What Happened to Change We Can Believe In?

by Frank Rich - Sunday, October 24, 2010 by the New York Times

PRESIDENT Obama, the Rodney Dangerfield of 2010, gets no respect for averting another Great Depression, for saving 3.3 million jobs with stimulus spending, or for salvaging GM and Chrysler from the junkyard. And none of these good deeds, no matter how substantial, will go unpunished if the projected Democratic bloodbath materializes on Election Day. Some are even going unremembered. For Obama, the ultimate indignity is the Times/CBS News poll in September showing that only 8 percent of Americans know that he gave 95 percent of American taxpayers a tax cut.


The reasons for his failure to reap credit for any economic accomplishments are a catechism by now: the dark cloud cast by undiminished unemployment, the relentless disinformation campaign of his political opponents, and the White House's surprising ineptitude at selling its own achievements. But the most relentless drag on a chief executive who promised change we can believe in is even more ominous. It's the country's fatalistic sense that the stacked economic order that gave us the Great Recession remains not just in place but more entrenched and powerful than ever.


No matter how much Obama talks about his "tough" new financial regulatory reforms or offers rote condemnations of Wall Street greed, few believe there's been real change. That's not just because so many have lost their jobs, their savings and their homes. It's also because so many know that the loftiest perpetrators of this national devastation got get-out-of-jail-free cards, that too-big-to-fail banks have grown bigger and that the rich are still the only Americans getting richer.


This intractable status quo is being rubbed in our faces daily during the pre-election sprint by revelations of the latest banking industry outrage, its disregard for the rule of law as it cut every corner to process an avalanche of foreclosures. Clearly, these financial institutions have learned nothing in the few years since their contempt for fiscal and legal niceties led them to peddle these predatory mortgages (and the reckless financial "products" concocted from them) in the first place. And why should they have learned anything? They've often been rewarded, not punished, for bad behavior.


The latest example is Angelo Mozilo, the former chief executive of Countrywide and the godfather of subprime mortgages. On the eve of his trial 10 days ago, he settled Securities and Exchange Commission charges for $67.5 million, $20 million of which will be footed by what remains of Countrywide in its present iteration at Bank of America. Even if he paid the whole sum himself, it would still be a small fraction of the $521 million he collected in compensation as he pursued his gambling spree from 2000 until 2008.


A particularly egregious chunk of that take was the $140 million he pocketed by dumping Countrywide shares in 2006-7. It was a chapter right out of Kenneth Lay's Enron playbook: Mozilo reassured shareholders that all was peachy even as his private e-mail was awash in panic over the "toxic" mortgages bringing Countrywide (and the country) to ruin. Lay, at least, was convicted by a jury and destined to decades in the slammer before his death.
The much acclaimed new documentary about the global economic meltdown, "Inside Job," has it right. As its narrator, Matt Damon, intones, our country has been robbed by insiders who "destroyed their own companies and plunged the world into crisis" - and then "walked away from the wreckage with their fortunes intact." These insiders include Dick Fuld and four other executives at Lehman Brothers who "got to keep all the money" (more than $1 billion) after Lehman went bankrupt. And of course Robert Rubin, who encouraged Citigroup to step up its investment in high-risk bets like Countrywide's mortgage-backed securities. Rubin, now back as a rainmaker on Wall Street, collectedmore than $115million in compensation during roughly the same period Mozilo "earned" his half a billion. Citi, which required a $45 billion taxpayers' bailout, recently secured its own slap-on-the-wrist S.E.C. settlement - at $75 million, less than Rubin's earnings andless than its 2003 penalty ($101 million) for its role in hiding Enron profits.


It should pain the White House that its departing economic guru, the Rubin protégé Lawrence Summers, is an even bigger heavy in "Inside Job" than in the hit movie of election season, The Social Network. Summers - like the former Goldman Sachs chief executive and Bush Treasury secretary Hank Paulson - is portrayed as just the latest in a procession of policy makers who keep rotating in and out of government and the financial industry, almost always to that industry's advantage. As the star economist Nouriel Roubini tells the filmmaker, Charles Ferguson, the financial sector on Wall Street has "step by step captured the political system" on "the Democratic and the Republican side" alike. But it would be wrong to single out Summers or any individual official for the Obama administration's image of being lax in pursuing finance's bad actors. This tone is set at the top.


Asked in "Inside Job" why there's been no systematic investigation of the 2008 crash, Roubini answers: "Because then you'd find the culprits." With the aid of the "Manhattan Madam" (and current stunt New York gubernatorial candidate) Kristin Davis, the film also asks why federal prosecutors who were "perfectly happy to use Eliot Spitzer's personal vices to force him to resign in 2008" have not used rampant sex-and-drug trade on Wall Street as a tool for flipping witnesses to pursue the culprits behind the financial crimes that devastated the nation.


The Obama administration seems not to have a prosecutorial gene. It's shy about calling a fraud a fraud when it occurs in high finance. This caution was exemplified most recently by the secretary of housing and urban development, Shaun Donovan, whose response to the public outcry over the banks' foreclosure shenanigans was to take to The Huffington Post last weekend. "The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating - it's shameful," he wrote.
Well, yes! Obama couldn't have said it more eloquently himself. But with all due respect to Secretary Donovan's blogging finesse, he wasn't promising action. He was just stroking the liberal base while the administration once again punted. In our new banking scandal, as in those before it, attorneys general in the states, where many pension funds were decimated by Wall Street Ponzi schemes, are pursuing the crimes Washington has not. The largest bill of reparations paid out by Bank of America for Countrywide's deceptive mortgage practices - $8.4 billion - was to settle a suit by 11 state attorneys general on the warpath.


Since Obama has neither aggressively pursued the crash's con men nor compellingly explained how they gamed the system, he sometimes looks as if he's fronting for the industry even if he's not. Voters are not only failing to give the White House credit for its economic successes but finding it guilty of transgressions it didn't commit. The opposition is more than happy to pump up that confusion. When Mitch McConnell appeared on ABC's "This Week" last month, he typically railed against the "extreme" government of "the last year and a half," citing its takeover of banks as his first example. That this was utter fiction - the takeover took place two years ago, before Obama was president, with McConnell voting for it - went unchallenged by his questioner, Christiane Aman pour, and probably by many viewers inured to this big lie.


The real tragedy here, though, is not whatever happens in midterm elections. It's the long-term prognosis for America. The obscene income inequality bequeathed by the three-decade rise of the financial industry has societal consequences graver than even the fundamental economic unfairness. When we reward financial engineers infinitely more than actual engineers, we "lure our most talented graduates to the largely unproductive chase" for Wall Street riches, as the economist Robert H. Frank wrote in The Times last weekend. Worse, Frank added, the continued squeeze on the middle class leads to a wholesale decline in the quality of American life - from more bankruptcy filings and divorces to a collapse in public services, whether road repair or education, that taxpayers will no longer support.


Even as the G.O.P. benefits from unlimited corporate campaign money, it's pulling off the remarkable feat of persuading a large swath of anxious voters that it will lead a populist charge against the rulers of our economic pyramid - the banks, energy companies, insurance giants and other special interests underwriting its own candidates. Should those forces prevail, an America that still hasn't remotely recovered from the worst hard times in 70 years will end up handing over even more power to those who greased the skids.


We can blame much of this turn of events on the deep pockets of oil billionaires like the Koch brothers and on the Supreme Court's Citizens United decision, which freed corporations to try to buy any election they choose. But the Obama White House is hardly innocent. Its failure to hold the bust's malefactors accountable has helped turn what should have been a clear-cut choice on Nov. 2 into a blurry contest between the party of big corporations and the party of business as usual.

FDIC Called On To Put Bank Of America Into Receivership

Friday, October 22, 2010 by Huffington Post
by Dan Froomkin

Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.

William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, say it's time to "foreclose on the foreclosure fraudsters". (HuffPo File)William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that it's time to "foreclose on the foreclosure fraudsters". They write:

The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.

They argue that, far from being a coincidence, massive foreclosure fraud "is the necessary outcome of the epidemic of mortgage fraud that began early this decade." The reason for that:

The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon."

So the only solution, then, is new management. "We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud," Black and Wray write.

They suggest starting with Bank of America, which they call "a 'vector' spreading the mortgage fraud epidemic throughout much of the Western world."

Looming large among Bank of America's sins is its purchase of mortgage giant Countrywide Financial long after it became clear that the company had engaged in massive fraud.

Even the extremely slow-to-anger New York Fed, which bought billions of securitized mortgages that Bank of America improperly represented as fully documented and conforming to underwriting standards, is now demanding that it buy some of them back.

But far from expressing remorse, Bank of America is going on the offensive, announcing it will end its three-week-old freeze on foreclosures in 23 states on Monday, much earlier than expected.

Bank of America officials are claiming they didn't find evidence of unwarranted foreclosures and are vowing to "defend the interests of Bank of America shareholders," and hire more lawyers, the New York Times reported. "It's loan by loan, and we have the resources to deploy in that kind of review," said the bank's chief executive.

Black and Wray write that Bank of America "is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable. "

They note that about a thousand receivers were appointed during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush. "Contrary to the scare mongering about 'nationalizing' banks, receivers are used to returning failed banks to private ownership," they write.

The new managers would "direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted," they write. "The receiver is also a well-proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations."

On Wednesday, administration spokesmen declined to endorse any dramatic federal action. They declared that they had found no "systemic" threat to the financial system from the foreclosure problems, spoke of "mistakes" and "errors" rather than pervasive fraud and said the banks and servicers now need to "fix" their "processes."

They "cannot even bring themselves to use the 'f' word -- fraud," Black and Wray write. "They substitute euphemisms designed to trivialize elite criminality."

The central problem appears to be that Obama Administration continues to see the mortgage and foreclosure crises primarily through the eyes of the banks -- not through the eyes of the regular people who became their victims, or even the taxpayers who bailed out the very fat-cat bankers who are now back to their tricks.

Black and Wray write:

This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression. 

The two professors call for "[n]othing short of removing all senior officers who directed, committed, or acquiesced in fraud."

The Haves, the Have-Nots and the Dreamless Dead

by Emily Kaiser - Friday, October 22, 2010 by Reuters

WASHINGTON - In 2007, when the world was on the brink of financial crisis, U.S. income inequality hit its highest mark since 1928, just before the Great Depression.

Coincidence? Maybe not.

Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.

This raises a host of social, economic and political questions. Should public policy aim to reduce inequality, and if so by what means? Does concentrated wealth at the top of the income spectrum generate asset bubbles, or vice versa? Could raising taxes or interest rates ward off financial meltdowns?

Americans are generally not bothered by inequality because they believe with hard work, they, too, can strike it rich. Government policies aimed at spreading the wealth rarely get much support. (Remember 2008, when then-candidate Barack Obama's campaign-trail comment about redistributing the wealth catapulted "Joe the Plumber" into media stardom?)

"It is usually only left-leaning rich people that care about inequality in the U.S.," said Carol Graham, a senior fellow at the Brookings Institution think tank who studies the economics of happiness.

Those attitudes may be subtly shifting, although it is unclear that this is anything more than just a temporary knee-jerk reaction to the latest bout of turmoil.

Public opinion polls show voters mixed on whether to back higher taxes on the wealthiest households, as President Obama has proposed. The issue is so contentious that Congress put off its decision until after the November 2 midterm elections.

Resentment toward Wall Street is simmering as bankers' paychecks swell to pre-crisis levels while unemployment remains more than twice as high as it was in 2007. Some politicians have been voted out of office simply because they supported the $700 billion bank bailout enacted in 2008.

Yet there is nowhere near majority backing for the sort of progressive New Deal policies passed during the Great Depression, which helped narrow the wealth gap and keep it contained until it resumed widening in the 1970s.

This time around, the wealth disparity narrowed in 2008 because rich households took a heavier hit from the financial crisis, but Census Bureau data shows it turned around immediately. In 2009, inequality was at the highest level since Census began tracking household income in 1967.

America has one of the largest wealth gaps among advanced economies. Based on an inequality measure known as the Gini coefficient, the United States ranks on a par with developing countries such as Ivory Coast, Jamaica and Malaysia, according to the CIA World Factbook.

TRACKING THE DIVIDE

Emmanuel Saez, a University of California, Berkeley, economist who was awarded a 2010 MacArthur Foundation "genius" grant for his work on income inequality, said recession-induced income declines for the super-rich tend to be fleeting unless there are "drastic" regulatory and tax policy changes.

His research with co-author Thomas Piketty shows the top 1 percentile of households took home 23.5 percent of income in 2007, the largest share since 1928, but that slipped back to 20.9 percent in 2008. (Unlike Census, Saez relies on IRS tax data, which is released with a two-year lag, so he does not yet have figures for 2009.)

During the last period of economic expansion, 2002 to 2007, the top 1 percent enjoyed 10.1 percent annual income growth, adjusted for inflation. For the other 99 percent, the growth rate was just 1.3 percent, Saez found. That meant the top 1 percent received 65 cents of every dollar in income growth.

"We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it," he concluded.

COMMON THREADS

There is little agreement among economists about what precisely links high inequality to crises, which helps explain why so few officials saw the financial upheaval coming.

Rapid expansion of credit is one common thread.

Robert Reich, a Berkeley public policy professor and a labor secretary under President Bill Clinton, thinks stagnant middle-class wages led households to pull equity from their homes and overload on debt to maintain living standards.

Raghuram Rajan, a professor at the University of Chicago's Booth School of Business and a former chief economist of the International Monetary Fund, believes governments tend to promote easy credit when inequality spikes to assuage middle-class anger about falling behind.

"One way to paper over the rising inequality was to lend so that people could spend," Rajan said.

In the 1920s, it was expansion of farm credit, installment loans and home mortgages. In the last decade, it was leveraged borrowing and lending, by home buyers who put no money down or investment banks that lent out $30 for each $1 held.

"Housing credit gave you an instrument to assist those falling behind without them feeling they're beneficiaries of some sort of subsidy," Rajan said. "Even if their incomes are stagnant, they feel really good about becoming homeowners."

BUBBLES AND YACHTS

Another theory is that concentration of wealth at the top sends investors searching for riskier interest-bearing savings. When so much cash is sloshing around, traditional safe investments such as Treasury debt yield very little, and wealthy investors may seek out fatter returns elsewhere.

Mark Thoma, who teaches economics at the University of Oregon, wonders if the flood of investment cash from the ultra-rich -- both in the United States and abroad -- encouraged Wall Street to create seemingly safe mortgage-backed securities that later proved disastrously risky.

"When we see income inequality rising, we ought to start looking for bubbles," he said.

Kemal Dervis, global economy and development division director at Brookings and a former economy minister for Turkey, said reducing inequality isn't just a matter of fairness or morality. An economy based on consumption needs consumers, and if too much wealth is concentrated at the top there may be times when there is not enough demand to support growth.

"There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."

MISSING THE LINK

The fact that economists are even examining the link between inequality and financial crises shows just how much the thinking has changed in the wake of the Great Recession.

Paul Krugman, the Nobel prize-winning economist, said that before 2008, when he spoke of inequality approaching levels last seen before the Great Depression, it would inevitably lead to questions about whether another crisis was looming.

"No, I'd say -- there really isn't a clear reason why high inequality should lead to macroeconomic crisis," he recalled in a presentation to a conference on income inequality in June.

Now, he says, he is considering whether inequality somehow creates macroeconomic vulnerability.

Krugman certainly wasn't the only one who dismissed the idea of a connection between inequality and crisis before the latest episode.

Ajay Kapur, a Deutsche Bank strategist, spotted the inequality parallels between the 1920s and the most recent decade, but didn't see the meltdown coming. The former Citigroup strategist created a stir five years ago when he built an investment strategy around his thesis that essentially divided the world into two camps: the rich and the rest.

Kapur told clients in 2005 that the United States and a handful of other economies were developing into "plutonomies" where the wealthy few powered economic growth and consumed much of its bounty, while the "multitudinous many" shared the leftovers.

Plutonomies come around only once or twice a century, he argued -- 16th century Spain, 17th century Holland, the Gilded Age. The last time it happened in the United States was during the "Roaring 1920s".

There was money to be made by buying shares of luxury companies that made toys for the rich, he told clients, suggesting a basket of stocks that included upscale retailer Burberry and luxury home builder Toll Brothers.

"When I presented this to clients, they said, 'Okay, this is interesting because you're telling me what happened in the 1920s is happening right now, and you obviously know what happened after 1929, right?'," Kapur said in an interview.

His response? That can't happen again because we know better now.

"To be perfectly honest.... I certainly didn't think it would all melt down in 2007. I'd be lying if I said that."

Kapur still isn't convinced there is a direct connection, and points out that 2007 and 1928 are only two data points and it's dangerous to draw conclusions from such a small sample.

SEEDS OF INEQUALITY

Inequality doesn't always lead to financial crisis, which makes it difficult for policymakers to know when it might be growing into a serious problem that ought to be addressed.

Many of the root causes -- technological advances, financial innovation, higher education -- are social goods, not ills, so it makes little sense to attack them.

The traditional view among economists is that combating inequality would hurt growth. Many argue that inequality is "if anything, favorable to -- or at least a necessary by-product of -- economic growth," as Federal Reserve Bank of Dallas researchers wrote in a 2008 paper on inequality.

In the decades before the Great Depression, advances in mass-production and transportation enabled large-scale factories to churn out more goods with fewer workers.

In the past two decades, the big change was the explosion of personal computing and the Internet. The ability to instantaneously transmit masses of information over thousands of miles meant workers no longer needed to be in the same place, and jobs could easily shift to low-cost locales such as Bangalore, India, or Shenzhen, China.

Demand for unskilled labor fell. The relatively small segment of the population with the qualifications to compete -- in the 1920s, a high school diploma; in today's economy, a college degree -- earned more money, widening the wealth gap.

Unemployment data bears that out. Even before the latest recession started in late 2007, the jobless rate for those with only a high school diploma was more than double the rate for those with at least a Bachelor's degree. As of September 2010, unemployment among high school graduates was 10 percent; for those with a four-year college degree it was just 4.4 percent.

This suggests one government response to inequality should be to channel more money into education, said Jack Ablin, chief investment adviser for Harris Private Bank in Chicago.

Ablin said only a small sliver of his high net-worth clients inherited their wealth, so simply comparing wealth concentration between the 1920s and now may be a bit unfair.

"Becoming wealthy in the olden days was almost genetic," he said, referring to wealth handed down from generation to generation.

I CAN BE BILL GATES

The work hard, get rich formula is deeply embedded in the American psyche, which helps explain why Americans have generally tolerated inequality.

For every dynastic family name such as Kennedy or Rockefeller, there are those who reached the top through creativity and sweat, from Sam Walton who built the global Walmart empire from a single dime store in Arkansas, to Google founders Larry Page and Sergey Brin who started their company in a garage.

Rags to riches tales are an integral part of what makes the United States a beacon to immigrants who dream of a better life. No one embodies that better than President Obama, whose mother once turned to food stamps to feed her family, yet he was able to attend top-tier universities and aspire to the most powerful office in the world.

Graham, the Brookings economist who studies happiness, said most Americans, including the poor, believe that hard work is more important than luck in getting ahead.

"If I work hard enough, I too can be Bill Gates," is how Graham explains the philosophy.

The only groups that don't share that view and consistently rank toward the bottom on measures of happiness are the long-term unemployed and those without health care, she said.

Both groups grew during the recession. As of September, there were 6.1 million people who had been out of work for more than six months, more than four times as many as there were at the start of the recession.

Deborah Coleman is one of the long-term unemployed. There is no disguising the anger felt by the 58-year-old former telecommunications company manager in Cincinnati, who has been out of work for more than two years.

"Am I pissed that I have lost everything while the rich on Wall Street are still living it up? You bet I'm pissed," she said. "I'm one of the many people who've lost everything and then been swept under the carpet."

TAXING THE RICH

Graham does not yet have enough data to determine whether attitudes toward inequality shifted after the financial crisis, but she suspects there has been very little movement.

The debate over whether to extend Bush-era tax cuts for the wealthiest households may provide an early litmus test. Obama has proposed keeping the lower tax rates only for families making less than $250,000, but Republicans and a handful of Democrats went them extended for all.

Obama's framing of the issue suggests the White House does not see much voter support for using tax policy to even out income inequality.

On the campaign trail in 2008, Obama told Joe Wurzelbacher, who became known as Joe the Plumber, that if the economy is good for those at the bottom, it's going to be good for everyone. His comments about redistribution sparked fury among conservatives who saw it as evidence the future president harbored socialist leanings.

Since that "spread the wealth" gaffe, Obama has chosen his words more carefully and regularly points out that he is no modern-day Robin Hood.

Ending the tax breaks for the wealthiest "isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag," Obama said recently.

His opponents say imposing higher taxes would kill the economic recovery because the rich spend, invest and hire more than everyone else, faintly echoing the plutonomy theme laid out by Deutsche Bank's Kapur.

DREAMLESS DEAD

Like cholesterol, there is a "good" and a "bad" kind of inequality, according to Francois Facchini, an economist at the University of Paris.

The "good" kind is aspirational. It encourages people to strive toward success, like Graham's Bill Gates analogy. The "bad" kind fosters disillusionment, a feeling that no matter how hard you work, you cannot win.

Pollster John Zogby sees a growing number of Americans falling into the second category. He calls them the "Dreamless Dead," those who no longer believe in the existence of the American Dream of hard work begetting success.

Those who work hard but fail to get ahead lose faith in the dream, he said. Beginning in the 1990s, Zogby noticed an increase in the percentage of people who said they were working in jobs that paid less than previous positions.

"That's when I started to zero in on the American Dream because my assumption was it was going up in smoke," he said.

In the early 1990s, 14 percent of those polled by Zogby said they were making less money than they had before. After the recession, the percentage had more than doubled.

Janet Townsend, who has worked at General Motors for 34 years, is one of those faced with the prospect of a drastic pay cut. She was told she'd have to take a 50 percent wage reduction because GM wanted to sell the Indianapolis plant where she works to a private investor. Union workers opposed the deal. The plant will be shut next year.

"I haven't seen any auto executives or Wall Street bankers taking a paycut, in fact their pay seems to keep going up," she said. "This country is built on the principles of life, liberty and the pursuit of happiness.

"But when a corporation tries to make me take a 50 percent pay cut, then you're taking away my right to pursue happiness while enhancing your own."

A NEWCOMER TO WASHINGTON

If inequality can lead to financial catastrophe and voter outrage, should Washington try to stop it from getting too wide?

Obama's avoidance of spread-the-wealth comments would indicate the White House does not think there is political backing for policies aimed explicitly at redistribution.

However, at least one new arrival to Washington's policy-making scene, Fed Vice Chairman Janet Yellen, has expressed concern that extreme inequality could ultimately undermine American democracy.

"Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people," she wrote in a 2006 speech.

The public policy response depends on what the root problem really is. Thoma, the University of Oregon economist, said it still isn't clear whether bubbles cause inequality or inequality causes bubbles.

If it is the former, Yellen and the Fed could play a role in preventing disaster by raising interest rates or tightening regulation when they see evidence of a dangerous asset price bubble building.

Fed Chairman Ben Bernanke has argued that interest rates are too blunt of an instrument to prick asset bubbles because they could tip the entire economy into recession rather than targeting a narrow source of instability.

If inequality is the core issue, more progressive taxes or investing in education programs might be more effective.

ON AVERAGE, YOU'RE DOING OKAY

Before policymakers can act, they will need to get better at identifying unsafe imbalances.

The most commonly used measuring tools, such as per capita income, can be misleading because they report at averages. Data on average income, for example, can be skewed by huge gains at the top, making spending power appear higher than it really is.

Willard Wirtz, who was President John F. Kennedy's labor secretary in the 1960s, is often credited with saying: "When you have your head in the freezer and your feet in the oven, on average you are doing okay."

Steve Landefeld, director of the Bureau of Economic Analysis which produces thousands of reports including GDP, has proposed adding more data series that might serve as an early warning system that imbalances were building.

One bright red flag that policymakers seem to have missed pre-crisis was the disconnect between swiftly rising house prices and stagnant wages for most middle-class workers.

TESTING SOCIAL COHESION

Left alone, income inequality looks likely to continue rising at least through this year. The stock market has already regained more than half of the ground lost between an October 2007 all-time high and a March 2009 trough. Those gains flow disproportionately to the wealthy.

Meanwhile, the overall unemployment rate will probably end the year about where it started, at 9.7 percent, while the education gap widens. The jobless rate for college graduates has come down by 10 percent since January; for those who didn't finish high school, it has risen 1 percent.

This pattern has been in place for more than a decade and it has not generated much popular support for addressing income inequality. That may change as strained U.S. finances eventually force officials to choose where to cut spending.

In the next five years, the government debt burden may reach a critical point where it is growing at a faster rate than the economy, pushing up taxes and diverting money that could be spent more productively on research or education.

Credit rating agency Moody's has warned that the budgetary decisions facing the United States and many other rich countries may "test social cohesion."

"Will society accept the measures that need to be taken to stabilize the debt position of the government?" Moody's analyst Steven Hess said in an interview.

"Economic growth is not going to get the country out of the negative debt trajectory it now faces," he said.

Means-testing social security payouts so that less money goes to the wealthiest would be one way to help curb the deficit and income inequality at the same time. Other ideas might include phasing out tax write-offs for mortgage interest for higher-income homeowners.

Both options are likely to be considered by a federal deficit commission that is due to report its findings in December. Its recommendations, however, are not binding, so Congress may choose an entirely different path -- one that does less to address inequality.

Hess said he did not expect the sort of riots and protests that have marked austerity pushes in Greece and other parts of Europe, but said inequality can heighten social tension.

Kapur, the strategist behind the plutonomy thesis, said the forces that put the United States into his plutonomy category appear to have peaked, and he has shifted his investment focus to emerging markets where returns look sweeter.

Although he did not see the financial crisis coming back in 2005, he accurately predicted what would eventually undermine his investment strategy. Time will tell whether he also foreshadowed shifts in U.S. attitudes toward inequality.

"Perhaps one reason that societies allow plutonomy is because enough of the electorate believe they have a chance of becoming a Pluto-participant," he wrote back then.

"Why kill it off if you can join it? In a sense, this is the embodiment of the 'American Dream'. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to be truly rich."

Crackpot Curriculum

Taking on the Spineless Pukes of Texas
By CHARLES M. YOUNG

So in August I went back to Wisconsin, which was glowing green under a brown cloud of mosquitos. Lotta water this past summer, and the most mosquitos since, oh maybe 1965, which is when the Schmoes first played in public at the ninth grade Halloween dance at Van Hise Junior High in Madison. We were called the Misfits then, and have been through a few name changes and personnel adjustments, but it’s basically the same five guys playing the same three chords for 45 years. After performing at our high school reunion party (Class of ’69) every five years over the decades, we figured, “Who knows these three chords better than we do? Isn’t it time we recorded an album?”

And we did. Three Schmoes (Bo Bally Schmoe, Timmy Schmoe and me, Chuck E. Schmoe) came back to Wisconsin, and joined the two Schmoes (Stevie Schmoe and Eddie Schmoe) who were still living there, and we recorded a whole album guided by the same light that has always illuminated our aesthetic path: No Good Songs Have Been Written Since We Went Through Puberty. I mean, why write new songs when Sam the Sham and the Pharaohs already wrote all the good ones?

Except that this time, for the first time ever, we had extenuating circumstances. “Guys,” I said to my fellow Schmoes. “We are in a unique situation where we personally could influence the entire future of education in the United States. Generations of children could grow up to be complete idiots if we do not act in a timely and forthright fashion. We need to write our first original material in 45 years. We need to write a campaign song for Judy Jennings.”

See, Judy Jennings is married to the aforementioned Bo Bally Schmoe, otherwise known as Hal Jennings, who works for IBM in Austin when he isn’t singing for the Schmoes. Judy is running as a Democrat in District 10 for the Texas State Board of Education. She has a Ph.D in education from the University of Texas with a specialty in evaluating schools, but her most important qualification for this job is that she is not insane, which distinguishes her from most of the current SBOE, as it is called. The SBOE has made many crackpot curriculum changes, and they continue to do so. Just a few weeks ago they voted to throw out most of the stuff on Islam, apparently on the theory that children would only be confused by learning the religious beliefs of people whom Satan placed over our oil deposits in the Middle East.

Anyway, last August I wrote, and the Schmoes recorded, the following song:

We want Judy Jennings for the State School Board

She won’t spend a nickel more than we can afford

She will teach our children straight, no ideology

She will train them all for jobs in the 21st century

We want Judy Jennings, yes that is how we feel

She’ll make our children brush and floss after every meal

She wants Thomas Jefferson in our curriculum

Her opponent wants him out, she thinks he was a bum

We want Judy Jennings, she’s got a Ph.D

She’s running for an office that pays no salary

She will save our children from stupidity

She wants to teach them science, not mythology

Now that’s just a hell of a song. I’m proud of it, and I have the credentials to be proud of it. I’ve been writing about music for a living (more or less) in Rolling Stone and other publications since 1975, so who is in a better position to judge my song than me? It ought to be on every radio station in Texas.

There is, however, one small problem. The lines about Judy’s opponent wanting Thomas Jefferson out of the curriculum may or may not be true, because Judy’s opponent, also a political newbie who has not served on the current SBOE, never voted on it and has never once stated where she stands on the crackpot curriculum changes. The incumbent screwballs on the board did try to eliminate Jefferson as an “enlightenment thinker,” apparently because he advocated separation of church and state, which is blasphemy to the screwballs.

“My opponent has never said she wants Jefferson out – it was the current board that tried to take him out,” said Judy to me in an email. “Now, I have few doubts she would support it, but it would be bad to get dinged on saying something that wasn’t true.”

I ask you: Is that one conscientious candidate for the SBOE, or what? She’s not going to post the greatest campaign song ever written on her website because there is some distant possibility that one line might not be true. Who wouldn’t want a paragon of integrity like Judy Jennings deciding what’s in your child’s textbooks?

I personally don’t have anywhere near the integrity that Judy has, so I’m standing by my song.

I knew there was a possibility that Judy’s Republican opponent, one Marsha Farney, might not be in favor of sweeping Thomas Jefferson into the dustbin of history. But there’s no way of knowing. In an election that has one issue–DO YOU OR DO YOU NOT SUPPORT THE CRACKPOT CURRICULUM CHANGES MADE BY THE CURRENT SBOE?–Marsha Farney won’t utter a syllable.

Instead, Farney has run a campaign of long silences interrupted by brief odiferous emissions of code words. She tries to signal the moderate, libertarian wing of the Republican party that she’s not in favor of the crackpot curriculum by calling herself a “common sense conservative” on her website. And she tries to signal the no-sense-whatsoever conservatives that she is in favor of the crackpot curriculum by promising to “strengthen and preserve our state and national heritage as well as our traditional family values." The rest of her website is empty, reassuring blather. She does go to Tea Party rallies where she questions the patriotism of Democrats, and that’s it. She’s done nothing but try to have it both ways.

In the most important SBOE election ever, in an election that is of greater import than most Congressional races because of the influence that Texas has on textbook content around the country, Marsha Farney’s campaign is one big lie of omission.

Judy Jennings’ campaign has been all about repealing the crackpot curriculum. Her opponent, as Jesse Ventura said about Bill O’Reilly, is a spineless puke.

I live in New York, so I’ve been hoping that some enterprising reporter in Texas would hear my campaign song on the radio and stalk Marsha Farney until she says yes or no to the crackpot curriculum. “Do you or do you not think that Thomas Jefferson should be taught in our schools as an enlightenment thinker who advocated the separation of church and state?” If she answers yes, she’ll alienate the know-nothings who think the Founding Fathers wanted a Christian government. If she answers no, she’ll alienate everyone who actually understands something about history.

Instead of asking that and about a dozen other simple questions (“Hey Marsha, you want creationism taught in biology class or not?”), the Austin American Statesman repeated Farney’s odiferous emission that she is a “common sense conservative” and endorsed her on the grounds that she can be a “vital bridge” between factions and lead the SBOE out of “the ideological fog in which it is now lost.”

What is the evidence for that in Farney’s campaign, which has been nothing but fog?

What is the precedent for “common sense conservatives” having any moderating influence at all on the neo-fascists in Congress and the Texas legislature?

The Texas State School Board has been ridiculed around the world for its crackpot curriculum. The Austin American Statesman has bewailed both the ridicule and the crackpot curriculum. So the Austin American Statesman then dismisses Judy Jennings as “just another Travis County liberal” and endorses her opponent in an editorial. Why would the main newspaper in Travis County think it a good idea that Travis County liberals not be represented on the SBOE? What, exactly, have Travis County liberals done that would disqualify them from having a say in public education? Why would Marsha Farney not be just another know-nothing screwball with a campaign manager who won’t let her do anything except emit odiferous code words? What is the evidence that you can do anything with know-nothing screwballs except outvote them?

All you voters down there in District 10 who don’t want know-nothing screwballs wrecking public education for kids across the United States, I’m begging you: Vote for Judy Jennings. Don’t vote for the spineless puke.

And, yes, I’d be thinking that even if her husband wasn’t in my band.

P.S. The Schmoes album, Songs We Should Have Stopped Playing A Long Time Ago, will be available soon in fine record stores, or something, at some undetermined point in the future.

France Erupts! Contrasting with the US (2 articles)

Sarkozy Under Siege
By PHILIPPE MARLIÈRE

When he entered the Elysée palace in 2007, Nicolas Sarkozy dreamed of a glorious destiny. Enthusiastic commentators predicted that his casual populism would revamp the Bonapartist right, and that his Gallic brand of neoliberal policies would sell the “American dream” to a mistrustful population. Things have not gone according to plan. Sarkozy wanted to be the French JFK; today he looks more like Louis XVI awaiting trial in 1793. He may escape the guillotine, but his presidency is now under siege.

The French are deeply unhappy with the way they have been governed, but their main grievance is about pension reform, which is seen as a cynical ploy to make ordinary people work more for inferior entitlements, while bailed-out bankers and the rich get tax rebates and continue to enjoy the high life. Over the past month, six national demonstrations have gathered together an estimated average of 3.5 million per action day. The latest, on Tuesday, was again a big success.

The movement is popular: 69% of the nation back the strikes and demonstrations; 73% want the government to withdraw the reform. And high school pupils have now joined the fray. Over 1,000 high schools are on strike as the youngsters take to the streets to protest against mass unemployment and the raising of the retirement age. The government has patronisingly labelled them as “manipulated kids”, but these comments have backfired and served only to galvanise the young, who have hardened their resistance and taken further interest in the reform. When interviewed by the media, pupils come across as articulate and knowledgable. Parents worry about their children's future, so they will not stop them from striking.

In France, strikes and demonstrations are seen as a civilised and effective way to enact one's citizenship. Students are expected to join marches from an early age, receiving by the same token a “political education”. France's youth have always scared governments because of their radical potential. Student demonstrations of late have been invariably popular because people know that the young have been badly hit by unemployment over the past 30 years.

University students are preparing to strike as well. Sarkozy, like Louis XVI in 1789, does not seem to have grasped how volatile the situation has become. He should know better. Since May 1968, all governments have been forced on the ropes every time youngsters have entered a social movement. This time it could prove crucial in helping to reach a tipping point; a stage in the conflict where the balance of power switches from the government toward those opposing the pension reform.

Last week, Sarkozy had to send in riot police to reopen fuel depots blocked by strikes in several places. Yet several hundred filling stations had to shut because they had run out of supplies. Lorry and train drivers are also starting strike actions.

How can the current situation be interpreted? Undoubtedly, the rebellion seems durable and runs deeper than the question of pensions. The reform has triggered a web of collective actions that are now spreading fast. Discontent is fuelled by low incomes and unemployment, but also by the impact of the crisis on people's daily life, the arrogance of the Sarkozy presidency, corruption cases and police brutality.

There is a sense of moral outrage at the imposition of a neoliberal medicine to cure an illness caused by the same neoliberal policies. The French are not hostile to reforms: they just demand those that redistribute wealth and allocate resources to those who need it the most. Any comparison with May '68, however, may be hasty. Then, France was experiencing a period of economic prosperity. Today, events occur in the context of a deep economic depression. This is why the political situation is potentially explosive. Radicalised workers and youngsters are forcing the unions to up their game. The normally toothless Socialist party has pledged to return the retirement age to 60, should it come back to power in 2012.

One can envisage two possible scenarios. Opposition to the reform hardens, in which case Sarkozy may have to water it down or even withdraw it. This would mark the first major popular victory in Europe against the post-2008 neoliberal order. Alternatively, Sarkozy stays put and imposes a deeply unpopular reform, in which case the political price to pay for the incumbent president would be very high, should he decide to run again in 2012.

*****

Why French Protestors Have It Right 

By MARK WEISBROT

The demonstrations that have rocked France this past week highlight some of its differences from the United States. This photo, for example, shows the difference between rioting in baseball-playing versus soccer-playing countries. In the U.S., we would pick up the tear gas canister and THROW it – rather than kick it -- back at the police.

More importantly the French have decided to take to the streets in the millions to defend hard-won retirement gains – including large-scale strikes and work stoppages. French populist rage is being directed in a positive direction, unlike in the United States where it is most prominently being mobilized to elect political candidates who will do their best to increase the suffering of working and middle-class citizens. (It must be emphasized, since the media sometimes forgets to make the distinction, that only a tiny percentage of France’s demonstrators have engaged in any kind of property damage and even fewer in violence, with all but these few protesting peacefully.)

I have to admit it was perplexing to watch the French elect President Nicolas Sarkozy in 2007, a man who campaigned on the idea that France had to make its economy more “efficient” like America’s. In reality, he couldn’t have picked a worse time to peddle this mumbo-jumbo. The housing bubble was already bursting in the United States and would soon cause not only our own Great Recession but also drag most of the world economy into the swamp with it. So much for that particular model of economic dynamism.

But Sarkozy had a lot of help from the major media, which was quite enchanted with the American model at the time and helped promote a number of myths that formed part of his campaign. Among these were the idea that French social protections and employment benefits were “unaffordable in a global economy,” and that employers would hire more people if it were easier to fire them, and if taxes were cut for the rich.

Sarkozy has recently abandoned one of his most politically unpopular tax cuts for the rich, but there may be others. But he had also promised not to raise the retirement age for the public pension system. This has contributed to the mass outrage at his current proposal to raise it from 60 to 62, for those taking the reduced benefits, and from 65 to 67, for full benefits. (In the United States Social Security system, most people opt for the reduced benefit that is available beginning at age 62; full benefits are available, for those born after 1959, at 67.)

Once again most of the media thinks the French are being unrealistic, and should just get with the program like everyone else. The argument is that life expectancy is increasing, so “we all” have to work longer. However this is a bit like reporting half of a baseball score (or soccer if you prefer). On the other side is the fact that productivity and GDP also increase over time, and so it is indeed possible for the French to choose to spend more years in retirement, and pay for it.

France’s retirement age was last set in 1983. Since then, GDP per person has increased by 45 percent. The increase in life expectancy is very small by comparison. The number of workers per retiree declined from 4.4 in 1983 to 3.5 in 2010. But the growth of national income was vastly more than enough to compensate for the demographic changes, including the change in life expectancy. The situation is similar going forward: the growth in national income over the next 30 or 40 years will be much more than sufficient to pay for the increases in pension costs due to demographic changes, while still allowing future generations to enjoy much higher living standards than people today. It is simply a social choice as to how many years people want to live in retirement and how they want to pay for it.

If the French want to keep the retirement age as is, there are plenty of ways to finance future pension costs without necessarily raising the retirement age. One of them, which has support among the French left – and which Sarkozy claims to support at the international level -- would be a tax on financial transactions. Such a “speculation tax” could raise billions of dollars of revenue – as it currently does in the U.K. – while simultaneously discouraging speculative trading in financial assets and derivatives. The French unions and protesters are demanding that the government consider some of these more progressive alternatives.

It is therefore perfectly reasonable to expect that as life expectancy increases, workers should be able to spend more of the lives in retirement. And that is what most French citizens expect. They may not have seen all of the arithmetic but they can see intuitively that as a country grows richer year after year, they should not have to spend more of their lives working. An increase in the retirement age is a highly regressive cut that will hit working people hardest. Poorer workers have shorter life expectancies and would lose a higher proportion of their retirement years. Workers who have to retire early because of unemployment or other hardships will take a benefit cut as a result of this change. And of course this cut would not matter to the richest people who do not rely on the public pension system for most of their retirement income.

France has a lower level of inequality than most of the OECD countries and is one of only 5 – out of 30 OECD countries -- that saw inequality decrease from the mid-80s to the mid-2000s. It also had the largest decrease in inequality in the group, although all of it was from the mid-eighties to the mid-nineties. The country has until now resisted at least some of the changes that have rolled the clock back for working and especially low-income citizens in the high-income countries. The European authorities (including the European Commission, European Central Bank, and International Monetary Fund) are currently accelerating these regressive changes in the weaker Eurozone economies (e.g. Greece, Spain, and Ireland). All of these institutions and many politicians are trying to use the current economic problems of Europe as a pretext to enact right-wing reforms.

Polls show more than 70 percent support for France’s strikers despite the inconvenience of fuel shortages and other disruptions. The French are already sick of right-wing government, and that is also part of what is generating the protests. France has a stronger left in than many other countries, and one that has the ability and willingness to organize mass protest, work stoppages, and educational efforts. They are fighting for the future of Europe, and it is a good example for others. Hopefully, here in the United States, we will be able to beat back any proposed benefit cuts to our much less generous Social Security system, that are looming on the horizon.

Ten Questions for Tea Partiers

So You Want Lower Taxes, a Return to Constitutional Protections and Clean Government?
By RALPH NADER

Here are ten Questions for Tea Partiers that they want or do not want to answer. I say it this way because people who call themselves Tea Partiers do not have the same view of politics, government, Big Business or the Constitution. Their opinions range from pure Libertarian to actively furthering the privileges of plutocracy. Their income and occupational background vary as well, though most seem to be middle-income and up.

My guess is that most Tea Partiers come from the conservative wing of the Republican Party who are fed up with both the corporate Republicans like Bush and Cheney, as well as the Democrats like Barack Obama and Nancy Pelosi.

With the above in mind, the following questions can serve to go beyond abstractions and generalizations of indignation and get to some more specific responses.

1. Can you be against Big Government and not press for reductions in the vast military budgets, fraught with bureaucratic and large contractors’ waste, fraud and abuse? Military spending now takes up half of the federal government’s operating budgets. The libertarian Cato Institute believes that to cut deficits, we have to also cut the defense budget.

2. Can you believe in the free market and not condemn hundreds of billions of dollars of corporate welfare-bailouts, subsidies, handouts, and giveaways?

3. Can you want to preserve the legitimate sovereignty of our country and not reject the trade agreements known as NAFTA and GATT (The World Trade Organization in Geneva, Switzerland) that scholars have described as the greatest surrender of local, state and national sovereignty in our history?

4. Can you be for law and order and not support a bigger and faster crackdown on the corporate crime wave, that needs more prosecutors and larger enforcement budgets to stop the stealing of taxpayers and consumer dollars so widely reported in the Wall Street Journal and Business Week? Law enforcement officials estimate that for every dollar for prosecution, seventeen to twenty dollars are returned.

5. Can you be against invasions of privacy by government and business without rejecting the provisions of the Patriot Act that leave you defenseless to constant unlawful snooping, appropriation of personal information and even search of your home without notification until 72 hours later?

6. Can you be against regulation of serious medical malpractice (over 100,000 lives lost a year, according to a study by Harvard physicians), unsafe drugs that have serious side effects or cause the very injury/illness they were sold to prevent, motor vehicles with defective brakes, tires and throttles, contaminated food from China, Mexico and domestic processors?

7. Can you keep calling for Freedom and yet tolerate control of your credit and other economic rights by hidden and arbitrary credit ratings and credit scores? What Freedom do you have when you have to sign industry-wide fine print one-sided “contracts” with your banks, insurance companies, car dealers, and credit card companies? Many of these contracts even block your Constitutional access to the courthouse.

8. Can you be for a new, clean system of politics and elections and still accept the Republican and Democratic Two Party dictatorship that is propped up by complex state laws, frivolous litigation and harassment to exclude from the ballot third parties and independent candidates who want reform, accountability, and stronger voices for the voters?

9. If you want a return to our Constitution—its principles of limited and separation of power and its emphasis on “We the People” in its preamble—can you still support Washington’s wars that have not been declared by Congress (Article I Section 8) or giving corporations equal rights with humans plus special privileges and immunities. The word “corporation” or “company” never appears in the Constitution. How can you support eminent domain powers given by governments to corporations over homeowners, or massive week-end bailouts by the Federal Reserve and Treasury Department of businesses, even reckless foreign banks, without receiving the authority and the appropriations from the Congress, as the Constitution requires?

10. You want less taxation and lower deficits. How can you succeed unless you stop big corporations from escaping their fair share of taxes by manipulating foreign jurisdictions against our tax laws, for example, or by letting trillions of dollars of speculation on Wall Street go without any sales tax, while you pay six, seven or eight percent sales tax on the necessities you buy in stores?

The Ignored Dark-Sides of Joblessness

My Friends are Hurting and That Hurts Me
By LINN WASHINGTON, Jr.

Two of my oldest and dearest friends in life are unemployed and suffering – facing full-blown collapse monetarily and mentally.

Both have graduate degrees, multiple skills, commendable work records and zero job search success despite diligently scouring every source available during the past two years.

Oh, another important factor in the equation of my friends’ exile from employment ranks. Both friends are over fifty, a seeming Bestial Mark during this era when brazen age discrimination trumps traditional discrimination based on race, gender and disability.

Amplifying the anguish my friends harbor already from feeling their joblessness is somehow their fault are increasing reports that employers are refusing to hire unemployed people, citing their jobless status as evidence of their worthlessness as employees.

Employers, according to recent media reports, manufacture myths about the jobless, such as the jobless are unemployed due to poor work performance or that the currently employed are more current in needed proficiencies.

One friend’s downsizing had nothing to do with poor performance and that friend avoided layoff-induced "obsolescence" by returning to college and taking training for additional skills.

This friend’s layoff came just days after winning yet another company award for record sales. While laid-off and looking for a work, this friend obtained two advanced certifications each representing expanded proficiency in new technologies.

Further, this friend even learned golf, considering that game to be an effective tool enabling her to better perform the etc side of the sales profession – given that the links often trump a dinner table as a place for closing big deals.

My friends, like millions similarly situated across America, are the collateral damage of this devastating economic depression so craftily mischaracterized as a recession by politicians and media pundits. My friends see some pundits as enabling unwilling politicians intent on doing nothing to realistically confront the nation’s economic problems.

My friends talk sadly about the mental depression, embarrassment, helplessness and isolation they endure being unemployed…all major life-wrenching realities that receive little attention from ‘thought leaders.’ There is too little leadership looking for creative approaches to deal with this soul-crushing economic malaise.

One friend compiled a list of the ugly antics encountered while trying to reenter the working world.

That list includes things like: online job boards that require users to upgrade from free resume distribution to paid categories for “better results” that still don’t pay off; paid sites that post job listings that are months old; recruiters who normally get paid by the companies when they find suitable candidates who are now doing free webinars to solicit coaching fees from unemployed workers trying to get hired, and job fairs where most vendors tell eager applicants they are not hiring but will provide the company website to search for jobs that may be posted in the future.

“You join networking groups to widen contacts. Many of these groups promise that if you attend their events you can meet with companies that are hiring. But few firms show up at these events and none have jobs available,” lamented one friend.

My friends have both grown contemptuous of media reports which constantly proclaim an easing of the recession, always based on new statistics that are flimsy at best.

Media talking-heads will repeatedly hype data showing fewer people receiving unemployment benefits as a recession-easing sign, ignoring the reality that fewer recipients is really a sign of more people losing benefits because they’re maxed-out eligibility…not because they’ve found jobs.

And one of the most egregious lies confronting the jobless is the official unemployment rate, a farce that vastly undercounts real levels of joblessness because that rate only includes persons looking for jobs, not those who’ve stop looking because the effort is pointless, or those who never utilized official sources like state unemployment agencies – another farcical endeavor filled with regimes of filling out forms with no real results.

It’s bad enough that my friends have to endure incessant pick-pocket scams in their job searches – like entities promising assistance while asking for cell phone numbers to deceptively bill for text messages sent out containing worthless job referrals.

Even worse than these scams to steal revenue from persons with no income are the insults heaped on my friends and millions of other jobless people by heartlessly cruel conservatives – mainly Republicans – always quick to pontificate about how the jobless allegedly don’t want to work or to call unemployment compensation a crutch that allegedly hinders the momentum of economic recovery.

For the record, Democrats in DC are dismal on the jobs-creation front…too timid to seriously confront the all-out assault on middle and lower classes by craven capitalists.

The Democratically controlled House passes public service jobs bills that would quickly put paychecks into the pockets of the jobless but that legislation gets killed in the Democratically controlled Senate, where members of both parties listen to the self-interest of Wall Street more than to the suffering on Main Street.

Exhibit A for the crass anti-jobless conservatism is Pennsylvania Republican gubernatorial candidate Tom Corbett. Earlier this summer Corbett proclaimed that too many jobless prefer lying around collecting unemployment payments instead of taking available jobs.

One of my jobless friends countered Corbett by making the observation that, “You cannot pay your bills with unemployment.”

The $500 weekly that this person was receiving in unemployment payments before they ran out amounted to less than a third of their weekly salary at their last job. Further, most unemployed receive far less than my friend, because their salaries were far lower.

Some newspaper editorials rightly castigated Corbett for his “ignorant and insensitive” assertion, stating the obvious that Corbett ignored – there is “no evidence” supporting Corbett’s contention that jobs abound across Pennsylvania’s depressed landscape.

Candidate Corbett swung around –trying to remove his dog-dropping-stained shoe from his mouth -- and told the public that he didn’t mean to “imply that anyone was lazy” for being on unemployment instead of reentering the work force.

Corbett claimed he wasn’t saying what he believed based on what he actually knew about jobs/joblessness, but rather was only repeating something that someone else told him. That weasel rationale prompted one newspaper to fault Corbett for failing to do his homework, instead of relying on (alleged) anecdotal information provided by “someone else.”

Good thing Corbett made his now self-acknowledged “insensitive” assertion as a political candidate in the court of public opinion instead of in a court of law, given that his day job is being Pennsylvania’s Attorney General.

Pennsylvania’s Rules of Professional Conduct covering all lawyers states in part that an attorney shall not knowingly “make a false statement of material fact or law to a tribunal...”

If a gubernatorial aspirant doesn’t know jobs in Pennsylvania are scarcer than rattlesnakes without poisonous fangs, that person lacks the critical capacity and compassion needed for that executive office.

The reality is Corbett tried to score a slimy conservative Republican political point with his jobless-are-lazy pronouncement.

AG Corbett currently has the power, if he wanted to use it, to attack the rampant age discrimination that is ravaging 50+ job seekers in his state. He could, if he wanted to, also sue the scammers who are pick-pocketing Pennsylvania’s unemployed. But AG Corbett instead uses his powers for partisan purposes, like participating with other Republican AG’s in the lawsuit attacking President Obama’s health care reform.

Corbett’s ‘Attytood’ about the jobless is not an isolated incident of an errant comment. Weeks after Corbett’s comment, other Republican candidates from coast-to-coast unleashed GOP talking-points pounding on unemployment compensation and the minimum wage.

Joe Miller, Alaska’s Republican US Senate candidate who is endorsed by Tea Party star Sarah Palin, bashed federal unemployment compensation as being not “constitutionally authorized.”

Miller hinted at eliminating unemployment compensation before pulling his own moose-poop-stained boot from his mouth following revelations that his own wife received unemployment when she was discharged from a government job where she worked for him.

Apparently Tea Baggers don’t see the naked nepotism in Miller’s having placed his wife on the public payroll as contradicting their oft-spouted claim about wanting to “restore integrity” to government.

Republican multi-millionaire Linda McMahon, the Connecticut US Senate candidate, called for lowering the federal minimum wage, an already paltry figure that keeps a family of four below the federal poverty level even if they both put in 40-hour work weeks.

McMahon – also foot-in-mouth – admitted she didn’t know the exact amount of the minimum wage in Connecticut, and didn’t know if any of her employees in the World Wrestling enterprise she formerly headed were paid minimum wage.

This insensitivity to the plight of the suffering jobless on the part of GOP big-wigs and their right-wing candidates exposes an alarming insanity among non-wealthy Republicans and their Tea Party confederates, who blindly back politicians whose policies work harshly against their own basic economic interests.

Bernanke's Biggest Problem

China as Collateral Damage
By MIKE WHITNEY

The United States conducts monetary policy the same way it conducts foreign policy: unilaterally. When Fed chairman Ben Bernanke signaled last week that he was planning to restart his bond purchasing program (Quantitative Easing) he didn't consult with allies at the IMF, the G-20 or the WTO. He simply issued his edict, and that was that. The fact that the Fed's policy will flood emerging markets with cheap capital, pushing up the value of their currencies and igniting inflation, is of no concern to Bernanke. He operates on the same theory as former Treasury Secretary John Connally who breezily quipped to a group of euro finance ministers, “The dollar is our currency, but your problem.”

Bernanke's report could have been reduced to nine words: Inflation is too low and unemployment is too high. That said, Bernanke is not going to sit back hemming and hawing until congress figures out that the economy needs more support. He's going to put downward pressure on the dollar until inflation rises to the target 2 percent, increasing the prospects for lower unemployment, a narrowing of the current account deficit, and a faster rebound. Economist Edward Hugh sums it up like this:

“Unemployment in the United States (which is currently at 9.6%, and may reach 10% by the end of the year) is causing enormous problems for the Obama administration. The US labor market and welfare system are simply not designed to run with these levels of unemployment for any length of time. In Japan the unemployment rate is 5.1%, and in Germany it is under 8%. So people in Washington, not unreasonably ask themselves why the US should shoulder so much extra unemployment and run a current account deficit just to maintain the Bretton Woods system and the reserve currency status of the US Dollar.

My feeling is that the US administration has decided to reduce the unemployment rate, and close the current account deficit, and that the only way to achieve this is to force the value of the dollar down. That way it will be US factories rather than German or Japanese ones that are humming to the sound of the new orders which come in from all that flourishing emerging market demand.”

Bernanke has drawn the same conclusions as Hugh, but that doesn't mean his strategy won't inflict considerable damage on US allies. It will. His beggar-thy-neighbor QE program will force trading partners to implement capital controls and other protectionist measures to maintain price stability. QE will also lead to more competitive devaluation as the world's largest economies fight for a bigger share of the export market. The impending clash could bring about the dissolution of the present trade regime and a sharp reversal of 30-years of globalization.

Bernanke's biggest problem is China. China was America's darling when it was loading up on Treasuries and fueling a historic consumption binge that filled Wall Street's coffers. But now that the purchase of US debt is preventing the Fed from implementing its monetary policy, Bernanke wants a change. Unfortunately, China is not cooperating. It's piling up foreign exchange reserves at record pace to maintain the dollar peg which is widening the current account deficit to precrisis levels. The yawning trade imbalance is pushing the world towards another crisis, which is why Bernanke and Co. are determined to persuade China to let its currency to appreciate to narrow the gap. (China's foreign exchange reserves surged to $2.65tr in the 3rd quarter)

Bottom line: The Fed cannot jump-start the domestic economy if the trade deficit continues to grow. It's impossible. The stimulus just gets flushed down the plughole. China is soaking up the lion's share of global demand by underbidding the US on everything under the sun. That's the real effect of the dollar peg, it gives China an unfair advantage over its competitors. A free-floating currency helps to level the playing field (even if US labor is competing with some of the world's worst paid workers) Bernanke's announcement last Friday, is just the first shot fired over Beijing's bow. There will be more to come. This weekend's meeting of the G-20 provides Treasury Secretary Timothy Geithner with the perfect opportunity to put the spotlight on China and to rail against currency manipulation. Many expect him to make a strong statement demanding changes to the policy.

An update by Reuters on Wednesday confirms the US position. Here's a blurp:

“The United States wants Group of 20 finance chiefs to commit to allowing market forces to set currency values and will discuss using targets for trade to measure progress, a senior U.S. Treasury Department official said on Wednesday.

Ahead of weekend G20 meetings in Gyeongju, South Korea, the U.S. official made clear Washington wants currency levels to be a focal point of the meetings and sees current account surpluses and deficits a vital part of the discussion....

From our perspective we believe these issues are fundamentally, inherently linked and that it is important for the G20 to be able to undertake cooperative action facilitating orderly adjustment of imbalances and also ensuring more effective adjustment of exchange rates in line with economic fundamentals," the official said.” (“U.S. wants G20 commitment to allow currency rises”, Reuters)

Neither the Obama administration nor the Fed want a full-blown trade war with China. They'd rather see China “assume its position in the global system”. (as US diplomats aver) But that means that China will have to compromise on, what it considers to be, a matter of national sovereignty. And, there's the rub. China is a proud nation and doesn't want to be told what to do. But that's not how the system works.

Behind the facade of free markets and international institutions, lies an imperial system ruled from Washington. That leaves Beijing with two options; they can either bow to US pressure and fall in line or shrug off Washington's demands and continue on the same path. If they choose to resist, relations with the US will grow more acrimonious and the probability of conflict will rise.

QE2 and Foreclosures

Bank of America's Wager
By PATRICK MADDEN

It might seem astonishing that right in the middle of the run-up to the second biggest bank bail-out in the history of capitalism (another round of ‘quantitative easing’ worth around 500 billion, dubbed QE2 by traders and analysts), that Bank of America (BofA) would have the temerity to begin proceedings on 102,000 home foreclosure suits, reactivating a process that had been voluntarily suspended in 23 state courts for the past several weeks.

On the other hand, from their perspective: why not? The bank probably feels pretty confident that with Obama in the White House and the Republicans at the door of Congress they’ll be able to capitalize on the latest round of Fed intervention no less than the last time- the ‘Geithner plan’ of 2009.

Doubtless they’ll soon have some heat to deflect, as the details of the initiated foreclosures proceedings come out. Unfortunately though, it will take a strong political shift in order for the bankers behind the shenanigans to be held to account. This fact alone demonstrates that the ‘bottom line’ in the whole unfolding drama is still class and race war, as this renewed attack on the foreclosed-upon will undoubtedly consist disproportionately of the poorest and most marginalized American homeowners who, once lured into the now defunct housing frenzy.

The recent controversy has again brought to light the extent to which the entire home-ownership-debt-complex is controlled by the big banks. BofA ‘services’ $14 million home loans supposedly worth $2.1 trillion. The quasi-public Fannie Mae and Freddie Mac own half of these. Thus, BofA’s move is sure to embolden other lenders to get tough on foreclosed homeowners. Whether this means a huge wave of foreclosures remains to be seen.

According to yesterday’s New York Times, if other lenders start the same process, 2 million homeowners would be at risk of losing their homes; the number of people living in these homes is doubtless close to triple this. Highlighting the class and race violence of the scheme is the fact that the entire process of declaring a home to be a legitimate case for foreclosure proceedings has now been called in to question.

According to the Times, ‘GMAC Mortgage…helped prompt the controversy [over the foreclosure process] when one its executives testified that he had signed 10,000 [sic] documents in a month, is also proceeding with foreclosures.’ At this rate it would clearly be impossible to determine whether or not a homeowner behind on mortgage payments was in fact ‘in foreclosure’, a category which is qualitatively distinct from being behind in payment in that it entail the imminent possibility of the asset being repossessed.

The reams of documents supporting such claims obviously represent peoples’ lives, but with predictable nonchalance Bank of America has shrugged off any charges of wrongdoing. Meanwhile, even mainstream analysts have marveled at the level of the bank’s hubris in the matter, and all 50 state attorneys general have joined in an ‘investigation’ of the process. The New York Fed and big private investment firms Blackrock and Pimco have even gone so far as to suggest that Bank of America should be forced to buy back some portion of the loans they originated. But this is obviously a result of the fact that these entities hold billions worth of BofA originated bonds and derivatives, and thus need to jump into the fray to ensure that they don’t lose out in case their bonds actually become worthless. As they say, if I owe you $100, it’s my problem; if I owe you a million, it’s yours.

For the mega banks, the wager which Bank of America has laid down is that they can make a quick grab at the properties without suffering too much from a write-down in the value of those ‘assets’. Correlated to this is the belief that they can do this without too much concern that they will ultimately lose the faith of their bondholders and raters who could sue them in court if their bonds were to dramatically lose value as a result. If they can pull this off, they’ll be able to miraculously transmogrify worthless loans into concrete assets- at the expense of the people who live in these homes, who will no doubt be kicked out, and theoretically, the taxpayers who underwrite all of the quantitative easing.

This is the point at which the Fed and the big private equity firms will ultimately hang fire. The stock markets were shaky yesterday as a result of the move, but equities are inherently riskier than bonds, and the sense of panic is as yet not general. Despite the posturing, the imminent prospect of 500 billion worth of ‘QE2’ will probably keep the Fed, the corporate banks, and the private equity firms from going after each other as long as there are embattled homeowners to dispossess. After all, who needs the American consumer if the Federal Reserve is willing to spend trillions to prop up paper assets that the ‘free market’ would obviously liquidate. Why else would BofA have stayed their foreclosures in the first place, if not to try to redeem some value from loans sold to buyers for totally over valued homes?

Now that the banks can rely upon another round of quantitative easing, the scrutiny over the quality of their loans and, most importantly, the value of the underlying assets, might temporarily recede as they attempt to foreclose on millions of people who will be put out of their homes. This development should only help sharpen the focus for Left political activists, journalists, and theorists. The contributions of Mike Whitney and Michael Hudson to this site have already thoroughly demolished the notion that the attempts made by the Obama administration to mitigate the effects of the crisis for average Americans have been sincere. Furthermore, the so-called recovery is evidently no more than a Fed-Wall Street project to re-inflate the paper-claims on wealth that once served as the dynamo of the US economy. With every step the real nature of the supposed ‘financial crisis’ becomes clearer: it is a development that must be understood as the result of an unfolding struggle between the poor and the embattled middle-class, on the one hand, and the elite and super-rich on the other. The Obama administration has failed on many accounts, but they can be credited for making this crystal clear.

Mortgage Mayhem

Fairy Tales on the Housing Market
By DEAN BAKER

Treasury Secretary Timothy Geithner is good at telling fairy tales. Mr. Geithner first became known to the general public in September of 2008. Back then he was head of the New York Federal Reserve Board. He was part of the triumvirate, along with Federal Reserve Board Chairman Ben Bernanke and then Treasury Secretary Henry Paulson, who told Congress that it had to pass the TARP or the economy would collapse.

This was an effective fairy tale, since Congress quickly handed over $700 billion to lend to the banks with few questions asked. Of course, the economy was not about to collapse, just the major Wall Street banks. To prevent the collapse of the banks Congress could have given the money but with the sort of conditions that would ensure the financial sector never would be the same. Alternatively, it could have allowed the collapse and then rushed in with the liquidity to bring the financial system back to life.

But the Geithner fairy tale did the trick. Terrified members of Congress tripped over each other to make sure that they got the money to the banks as quickly as possible.

Now Geithner has a new fairy tale. This time it is that if the government imposes a foreclosure moratorium it will lead to chaos in the housing market and jeopardize the health of the recovery.

For the gullible, which includes most of the Washington policy elite, this assertion is probably sufficient to quash any interest in a foreclosure moratorium. But those capable of thinking for themselves may ask how Geithner could have reached this conclusion.

The point of a foreclosure moratorium would be to ensure that proper procedures are being followed. We know that this is not the case at present. There have been several outstanding stories in the media about law firms that specialize in filing documents for short-order foreclosures. They hire anyone they can find to sign legal documents assuring that the papers have been properly reviewed and are in order.

In some cases, this has led to the wrong house being foreclosed. People who are current on their mortgage, and in one case did not even have a mortgage, have been foreclosed by this process. The more common problem would be the assignment of improper fees and penalties to mortgage holders. Or, in many cases foreclosures have probably occurred where the servicer did not actually possess the necessary legal documents.

A moratorium would give regulators the time needed to review servicers’ processes and ensure that they have a system in place that follows the law and will not be subject to abuse. This is the same logic the Obama Administration used when it imposed a moratorium on deep sea drilling after the BP oil spill.

No one can seriously dispute that there is a real problem. Three of the largest servicers – Bank of America, JP Morgan, and Ally Financial – have already imposed their own moratorium to get their procedures in order. This is just a question of whether we should have regulators oversee the process or “trust the banks.”

If the argument for a moratorium is straightforward, it is difficult to see any basis for Geithner’s disaster fairy tale. If there were a moratorium in place for 2-4 months then banks would stop adding to their inventory of foreclosed properties.

But most banks already have a huge inventory of unsold properties. Presumably they would just sell homes out of this inventory. This “shadow inventory” of foreclosed homes that were being held off the market has been widely talked about by real estate analysts for at least two years. It is difficult to see the harm if it stops growing for a period of time.

Of course it actually was the Obama Administration’s policy to try to slow the process of foreclosure. This has repeatedly been given as a main purpose of its HAMP program, the idea being that this would give the housing market more time to settle down. Now we have Geithner issuing warnings of Armageddon if a foreclosure moratorium slows down the foreclosure process.

It doesn’t make sense to both push a policy intended to slow the foreclosure process and then oppose a policy precisely because it would slow the process. While this is clearly inconsistent, there has been a consistent pattern to Geithner’s positions throughout this crisis.

Support for the TARP, support for HAMP, and opposition to a foreclosure moratorium are all positions that benefit the Wall Street banks. I’m just saying.