greenspan’s theory, as he told Congress when a feeble effort was made to hold him accountable.   It was the intentional result of people motivated by short-term profits who wanted to get theirs and get out.

As Reckless Endangerment shows, fraud characterized every stage of the process from the fraudulent borrower incomes and credit scores that mortgage issuers gave to unqualified buyers, through the securitization of the mortgages and their triple-A investment grade ratings by the rating agencies (Standard & Poor’s especially, but also Moody’s and Fitch) to the investment banks that sold what the banks knew was junk to investors around the world as investment grade securities.  Indeed, Goldman Sachs was simultaneously betting against the mortgage derivatives that it was selling to clients.

Investment banks, such as Goldman Sachs, which once considered it a matter of honor to represent the interests of customers, took advantage of the trust that had been built up in the past to commit fraud against customers in order to advance the banks’ short-term profits and the out-sized multi-million dollar managerial bonuses that these fraudulent profits produced.

Morgenson and Rosner provide a number of unique accounts of how those benefitting from fraud were able to defeat laws that were passed that would have held them to account. For example, the state of Georgia passed perfect legislation that held predatory lending to account. William J. Brennan Jr. and Georgia Governor Roy E. Barnes got the Georgia Fair Lending Act through the state legislature. It was a model for other states.  As the federal regulators had thrown in the towel, the state laws would have prevent the worst part of the financial crisis, it not prevented the crisis altogether.

The Georgia law only lasted a few months, because the rating agencies saw that their enormous profits from issuing fraudulent investment grade ratings were threatened by the law. The corrupt rating agencies mischaracterized the consumer protection act as a jihad by regulators. Standard & Poor’s declared that it would no longer allow Georgia mortgages to be placed in mortgage securities that it rated.

In other words, Georgia mortgages could no longer be securitized.  This announcement banned Georgia  mortgage lenders from securitization. Thus, the law was overturned, and fraud ran wild.

These kind of mafia strong-armed tactics in order to protect at all costs the short-term mega-bonuses that drove the totally fraudulent system have never been held accountable or punished.  Totally innocent people are held indefinitely and tortured by the US government for no other reason than to convince the gullible public that they are endangered by terrorists, but those who wiped out the home ownership and retirement pensions of millions of Americans now hold high and honorable positions on corporate boards and US regulatory agencies.

Federal regulatory agencies totally failed. Brooksley Born tried to use her statutory authority to regulate over-the-counter derivatives, but she was blocked by the Federal Reserve chairman, the US Treasure secretary, and the SEC chairman and forced to resign. As University of Chicago Nobel economist George Stigler predicted, regulatory agencies are captured by those who are intended to be regulated.  This was the case.

Regulators turned a blind eye to obvious criminal fraud, and were rewarded with lucrative positions in the financial community. The same for the US senators and representatives who repealed Glass-Steagal and other financial regulations.

For example, former US senator Phil Gramm who spearheaded the repeal of the Glass-Steagall Act, which separated commercial from investment banking, the repeal of which set up the financial crisis, was rewarded by being made vice chairman of the mega-bank UBS, a Swiss global financial services company.

What Taibbi, Morgenson and Rosner make clear is that while monster criminals continue to collect their multi-million dollar annual incomes, depressed single mothers, deserted by the men who fathered their child, are sent to prison for having small quantities of illegal drugs to boost their depressed spirits, and their children are put out to adoption.

This is “justice” in America where there is “freedom and democracy.”

Market crash 'could hit within weeks', warn bankers

A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.

By Harry Wilson, and Philip Aldrick

24 Aug 2011

 

Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group's implosion nearly three years ago.

Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540.

The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

"The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008," said one senior London-based bank executive.

"I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank.

Despite this, bank shares rebounded on Wednesday, showing the growing disconnect between equity and credit investors. RBS closed up 9pc at 21.87p, while Barclays put on 3pc to 149.6p despite credit default swaps on the bank hitting a 12-month high. This mirrored the US trend, with Bank of America shares up 10pc in late Wall Street trade after a hitting a 12-month low on Tuesday over fears that it might have to raise as much as $200bn (£121bn).

As with the European banks, the rebound in the share price was not reflected in the credit markets, where its CDS reached a 12-month high of 384.42 basis points.

European stock markets joined in the rally. The FTSE closed up 1.5pc at 5,206 on hopes the chance of a global recession had diminished. European shares hit a one-week high, with Germany's DAX closing up 2.7pc and France's CAC 1.8pc higher. The Dow Jones index edged higher on strong durable goods orders data as markets began to accept that the US Federal Reserve is unlikely to signal fresh stimulus at Jackson Hole this Friday.

Even Moody's decision to downgrade Japan's sovereign credit rating by one notch to Aa3 did little to damage global sentiment, although Tokyo's Nikkei closed down just over 1pc.

As stock market nerves settled, gold - which has recorded steady gains recently as investors seek a safe haven - fell 5.3pc to $1,777 in London.

Time For The US Government To Start Over, Bankers Can Lose Their Lamborghinis

"This Is The Most GUTLESS Institution!" Congresswoman Marcy Kaptur

(She is awesome! There are still a few representatives (at least 1) who care about the people.--jef)

American Dream "American nightmare"

Attacked at Hearing: Why Elizabeth Warren Scares the Hell Out of GOP

Many Republicans have stopped pretending their actions are motivated by anything except a desire to serve Wall Street and other large corporate interests.
By RJ Eskow, Blog for Our Future
Posted on May 25, 2011

Editor's note: During an unusually contentious hearing on the Hill Tuesday, Rep. Patrick McHenry, R-North Carolina, lashed out at Elizabeth Warren, the fierce consumer advocate tapped to head the Financial Consumer Protection Bureau, browbeating her and falsely accusing her of "lying." Three of the top five industries to contribute to McHenry's campaign are commercial banks, insurers and accounting firms, so his opposition should come as little surprise, but the unusually aggressive grilling caught observers by surprise. The New York Times called it a "rare collapse of the decorum that usually pervades discussions among even the most fervent opponents on Capitol Hill." What is it about Warren that has Republicans so hot?

"Money doesn't talk," sang Bob Dylan, "it swears." Rep. Patrick McHenry gave the week's most famous 70-year-old a dark birthday gift on Tuesday by proving that those lyrics still ring true after nearly half a century.

McHenry's savage attack on Elizabeth Warren and the Consumer Financial Protection Bureau was an obscenity by any definition except the FCC's, an assault on human decency proving once again that Wall Street's Capitol Hill goon squad is prepared to discard decency at a moment's notice to serve its masters.

One of the best ways to understand events like today's hearing is by looking at the actors involved. Today's case study is Patrick McHenry, Republican from North Carolina. He may have disgraced himself before the voters today, but look on the bright side: Rep. McHenry is now Wall Street's "Employee of the Month."

McHenry, like other Republicans before him, is just the latest symbol of a party that's stopped pretending its actions are motivated by anything except a desire to serve Wall Street and other large corporate interests.

Meet Rep. McHenry

I'll say this for Patrick McHenry: he knows who pays his bills. His top campaign contributor in the last election was Wells Fargo Bank, which paid a large settlement after it was found to have repeatedly laundered money for the drug cartels that have killed more than 35,000 people in Mexico.

Other top contributors include Bank of America, the American Bankers Association, and PriceWaterhouseCoopers, the morally compromised accounting firm that overlooked financial misdeeds at AIG and Goldman Sachs, among others. (It also looked the other way as Goldman shafted AIG -- while both companies were clients.)

The top industries contributing to McHenry's reelection include real estate, insurance, commercial banking, and accounting. Fifty-four percent of his campaign contributions came from PACs, and 40 percent came from large individual donors. A man of the people, he ain't.

Lies and the lying liars who lie about lies

It was ironic that McHenry chose to attack Warren's integrity by claiming she was lying, of all things, since the attack on CFPB has been nothing but a series of lies. McHenry's statement on Tuesday promoted the GOP's biggest Big Lie, that CFPB has unrestrained and excessive executive power. Actually the opposite is true: GOP cynics and complicit Wall Street Democrats worked to weaken the agency so much that it now has the bare minimum authority it needs to function, and it should be strengthened in years to come.

Tuesday McHenry and other members of the GOP Goon Squad claimed that Warren lied about the advice she gave to Treasury Secretary Tim Geithner and state attorneys general regarding the widespread foreclosure fraud conducted by McHenry's paymasters. A quick review of the record reveals she did no such thing. It also shows that the Goon Squad was just as thuggish in March as it is now. Back then they suggested it was somehow improper for Warren to advise the president, his Cabinet, and anyone else they directed her to advise. As special assistant to the president, that was her job.

McHenry also displayed the seemingly infinite wellspring of pettiness that corporate political hacks seem to always have on hand. His other accusation of lying arose from his indignation that Warren wouldn't spend her day waiting for Congressional Republicans, who were planning to leave the hearing for other business and then return later in the afternoon.

Rather than apologize and reschedule, McHenry accused Professor Warren of lying about the schedule established between Warren and his staff, saying, "We had no agreement. You're making this up." Logic tells us McHenry couldn't possibly know what his staff may have said to Warren or her staff members, since he didn't participate in those conversations. This was just petty crudeness.

The Superpowerful CFPB demands one million dollars or it will blow up the planet ...

Those are the small lies, however. The Big Lie is the suggestion that the Consumer Financial Protection Bureau is somehow "too powerful." To hear Republicans talk, you'd think CFPB is an evil empire in a giant underground lair -- one that could soon feature super-villain Elizabeth Warren, sitting at a giant console and laughing menacingly as she sends her forces out to torment America's innocent bankers.

But here in the real world, the organization was downgraded from an independent agency to a bureau in last year's Dodd/Frank deliberations. That was done to gain Republican votes that somehow, at the last minute, never materialized. (Duplicity is another Goon Squad trademark, although corporatist Dems benefited from this charade, too.)

That same (non)deal placed CFPB inside the Federal Reserve, and gave it a dotted-line relationship to the Treasury Department. (Those institutions aren't known for their consumer-friendly attitude toward bank regulation.) What's more, CFPB was given the additional hurdle of being forced to have its rules approved or denied by an inter-agency council. That's a pretty severe dilution of power for an evil super-agency.

These weakening actions were taken against the advice of 18 former members of the Federal Reserve's Consumer Advisory Council, and despite the fact that Republican Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson said the country needs a strong and independent agency.

The banks' minions

The bureau can still do fine work, but it's anything but super-powerful. When hacks like Patrick McHenry hold hearings called, "Who's Watching the Watchmen?" or describe CFPB as "a super class of administrative elites," they're just doing the dirty work for their Wall Street paymasters.

That's also why Republicans introduced a flurry of bills designed to strip the bureau of a director and replace her with a committee, further weaken its authority, and weaken longstanding presidential authority over appointments. Those bills were shepherded by Finance Committee Chairman Spencer Bacchus, who famously said, "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."

Mission accomplished, Rep. Bachus.

What's more frightening to a banker than a super-villain?

It's important to remember what Elizabeth Warren has done that's frightened the banks so much. So far she's merely tried to offer suggestions on how to rectify widespread bank criminality in the forging of documents and other illegal foreclosure actions. She's begun building a consumer-friendly organization. And she's tried to design a simpler mortgage loan application, so that borrowers actually understand the contract they're signing. Amusingly, banks have suggested a readable mortgage contract would "stifle innovation" -- which is true only when the word "innovation" is used as it often is in financial circles: as a synonym for "deception" or "predation."

Warren tells the truth, talks straight and fights for the middle class, and that makes her dangerous to the people who call the shots for "leaders" like Patrick McHenry and Spencer Bachus. Those "leaders" are serving the interests of Wall Street firms that fear Warren and CFPB because they'll interfere with some of their core business practices: Unreadable mortgage documents that contain secret traps for unwary consumers; credit card ripoffs and deceptions; and dishonest underwriting practices that threaten borrowers, investors and the entire economy.

For America's top banks, deception and trickery are part of the business model. That's why CFPB and Elizabeth Warren are a threat.

America's Most Defrauded

The banks have deceived and exploited millions of people. But perhaps no group of Americans has been more suckered than Tea Partiers. In what may be the biggest sales fraud case in history, this heavily anti-Wall Street movement elected a crowd that lives and breathes to serve bankers. They should be listening to one of Mr. Dylan's best and angriest songs: "You've got a lot of nerve to say you are my friend ...."

As for Warren, Rep. Elijah Cummings tried to cheer her on by asking her to "keep on the battlefield." He might just as well have quoted an old gospel song, "Keep On the Firing Line." Because anyone who stands up for consumers and against Wall Street is going to be targeted by goon squads, just like Elizabeth Warren was targeted today.

McHenry's name sounds a lot like that of American patriot Patrick Henry, who famously said "Give me liberty or give me death." The representative from North Carolina isn't likely to make that kind of sacrifice. He won't even sacrifice a campaign check or a meal at the club with his banker pals. To protect those perks, Patrick McHenry's willing to attack a good public servant like Elizabeth Warren -- and the consumers she's trying to protect.

America’s Middle Class Crisis: The Sobering Facts

Source: The Daily Ticker


Two recessions, a couple of market crashes, and stubbornly high unemployment are all wreaking havoc on America's middle class.

In the accompanying interview, The Daily Ticker's Aaron Task discusses the state of the middle class with Sherle Schwenninger, director of economic growth and American strategy programs at the New America Foundation. Schwenninger's recent report The American Middle Class Under Stress has some stunning facts that highlight the struggles the average American is having getting a decent-paying job and keeping up with rising cost of living.

Here are just some of the sobering facts:

• There are 8.5 million people receiving unemployment insurance and over 40 million receiving food stamps.
• At the current pace of job creation, the economy won't return to full employment until 2018.
• Middle-income jobs are disappearing from the economy. The share of middle-income jobs in the United States has fallen from 52% in 1980 to 42% in 2010.
• Middle-income jobs have been replaced by low-income jobs, which now make up 41% of total employment.
• 17 million Americans with college degrees are doing jobs that require less than the skill levels associated with a bachelor's degree.
• Over the past year, nominal wages grew only 1.7% while all consumer prices, including food and energy, increased by 2.7%.
• Wages and salaries have fallen from 60% of personal income in 1980 to 51% in 2010. Government transfers have risen from 11.7% of personal income in 1980 to 18.4% in 2010, a post-war high.

The bottom line is simple says Schwenninger: The middle class is shrinking, which threatens the social composition and stability of the world's biggest economy.

"I worry that we're becoming a barbell society - a lot of money wealth and power at the top, increasing hollowness at the center, which I think provides the stability and the heart and soul of the society... and then too many people in fear of falling down."

When a Country Goes Insane

Monday, February 21, 2011 by CommonDreams.org
by Robert Freeman
This must be what it’s like when a country goes insane, when it falls down a rabbit hole and tries to pretend that everything is normal.

It can’t tell truths from lies. Hucksters pose as upright men, and people imagine they are Solons, avatars of insight come down from the ages. Sleazy operators pass themselves off as statesmen, as thinkers of deep gravitas, and the crowds, unable to distinguish sanctimony from sincerity, bravado from bullshit, lap it up.

Let’s be clear. It was the Republicans and Corporatist Democrats who wrecked the economy. Both their people and their policies drove the economy into the ditch.

So Republicans and Corporatist Democrats condescending to instruct Americans about how to fix the economy is like the captain of the Titanic lecturing shipping operators about safe procedures for navigating the north Atlantic. No sane society would tolerate it. But this one does.

How bad is it this time?

Twenty five million people have lost their jobs. Twenty  million are underemployed. Many will never work again. Eight trillion dollars of middle class wealth has been destroyed in the housing collapse. One out of four mortgage holders are under water, owing more on their home than it’s worth. Fifty million people are living in poverty. One out of eight Americans are on food stamps. One of every two children will be on food stamps at some point in their lives.

How much worse can it get?

And the rich? Corporate profits are at an all-time high. But corporate taxes — not the imaginary “nominal” rates they whine so bitterly about, but the taxes actually paid — are among the lowest in the industrial world. Income inequality is at its highest level since 1917. Between 2000 and 2006, two thirds of all the growth in the entire economy went to the top 1%. And the “too big to fail” banks, those that wrecked the economy and extorted trillions of dollars from the government to rescue them? They are now even bigger.

How much better can it get?

And the Republicans’ response? The working and middle class need to pay. Never mind that it was Reagan and Bush I who quadrupled the national debt in only 12 years, and Bush II who doubled it again in only eight, all to grease the pockets of their wealthy base. It’s the working and middle class who need to be bled. They still have assets that can be milked from them. They can still be made more subservient, more docile.

They need to give up the union protections that have afforded them the slightest bargaining power against the largest organizations on earth. They need to give up environmental protections, even though every one of them have rocket fuel in their bodies from water contamination. They need to give up the mortgage interest deductions that allowed them to buy and own their own homes.

They need to give up government help with college loans that allowed their children to get the education they could never have. They need to give up any expectation of extended unemployment insurance, even though there are five people looking for every job available. They need to give up the retirement protections that Social Security has promised them for the past 75 years.

In other words, they need to give up any expectation of security, or dignity. They need to give up any childish illusions that they have any say in the government, that it is operated for any such quaint Madisonian ends as “the general welfare.” They need to put on their kneepads and accustom themselves to being grateful servants to their new feudal masters, assuming their masters will have them. It’s sickening.

Even though it was trillions of dollars of government bail-outs that saved the banks and their shareholders from bankruptcy… Even though it was government stimulus that reversed the 750,000 monthly job losses that were savaging the economy when Obama took office… Even though it was government FDIC insurance that protected millions of savers from being wiped out, and unemployment insurance that mitigated the collapse of aggregate demand, staving off another Great Depression for the time being…

It’s the poor, the working, and the middle classes that must be made to pay, for in the Republicans’ psychotic world government is existentially bad because it is through government that democracy tries to modulate the worst excesses of capitalism, which is existentially good.

It’s almost surrealistic. But decades of relentless Republican hate-mongering against the government has done its job, and made the government an easy purchase by any corporation.

Never mind that it was pre-corporatist government that pulled off the greatest feat of social engineering in history. In 1900, only 4% of Americans graduated from high school. By 2000, more than 80% did. It was this mass educated public that made possible the most technically sophisticated economy in the history of the world.

It was pre-corporatist government that won both World War I and World War II, leaving the U.S. economy astride the world like a colossus, able to harvest the fruits for decades. It was the government GI Bill program that educated a generation of young people to ultimately defeat the Soviet Union.

It was the pre-corporatist government that wired every house in the country for electricity during the Great Depression, setting up the largest household consumer-goods market in the world in the 1950s: home appliances. And it was pre-corporatist government guarantees for home loans that set off the greatest building boom in the history of the world: suburbia.

It was pre-corporatist government that paved more than 3 million miles of road between 1930 and 1960, making possible the massive economic boom associated with automobiles, mass mobility, and more. It was pre-corporatist government research that invented the graphical user interface and the Internet.

None of that matters.

Hate is stronger than logic and more than anything else, Republicans love their hate, and Corporatist Democrats love the corporate money that comes from Republican hate. It’s the only thing that gives them power. The more vicious, the more loony they are, the more they are treated like savants, like prophets channeling some higher wisdom, come though it may from the self-loathing gutter of political prostitution. They pull stuff out of their asses and brazenly pass it off as stone tablets. And people swoon.

Of course, you can understand why. The corporate mainstream media genuflect before gibberish and idolize idiocy. They are the media-tors of a Gresham’s Law of public discourse where bad information drives out good. For their own slick whoring they become “players,” while everybody else is left with a debauched civic currency, a crushed economy, and a collective impotence that makes true democracy and true prosperity impossible.

Alice in Wonderland would be amazed, even repulsed, that such cultural pathology passes for intelligence, even civilization. At least she stood up to the inanities of the Mad Hatter, the insanities of the Queen of Hearts, the arrogant deceits of Humpty Dumpty. But she didn’t live in today’s America.

Why Another Financial Crash is Certain

How to Make $4 Trillion Vanish in a Flash
By MIKE WHITNEY

On August 9, 2007, an incident took place at a bank in France that touched-off a financial crisis that that would eventually wipe out more than $30 trillion in capital and thrust the world into the deepest slump since the Great Depression. The event was recounted in a speech by Pimco's managing director Paul McCulley, at the 19th Annual Hyman Minsky Conference on the State of the U.S. and World Economies. Here's an excerpt from McCulley's speech:

"If you have to pick a day for the Minsky Moment, it was August 9. And, actually, it didn’t happen here in the United States. It happened in France, when Paribas Bank (BNP) said that it could not value the toxic mortgage assets in three of its off-balance sheet vehicles, and that, therefore, the liability holders, who thought they could get out at any time, were frozen. I remember the day like my son’s birthday. And that happens every year. Because the unraveling started on that day. In fact, it was later that month that I actually coined the term “Shadow Banking System” at the Fed’s annual symposium in Jackson Hole.

“It was only my second year there. And I was in awe, and mainly listened for most of the three days. At the end....I stood up and (paraphrasing) said, ‘What’s going on is really simple. We’re having a run on the Shadow Banking System and the only question is how intensely it will self-feed as its assets and liabilities are put back onto the balance sheet of the conventional banking system.’”

BNP had been involved in credit intermediation, that is, it was exchanging bonds made up of mortgage-backed securities (MBS) for short-term loans in the repo market. It all sounds very complex, but it's no different than what banks do when they take deposits from customers and then invest the money in long-term assets. (aka--"maturity transformation") The only difference here was that these activities were not regulated, so no government agency was involved in determining the quality of the loans or making sure that the various financial institutions were sufficiently capitalized to cover potential losses. This lack of regulation turned out to have dire consequences for the global economy.

It took nearly a year from the time that subprime mortgages began to default en masse, until the secondary market (where these "toxic" bonds were traded) went into a nosedive. The problem was simple: No one knew whether the underlying mortgages were any good or not, so it became impossible to price the assets (MBS). This created, what Yale Professor Gary Gorton calls, the e coli problem. In other words, if even a small amount of meat is contaminated, millions of pounds of hamburger has to be recalled. That same rule applies to mortgage-backed securities. No one knew which MBS contained the bad loans, so the entire market froze and trillions of dollars in collateral began to fall in value.

Subprime was the spark that lit the fuse, but subprime wasn't big enough to bring down the whole financial system. That would take bigger ructions in the shadow banking system. Here's an excerpt from an article by Nomi Prins which explains how much money was involved:

"Between 2002 and early 2008, roughly $1.4 trillion worth of sub-prime loans were originated by now-fallen lenders like New Century Financial. If such loans were our only problem, the theoretical solution would have involved the government subsidizing these mortgages for the maximum cost of $1.4 trillion. However, according to Thomson Reuters, nearly $14 trillion worth of complex-securitized products were created, predominantly on top of them, precisely because leveraged funds abetted every step of their production and dispersion. Thus, at the height of federal payouts in July 2009, the government had put up $17.5 trillion to support Wall Street's pyramid Ponzi system, not $1.4 trillion." ("Shadow Banking", Nomi Prins, The American Prospect)

Shadow banking emerged so that large cash-heavy financial institutions would have a place to park their money short-term and get the best possible return. For example, let's say Intel is sitting on $25 billion in cash. It can deposit the money with a financial intermediary, such as Morgan Stanley, in exchange for collateral (aka MBS or ABS), and earn a decent return on its money. But if a problem arises and the quality of the collateral is called into question, then the banks (Morgan Stanley, in this case) are forced to take bigger and bigger haircuts which can send the system into a nosedive. That's what happened in the summer of 2007. Investors discovered that many of the subprimes were based on fraud, so billions of dollars were quickly withdrawn from money markets and commercial paper, and the Fed had to step in to keep the system from collapsing.

Regulations are put in place to see that the system runs smoothly and to protect the public from fraud. But banking without rules is more profitable, so industry leaders and lobbyists have tried to block the efforts at reform. And, they have largely succeeded. Dodd-Frank – the financial reform act -- is riddled with loopholes and doesn't really resolve the central issues of loan quality, additional capital, or risk retention. Banks are still free to issue bogus mortgages to unemployed applicants with bad credit, just as they were before the meltdown. And, they can still produce securitized debt instruments without retaining even a meager 5 per cent of the loan's value. (This issue is still being contested) Also, government agencies cannot force financial institutions to increase their capital even though a slight downturn in the market could wipe them out and cause severe damage to the rest of the system. Wall Street has prevailed on all counts and now the window for re-regulating the system has passed.

President Barack Obama understands the basic problem, but he also knows that he won't be reelected without Wall Street's help. That's why he promised to further reduce "burdensome" regulations in the Wall Street Journal just two weeks ago. His op-ed was intended to preempt the release of the Financial Crisis Inquiry Commission's (FCIC) report, which was expected to make recommendations for strengthening existing regulations. Obama torpedoed that effort by coming down on the side of big finance. Now, it's only a matter of time before another crash.

Here's an excerpt from a special report on shadow banking by the Federal Reserve Bank of New York:

"At the eve of the financial crisis, the volume of credit intermediated by the shadow banking system was close to $20 trillion, or nearly twice as large as the volume of credit intermediated by the traditional banking system at roughly $11 trillion. Today, the comparable figures are $16 and $13 trillion, respectively.....The weak-link nature of wholesale funding providers is not surprising when little capital is held against their asset portfolios and investors have zero tolerance for credit losses." ("Shadow Banking", Federal Reserve Bank of New York Staff Report)

So, between $4 to $7 trillion vanished in a flash after Lehman Brothers blew up. How many millions of jobs were lost because of inadequate regulation? How much was trimmed from output, productivity, and GDP? How many people are on now food stamps or living in homeless shelters or struggling through foreclosure because unregulated financial institutions were allowed to carry out credit intermediation without government supervision or oversight?

Ironically, the New York Fed doesn't even try to deny the source of the problem; deregulation. Here's what they say in the report: "Regulatory arbitrage was the root motivation for many shadow banks to exist."

What does that mean? It means that Wall Street knows that it's easier to make money by eliminating the rules....the very rules that protect the public from the predation of avaricious speculators.

The only way to fix the system is to regulate all financial institutions that act like banks. No exceptions.

Rocky Times Ahead: Are You Ready?

This isn't a future you can, or should, face alone. How to make sure you don't have to.

Friday, January 21, 2011 by YES! Magazine

by Sarah Byrnes and Chuck Collins

 

"I don't believe the economy is getting better," says Billy R., a member of a mutual aid group in Oregon that he jokingly calls "my reality support group." "All around me I'm surrounded by media and advertising urging me to keep borrowing, buying, and sleepwalking. I love meeting with others who are staring down the potential risks and challenges of the future."

Maybe more of us could use a reality support group.

Even with the announcement that the bogus official unemployment rate fell to 9.4 percent, millions of people remain in dismal economic straits. The pace of home foreclosures has barely slowed and millions remain out of work. Even upbeat scenarios still assume protracted unemployment and economic stagnation for much of the decade ahead. The unspoken scenario is that things could get worse.

Can forming a small group like this really make a difference, when the problems we face seem so overwhelming? History tells us they can.

So here's the point: you must not face the future alone. Find your own "reality support group" (we'll tell you how below). This year, make a resolution to deepen your relationships with people around you with whom you can face what's coming down the pike.

Sometime during the next couple of years, there will likely be a fundamental shift. It might be another economic meltdown along the lines of 2008, or a shock to the economy thanks to a rapid spike in energy costs. It could be a series of extreme weather events that result in flooding, drought, or unprecedented heat waves. Think Hurricane Katrina on a larger scale. These changes could lead to food and water shortages-and test our personal and community preparedness in ways that we have not experienced in our lifetimes.

You should know that we, the authors of this piece, are not apocalyptic, bunker-building, pessimistic people. We're both parents, gardeners, and active in our neighborhoods. We like a good football party-though we root for different teams (Patriots v. Steelers).

We believe our society has almost everything we need to build stronger communities, reduce inequality, live in harmony with the earth, and make a graceful transition to a new sustainable economy. But we won't get there ignoring the data, and we won't get there disconnected from one another.

We're not talking about yet another issue campaign. We certainly need to remain engaged in the good fights around economic justice, peace, democracy, the environment. But there is something huge missing right now in our approach to social change. Our social movements are weak and, with some inspiring exceptions, not changing the political dynamics. The "Net Roots"-online organizing and social media-are creative ways to aggregate money and power in specific situations, but online activism is not a substitute for a movement based on durable and trusting face-to-face relationships. In some religious and labor traditions, this is called solidarity.

Fearful, Alone, & Ashamed

Presently in the United States we are witnessing the emergence of politics based on fear and the erosion of status. Millions of people saw their livelihoods and dreams collapse in the aftermath of the economic meltdown. People lost their homes, jobs, savings, and sense of a positive future. They've had to adjust their expectations-for example, facing the reality that they may never be able to retire or improve their standard of living.

Some people respond to these circumstances by blaming themselves and feeling ashamed about their difficulties. Many are hunkering down, feeling depressed and withdrawn. In the U.S., we tend to think everything is about the individual-even blaming ourselves for things that are largely beyond our control.

Others of us respond by scapegoating others, often those more disadvantaged. These responses often come from a place of fear, isolation, and shame.

There is good reason to be angry and focus on powerful financial and political actors who are responsible. But, as in the grieving process, we must move from anger to a place where we can boldly face today's difficult realities and also initiate pro-active responses. We can start by learning to accept and live within new limits set by economic and ecological reality. Many people are already deliberately moving away from the old economy, and they're finding new types of security and abundance. Perhaps unsurprisingly, they often feel much richer than they did in lives defined by the "work-watch-spend" cycle.

Rebecca Solnit, in her remarkable book A Paradise Built In Hell, reminds us to look for the "shadow governments of kindness," the deep reservoirs of resilience and compassion that emerge during disasters and troubled times. All over the planet, people are defying the stereotypes of the self-centered "economic man" and instead caring for one another, building alternative economies, and deepening solidarity.

A Movement to Build Economic Security

The good news is people are already coming together in small groups to form and strengthen relationships. Some are called "common security clubs," while others go by names like "mutual aid groups," "resilience circles," and "unemployed support groups."

Call it what you want, but the purpose is the same: getting together regularly-8 to 15 adults-to face ecological and economic change. Small group organizing is part of the missing architecture in our social movements ... which may be why it's catching on so quickly.

Such groups are designed to strengthen our personal and community resilience. They typically have three purposes: to learn together, support one another through mutual aid, and engage in social action.

Learn together. It's hard enough for each of us alone to keep up with news about the ways our changing economy and ecology are impacting our lives. But it's particularly challenging to face unsettling realities in isolation. In order to move forward, we need a community to help us learn and figure out how to deal with our fear, anger, loss, and feelings of betrayal.

Group members watch videos, read articles, talk to each other, and organize forums. Since the "experts" mostly got things wrong two years ago, participants are investigating things for themselves. What's really happening in the economy? What caused the economic meltdown? What's changed? What are the ecological risk points? How will the decline of cheap, easy-to-get oil affect the future economy? What will a transition to a new economy look like?

Mutual Aid. Our mutual aid muscles are out of shape. We need to find ways to increase our real economic security and web of support through shared resources, skills, experience, and capacities. Some folks do this through extended families, religious congregations, and ethnic and fraternal associations. But millions of people are disconnected from extended family and the immigrant and civic associations that helped earlier generations survive. And many religious congregations have gotten out of the practice of being centers of mutual aid.

Common security clubs often gather around potlucks, sharing food and recipes for healthy, low-cost meals. They support one another to get out of debt, brainstorm about employment options, share tips on saving money. They form bartering circles to swap skills, tools, and time. They talk about the challenges of parents moving in with children, children moving in with parents-and adjusting to new norms and limits as a result of the changing economy and future.

Social Action. Many of us want to make meaningful change at the local and national level. We want to find ways to constructively channel our anger and fear to resist further Wall Street destruction of our local economies. We want to act together in ways that go beyond online petitions or phone calls to our member of Congress. Think "affinity group" or "social action group"-a place to deepen our effectiveness as a small unit, but be part of larger movements.

Common security clubs in particular have worked for national policy changes, from universal health care and Wall Street financial reform to the extension of unemployment benefits. Many clubs, animated by the "break up with your bank" and "move your money" efforts, relocated personal, congregational, and other funds out of Wall Street, and into community banks and credit unions.

Other clubs have connected with community-wide "transition" efforts, inspired by the Transition Town movement sweeping England and now moving U.S. communities into action. Transition neighborhoods and towns proactively prepare themselves for climate change, economic hardship, and the decline in easy-to-get oil and cheap energy-with its huge implications for transportation, food security, building design, and our standard of living. Within the broader initiatives, small personal groups like common security clubs provide a place where people can meet to practice mutual aid and reciprocity. Both transition towns and common security clubs are integral components of building needed personal and community resilience.

A Few Stories

Encouraging stories are emerging from common security clubs and other mutual aid groups.

A group of unemployed workers in Maine created a resource sharing exchange. They met regularly at the library and laughed so much the librarian didn't believe they were economically struggling.

A group in Greenfield, Massachusetts calls themselves "the neighbors" and meets monthly to check in, sing together, and practice mutual aid. On another night they meet for a monthly game night-what one member called "fun and affordable entertainment."

In Fort Wayne, Indiana, a network of Unemployed and Anxiously Employed Workers meets weekly and has formed committees to help educate one another about computer use, unemployment insurance, stress management in tough times, and green job opportunities. "Part of our work is to help face the unemployment bureaucracy so people get their benefits," said Tom Lewandowski, a founder of the group. They invite people leaving unemployment offices to join the group. Members volunteer at libraries on Sunday afternoons to help unemployed workers file claims online.

Small Groups in Social Movements

Can forming a small group like this really make a difference, when the problems we face seem so overwhelming? History tells us they can. At many crucial moments in our past, small groups have played an essential role in incubating the seeds of great change.

During the Great Depression of the 1930s, more than 27,000 "Share Our Wealth" clubs formed to discuss the causes of the Depression and advocate for a radical program of wealth redistribution.

Also in the 1930s, seniors organized "Townsend Clubs" to advocate for old age pensions-a formidable social movement that added to the pressure to establish Social Security. By 1936, more than 8,000 Townsend Clubs had been formed with over 2 million members. In ten states-including Oregon, Colorado, California, Florida, South Dakota-there were more than 50 clubs per congressional district.

In the civil rights movement of the 1950s and 1960s, people formed nonviolent direct action groups to engage in sit-ins and keep up morale. Activists rooted in faith-based congregations and tight-knit communities were able to take greater risks knowing that if they should be jailed (or worse), there were others to care for their children and elders.

The women's movement was built upon small consciousness-raising groups, which enabled millions of women to reflect on their identity. "The personal is political" was experienced in thousands of face-to-face gatherings, ultimately shifting gender attitudes throughout the society. The anti-nuclear movement in the late 1970s formed "affinity groups" as part of direct action efforts to prevent power plants from being built.

In the labor movement, the success of organizing female clerical workers into trade unions depended upon an organizing approach that included small support groups. Large mega-churches have grown upon a foundation of "small group ministry" in which members connect through smaller, face-to-face groups. A growing number of organizers today are examining the "power of networks" in social movements.

Given the challenges we're collectively facing in the present, where are such movements today? It appears that without a lived experience of "solidarity" in our personal lives, it can be difficult to respond to an abstract call for the common good. It may be that small group organizing is central to our hopes for broad-based change.

Potential Shock Points

There is good reason to believe that the next 10 years are going to be very different than the 10 years prior to the 2008 economic meltdown. Persistent unemployment means that millions of people may live out the decade in an economic depression.

Moreover, the underlying economic structures that brought on the collapse have not been addressed. We remain at risk for more financial nosedives. As a result, new Wall Street economic bubbles and busts may emerge. The "danger" light on the dashboard is still flashing...

In fact, the future could bring any number of "shock points": another economic meltdown along the lines of 2008; a further increase in unemployment, even to 20 percent; more extreme weather events (hurricanes, floods, droughts, heat waves); new spikes in the cost of energy; rapid deflation as the value of money falls; a dramatic increase in the cost of food; and/or shortages of fresh water.

Because of the extreme inequalities of income and wealth that have opened up over the last generation, the brunt of these changes is falling, and will continue to fall, most intensely on lower and middle income and disadvantaged folks. But these changes will touch everyone in various ways, even those who believe they have built a wall of economic security around their families.

These are some of the reasons people need to face the future together and strengthen the social fabric of our communities. This is not a future you can, or should, face alone.

The Transition to the New Economy

Eight million jobs in the old economy are not coming back. But new jobs, enterprises, and livelihoods are emerging. We are seeing vibrant new kinds of enterprises in the local food sector, green building, and alternative transportation, as well as locally rooted cooperatives and producers. These are the pieces of a new economy that is emerging piecemeal around the country-an economy based upon entirely different models of economic growth and indicators of community health, and also new conceptions of wealth, community, and governance.

This new economy includes financial institutions invested in the real economy, like community banks and credit unions walled off from the Wall Street speculation that adds no real value to our economy. It includes respect for "all that we share"-our commons of public and private institutions such as libraries, schools, or agricultural knowledge. It is based on sound management and protection of the gifts of nature including water systems, seed banks, and land conservancies.

In the current political moment, leadership for large-scale transition to this new economy will not come from Washington, D.C., but from movements around green jobs, local manufacturing, alternative transportation, regional food, and more. This is a moment for each of us to reflect on our own power and agency. We each have a role to play, but perhaps we aren't sure what it is yet. This is where your small group is important. Small groups help disconnected individuals find their roles, turning them into community players who contribute to the movements toward the new economy.

If we are prepared for a transition, we will be in much better shape than if we simply hope life will somehow return to normal. If we have our "core group," we can face changes with less fear and more sense of our personal agency. Together, we will be able to work toward an economy that works for everyone.

How to Start a
Common Security Club


Calling All Organizers! Does this idea of a small support group appeal to you? Is it a missing part of your organizing work? Would it benefit your community, or your own life? Check out the resources provided by the Common Security Club network to help you organize a group.

Calling All Facilitators! Are you good at getting people together and holding a respectful space? If you’ve ever successfully facilitated a small group, you can facilitate a Common Security Club. You don’t need to be an expert on these matters, just good with people. There is a network that provides a free downloadable Facilitator Guide chock full of ideas for discussion, learning, sharing, mutual aid, and social action. The network provides facilitation tips, conference calls, and ongoing support.

Visit www.commonsecurityclub.org to learn more.

Faces of Economic Death

The growing imbalance between real wealth creation and worthless paper pushing is bad news
Sunday, December 26, 2010 by Salon.com
by David Sirota

If you've turned on the tube these last few weeks, you've probably been a collateral casualty of the biggest televisual war of attrition in recent memory. No, I'm not talking about the scripted skirmishes between cable channels, nor am I referring to the Battle of Zombie Talking Points that ate most of our brains during the election. I'm talking about the now never-ending throwdown between two of the most in-your-face salespeople our mediascape has ever manufactured: Geico's unnamed gecko and Progressive Insurance's chipper saleswoman, Flo.

No doubt, you know them both -- the green lizard's smile and cockney accent feign earnestness while the aproned Flo goes for the same effect through the saccharine enthusiasm of an “Office Space” character. It's mildly cute, but don't be fooled: As the best-known avatars of the insurance industry, these two are aggressively competing for our cash through re-education-camp levels of repetition, hoping to harass us into buying their product.

Certainly, there's nothing new about hard sells from TV charlatans. But these two represent something different, something apocalyptic -- and I say that not merely because their maddening ubiquity has driven me to the brink of insanity. I say it because they are peddling the kind of commodity that offers little tangible worth, waging a fight that promises no valuable innovation, and representing a larger insurance and finance sector that's hollowing out our economy.

Think about it: The gecko and Flo do not embody the capitalist vision of private competition fostering innovations that serve the greater good. They are not, say, two private manufacturers grabbing for customers in an entrepreneurial competition that will result in major technological advances.

Instead, the gecko and Flo front an insurance and related banking sector that is a government-supported endeavor -- car and health insurance are mandated and/or subsidized by the state, and deposits are federally guaranteed. This sector, which pools collective resources for (theoretically) collective benefits, provides services that are obviously crucial to the economy. But those services produce little added value beyond their baseline functions -- and that’s why the sector was once regulated like a utility.

Of course, such regulations were eviscerated in recent years, with the promise that competition would encourage self-regulating safeguards and value-added innovation. But as the AIG collapse, the Wall Street meltdown and periodic insurance premium increases exemplify, the effect has been the opposite. Rather than building real wealth for society, unregulated competition between the geckos and the Flos in the insurance and finance sector has often meant fine-print terms like "recission," esoteric maneuvers like "securitization" and acronym-cloaked schemes like CDOs -- that is, ever-more complex "innovations" to reduce customer payouts, increase fees, maximize private profit and limit executive liability, all under the TV-commercial guise of allegedly lower prices and better consumer returns.

In the global economy's increasingly fierce fight for genuine value and better living standards, this might not be so problematic if America's wealth-creating sectors (i.e., making things or providing valuable services) remained substantially larger than wealth-cannibalizing sectors like insurance and finance. But since the 1980s’ decline of manufacturing, the insurance and finance sector has doubled its share of gross domestic product, hitting 8 percent last year. That's twice as large as both the construction and information sectors -- and ongoing taxpayer bailouts promise to exacerbate the asymmetry even more.

This is certainly great for insurance companies -- for example, it provides them excess billions to buy an absurd amount of ads. For the rest of us, though, the growing imbalance between real wealth creation and worthless paper pushing is bad news -- and that’s why the gecko and Flo are so deeply disturbing. More than just the moment's most annoying shills, they are the cheeky visages of our nation's long-term economic decline.

Charting The US Fiscal Catastrophe

by Tyler Durden on 12/12/2010  - Zero Hedge

With little fanfare, the November budget deficit of $150.4 billion was reported, which happened to be the worst fiscal November in the history of the US, and just out of the top 10 of worst deficit months ever, including the traditionally weak seasonal months of December, April and September (indicatively, the worst deficit month was the February 2010 $221 billion). The deficit was a major surprise to all those who had expected a pick up in income tax revenues. And as the charts below demonstrate, while there was indeed a modest pick up in tax collections, it was nowhere near enough to offset the surge in government outlays (even with interest payments still at near record low levels). What was also not broadly appreciated is that the cumulative debt issuance over deficit funding has hit a new all time high of $1,735 billion since our October 2006 starting point (4 fiscal years ago).

And what is a bigger concern, is that the debt issuance continues to remain at almost exactly 50% over the deficit. Additionally we know that courtesy of Obama's latest stimulus for the wealthy (and everyone else) the latest projection for the 2011 budget deficit will hit $1.5 trillion (after it was just $1.1 trillion a few months prior). What this means is that should the US Treasury continue to issue 50% more debt than total deficit needs, by the end of fiscal 2011, the US will have issued another roughly $2.25 trillion in net debt. Granted this is a rule of thumb. But what it means is that the $900 billion in notional (not market) value of bonds to be bought back by the Fed through June will be woefully insufficient, and that as a result we expect that Ben Bernanke will be forced to monetize another $1.2 trillion in debt to continue with his course of monetizing every dollar of deficit spending, as he has been doing since the advent of QE2. It also means that unless something dramatically changes, through October 31, 2011, total US debt will be $15.9 trillion, up from the $13.9 trillion as of the end of last month, and will mean that the debt ceiling will have to be raised not only once, but likely twice in the next 12 months. We are now truly a banana republic you can believe in.

Chart 1: Cumulative US Individual Income tax revenues and debt issuance. Since the failure of Lehman, through November 30, 2010, the US government has issued $3.8 trillion in debt, and collected $3.6 trillion in tax receipts. Uncle Sam continues to fund over 100% of every dollar received from taxes with his own credit card, which is somehow still stuck at an APR of about 2%.

Chart 2: The same as above, but also showing the cumulative differential between the two metrics. We fail to observe any green shoots, or any improvement in the cumulative delta.

Chart 3: While the debt to tax collection metric is deplorable, what is far more scarier, and has very profound implications for future US debt, is that the cumulative debt over deficit differential not only continues to rise, but has hit an all time high. Forgive us if we laugh in the faces of all those who claim that rising tax revenues are a certain indication of economic improvement. Nothing could be further from the truth: the only "improvement" is short-term economic stimulus (with an ever declining half life), purchased on Uncle Sam's credit card. Should the recent acceleration in interest rates higher persist, we expect that very soon the Uncle Sugar APR will no longer be quite as attractive as it has been during this period of drunken sailor borrowing.

And if you are not scared enough by the above figures, here is Bill Buckler of the Privateer fame's condemnation of what anyone with half a brain realizes is pure, unadulterated fiscal lunacy (dictated in no small part by the same people at Goldman who are now in charge of monetary policy as well):

Before fiscal 2008, the US Treasury had only run an official deficit above the $US 400 Billion level once - in 2004. In the three years between 1998 and 2000, the Treasury had even claimed to have run budget SURPLUSES, even thought its debt climbed throughout the period.

• In fiscal 2008 - the official Treasury deficit was $US 438 Billion
• Ten weeks into fiscal 2009 - the Fed cut its controlling rate to 0.00 - 0.25 percent
• In fiscal 2009 - the official Treasury deficit was $US 1.42 TRILLION
• In fiscal 2010 - the official Treasury deficit was $US 1.29 TRILLION
• White House projections for fiscal 2011 are for an official Treasury deficit of $US 1.5 TRILLION

In fiscal 2009 and early fiscal 2010, the Fed directly monetised an official $US 300 Billion of US Treasury debt. Between November 2010 and June 2011, the Fed plans to buy another $US 900 Billion worth. Nobody, including the Fed knows what will happen after that.

When looking at these figures, it is wise to remember that what is being “produced” here is the reserve currency of the world. This is why the US government has gotten away with this borrowing as long as they have. And it is also why the Fed has been able to accommodate them with non-existent official interest rates for as long as they have. But for how much longer?

That is the 64 quadrillion dollar question.