Posts Tagged ‘great recession’

Supply Side Economics, The Bush Tax Cuts & John Boehner Completely Discredited

Dec 31st, 11 / 1 Comment

Logos57: A Caring Community
December 31, 2011

 

Supply Side Economics, The Bush Tax Cuts
& John Boehner Completely Discredited

The Bush Tax Cuts and Supply Side Economics
by Now Should Be Completely Discredited
as Economic Evidence, History Show

Logos57: A Caring Community, edited version published December 31, 2011, original version May 15, 2011, by Paul Evans: This article is dependent on John Boehner says Bush tax cuts created 8 million jobs over 10 years, PolitiFact Truth-O-Meter, May 11, 2011, The Laffer Curve in Real Life, Atlanta Journal Constitution, September 15, 2010, by Jay Bookman, and other sources, especially the Center for Economic and Policy Research.

Also Published on OpEdNews.

Be Sure and Watch Top 10 Greatest GOP Moments of 2011 on Video.

Starting Point: FALSE: John Boehner says Bush tax cuts created 8 million jobs over 10 years

In 1980, Ronald Reagan swept into office on the corpse of Jimmy Carter’s “stagflation” (economic stagnation with increased unemployment + inflation of about 17.5 percent, I remember it well). Republicans were chanting a new mantra called supply side economics, which stated, basically, cut taxes, particularly cut taxes for the rich, and this will result in economic growth. They even had so-called mathematical theory to back them up in a graphical representation known as the Laffer curve.

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A cursory look at the literature on the economic successes of recent administrations shows that Boehner’s claim and supply side economics in general are base lies. The only real reason for supply side economics is to raid the nation’s resources (hopefully for the right wingers in terms of cuts to entitlements, or at the least privatization of them), to make the rich richer. The record, as documented below, shows that higher tax rates, particularly higher tax rates on the wealthy, have resulted in 1.) higher GDP economic growth, 2.) lower deficits and 3.) a healthier economic climate with lower unemployment.

In private meetings, the wealthy chortle over their success at hoodwinking the American people into lowering taxes for the wealthy. In an article by Mark Weisbrot called Extending the Tax Cuts: The Ninety-Eight Percent Solution, published in at least 29 newspapers or websites, the snobbery and effrontery of the rich is laid bare:

George W. Bush summed it up at an $800-a-plate dinner back in 2000 with a joke: “This is an impressive crowd – the haves and the have-mores,” he said. “Some people call you the elites; I call you — my base.” What made the joke really funny is that it was true.

Getting back to the PolitiFact article, from which I take one of the main subjects of my own article, that is, John Boehner’s claim about the Bush tax cuts (in other words, one of the main of examples of supply side economics in practice) and these tax cuts’ economic effectiveness, PolitiFact introduces the subject as follows:

During an interview on NBC’s Today show (May 10, 2011), House Speaker John Boehner, R-Ohio, offered some job-creation statistics to cast a favorable light on the tax cuts passed under President George W. Bush in 2001 and 2003.

Host Matt Lauer said to Boehner, “You talk about creating jobs. When the Bush era tax cuts were passed in 2001, unemployment in this country was 4.5 percent. Today it’s at 9 percent, just down from 10 percent. So why are the Bush era tax cuts creating jobs?”

Boehner responded that the tax cuts “created about 8 million jobs over the first 10 years that they were in existence. We’ve lost about 5 million of those jobs during this recession.”

Let me state, before we get into the Bush tax cuts and supply side economics, with a summary of PolitiFact’s arguments and also additional evidence, that PolitiFact’s conclusion was that, essentially, Boehner’s statement is FALSE. PolitiFact examines Boehner’s claim about the Bush tax cuts in the time frame of 2001 to 2009, but an examination of the U.S. economy in a larger time frame is more instructive, as we shall see.

There were two Bush tax cuts, the first passed in June, 2001. PolitiFact points out that this means that Boehner’s contention cannot be true, in that ten years have not passed since the tax cuts (the first package) went into effect. They note, moreover, in the first place that there is no direct evidence that it was these tax cuts which accounted for the job growth during the Bush administration at all. Any rational examination can put job growth during these years as the result of a housing bubble and stock speculative bubble, and not true economic growth with a valid basis — but that is just my opinion, although it is held by many.

Let’s look at PolitiFact’s numbers more closely. There are actually two measures of job growth used by economists. By the most commonly used measure, the “Current Economic Statistics” or CES figures, here is what PolitiFact found was true for the Bush years:

June 2001: 132,047,000 people employed
January 2008: 137,996,000 people employed
Increase during that six-and-a-half-year period: 5,949,000 people

That’s roughly 6 million jobs — significantly below the 8 million Boehner cited.

Now let’s turn to the jobs lost during the recession. We once again calculated the numbers in the way most favorable to Boehner — from the peak of employment (January 2008) to the lowest point (February 2010). Here are the figures:

January 2008: 137,996,000 people employed
February 2010: 129,246,000 people employed
Decrease during the roughly two-year period: 8,750,000 people

That’s almost 9 million jobs lost — almost twice what Boehner had said on Today.

Don’t you love the way politicians throw numbers around without checking the facts? (Many times, of course, they are well aware of the facts and are just baldly lying.) Here please note that the figures indicate that in the time, thus far, since the Bush tax cuts began, that is, from June, 2001 to the time at which PolitiFact’s analysis ends, February 2010, or less than nine years, the economy actually lost about 2.8 million jobs, by the CES statistics. (Boehner’s claim for jobs created by the Bush tax cuts was for ten years.)

As it turned out, Boehner got his figures as provided by that paragon of intelligence, Michael Steele, and from a different set of economic numbers, the “Current Population Survey” or CPS data, and those figures more or less bear him out, to some extent:

June 2001: 136,873,000 people employed
January 2008: 146,407,000 people employed
Increase over about six and a half years: 9,534,000 people

January 2008: 146,407,000 people employed
February 2010: 138,698,000 people employed
Decrease over about two years: 7,709,000 people

So using the CPS figures, Boehner actually underestimated the jobs created after the passage of the Bush tax cuts, rather than overestimating them. And his number of jobs lost in the recession was closer to the CPS number than to the CES number.

Politifact is not stressing the main point here, that Boehner was making his claim of job growth owing to the Bush tax cuts for a span of ten years, and that even by the CPS numbers, only about 1.75 million jobs have been created (thus far). His figures for jobs lost during the recession, while somewhat inaccurate by either measure, are somewhat closer to the mark, but so what? Bush caused the economic and regulatory climate which led to the recession, did he not?

PolitiFact does in fact examine the job creation numbers over a much wider time frame encompassing various recent presidents, citing numbers from Gary Burtless, a labor economist with the Brooking Institution. Burtless looks at the first 81 months of several presidencies, examining only those presidents who served two terms:

Employment under Bush grew by 4.5 percent using CES and 7 percent using CPS, whereas employment grew by double digits under presidents Bill Clinton and Ronald Reagan, and also under the combined eight-year administrations of Richard Nixon and Gerald Ford, who finished Nixon’s term after he resigned, and John F. Kennedy and Lyndon B. Johnson. Only under Eisenhower was job growth more sluggish than it was under George W. Bush, and even then, it was only the case using one of the two BLS statistics. (Burtless did not compare job growth during the administrations of George H.W. Bush or Jimmy Carter because they served only one term each.)

Where does all this leave us? First, under the most common yardstick for measuring employment — the CES data — Boehner’s claim is significantly overstated. Second, while Boehner is closer when using a different statistic, it’s only more accurate if he uses a time period much different than the one he stated in the interview. And third, his suggestion that the tax cuts are primarily responsible for subsequent job growth is contentious at best (and the job growth he points to is modest compared to previous administrations).

So the numbers Boehner offers are accurate only with significant adjustments. Overall, we find his statement too flawed to give it a rating higher than False.

Score one for PolitiFact. It’s good to see centrist news and politics websites which claim to discern the truth of politicians’ statements get it right. Let’s look at a similar, but more devastating analysis by Jay Bookman, The Laffer Curve in Real Life, Atlanta Journal Constitution, September 15, 2010. There is no better way to describe this analysis — and it is devastating to any who would maintain that supply side economics and tax cuts for the rich are good for the economy — than to make an extensive quote from the article:

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So how do we gauge the effectiveness of supply-side theory in practice? I propose we look at three specific measures:

  • The core claim of supply-siders is that tax cuts spur investment, so we’ll look at growth in private investment;
  • Supply-side theory also claims that tax cuts increase government revenue, so we’ll look at whether that actually occurred;
  • And since growth in gross domestic product is the ultimate aim of any economic policy, we’ll include that in the analysis as well.

(Note: All data below have been adjusted to account for inflation.)

Private investment:

After the ‘81 Reagan tax cuts, private nonresidential investment over the next seven years grew at an annual rate of 2.8 percent.
After the ‘93 Clinton tax hike, private investment over the next seven years grew annually at 10.2 percent.
After the 2001 Bush tax cut, private investment grew annually at 2.7 percent. (Data source: CAP/EPI study, Sept. 2008,, based on Bureau of Economic Analysis data.)

Federal revenue:

From 1981-1993, federal revenue increased by 20.7 percent over 12 years.
From 1993-2001, federal revenue grew by 46.6 percent over 8 years.
From 2001-2009, federal revenue decreased by 13.9 percent. (Even if you don’t include the deep recession year of 2009 — you might say we’re invoking the mercy rule — revenue increased just 3.3 percent over the eight years of Bush’s presidency.
(Source: OMB Historical Table 1.2)

GDP growth

From 1981-1993, real GDP grew by an annual average of 2.97 percent.
From 1993-2001, real GDP grew by an annual average of 3.56 percent.
From 2001-2009, real GDP grew by an annual average of 1.56 percent.
(Source: U.S. Bureau of Economic Analysis)

In conclusion, in all three categories central to the claim of supply-side proponents, the economy performed significantly better in the wake of tax increases than it did in the wake of major tax cuts.

Also see In Addition to Geithner, Republican Economists Also Argue That Tax Cuts Do Not Pay for Themselves, Center for Economic and Policy Research, August 5, 2010, no author, in which both Timothy Geithner and Douglas Holtz-Eakin, “a prominent Republican economist who was the chief economic advisor to John McCain in his presidential campaign,” dismissed the contentions that tax cuts pay for themselves as “myths.”

Come on people. We are not fools. Looking at Jay Bookman’s analysis, which seems pretty formidable to me, as it would to any logical thinker, and giving credence to Timothy Geithner as well as the PolitiFact analysis, I believe supply side economics, the damned Laffer curve, and the Bush tax cuts should be pretty thoroughly discredited. And the American people think so too! According to a recent look at Americans attitudes on taxes, Americans Believe in Tax Equity, Center for American Progress, April 15, 2011, by James Hairston, we overwhelmingly want progressive tax rates and dislike the Bush tax cuts:

  • More than four-fifths of Americans favor a surtax on federal income taxes for people earning more than $1 million a year, according to a recent NBC News/Wall Street Journal poll.
  • Almost 7 out of 10 Americans favor eliminating the Bush tax cuts for households earning $250,000 a year or more.
  • (Also): The least popular deficit-reduction proposal is turning Medicare into a voucher program where seniors get government coupons for private insurance, as House Republicans have proposed.

Here it is worthwhile to note that Representative Ryan’s budget plan to gut and privatize Medicare, according to the New York Times (CEPR article), “would add $30 trillion to the cost of buying Medicare equivalent plans over Medicare’s 75-year planning horizon.”

This is not the sum transferred from the government to beneficiaries. It is the increase in total costs — waste to the government, income to insurers and health care providers. This $30 trillion figure is approximately 6 times the size of the projected Social Security shortfall. It comes to almost $100,000 for every man, woman, and child in the country.

Well, Boehner and the Republicans have had their way, and by way of budget blackmail, the Bush tax cuts have been extended for two years.

These tax deals have been going on for some time, either with Obama’s complicity or out of political necessity. See the Guardian.co.uk, in an article by Dean Baker of CEPR, about tax cuts for the rich passed at the end of 2010. On this also see Tax Cut Deal: Extends Current Programs, Provides Little Spur to Further Job Growth, CEPR, December 7, 2010, by Eileen Applebaum, an article originally published in The Hill. Again, this was an earlier giveaway that Republicans forced Obama to make to the rich.

Now we have at least two more years of the Bush tax cuts, thanks to Boehner’s and the Republicans’ blackmail, and the political necessity of accepting a deal to get a budget which Obama faced passed. At this point, there are a few things we should know about these tax cuts. They won’t stimulate investment. And there is no evidence they will create much job growth or overall economic growth in the economy. At least if history means anything. All it will do is line the pockets of the Republicans’ real base, and their real masters, the rich and very rich.

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The President’s Bold Jobs Bill (Maybe)

Aug 18th, 11 / 0 Comments

Evans Liberal Politics
August 18, 2011

 

The President’s Bold Jobs Bill (Maybe)


Robert Reich.org, August 17, 2011, by Robert Reich, used with permission, quoted verbatim:

The President is sounding like a fighter these days. He even says he’ll be proposing a jobs bill in September – and if Republicans don’t go along he’ll fight for it through Election Day (or beyond).

InformIT (Pearson Education)

That’s a start. But read the small print and all he’s talked about so far is extending the payroll tax cut and unemployment benefits (good, but small potatoes), ratifying the Columbia and South Korea free trade agreements (not necessarily a job-creating move), and creating an infrastructure bank.

An infrastructure bank might be helpful, depending on its size.

Which is the real question hovering over the entire putative jobs bill – its size.

Some of the President’s political advisors have been pushing for small-bore initiatives that they believe might have a chance of getting through the Republican just-say-no House. They also figure policy miniatures won’t give aspiring GOP candidates more ammunition to tar Obama as a big-government liberal.

But the President is sounding as if he’s rejected their advice.

That’s good policy and good politics.

Good policy because any jobs bill has to be big enough to give the economy the boost it needs to get out of the gravitational pull of the Great Recession.

Right now all the old booster rockets are gone. The original stimulus is over. The Fed’s “quantitative easing” is over.

Combine the budget cuts state and local governments continue to make with the slowdown in consumer spending, the reluctance of businesses to expand or hire, and the magnitude of unemployment and under-employment, and you need a big new booster rocket. I’d estimate the shortfall in aggregate demand to be $300 billion to $500 billion this year alone.

A bold jobs plan is also good politics. With more than 25 million Americans looking for full-time jobs, the wages of people with jobs falling, and an economy on the verge of a double dip, the President has to come out fighting on the side of average people.

Besides, Republicans won’t go along with any jobs initiative he proposes – even a tiny one. Better they reject one that could make a real difference than one that’s pitifully small and symbolic.

If Republicans reject it, Obama can build his 2012 campaign around that fight. Maybe he’ll even call Republicans on their big lie that smaller government leads to more jobs.

What would a bold jobs bill look like? Here are the ten components I’d recommend (apologies to those of you who have read some of these before):

1. Exempt first $20K of income from payroll taxes for two years. Make up shortfall by raising ceiling on income subject to payroll taxes.

2. Recreate the WPA and Civilian Conservation Corps to put long-term unemployed directly to work.

3. Create an infrastructure bank authorized to borrow $300 billion a year to repair and upgrade the nation’s roads, bridges, ports, airports, school buildings, and water and sewer systems.

4. Amend bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence, so they can reorganize their mortgage loans.

5. Allow distressed homeowners to sell a portion of their mortgages to the FHA, which would take a proportionate share of any upside gains when the homes are sold.

6. Provide tax incentive to employers who create net new jobs ($2,500 deduction for every net new job created).

7. Make low-interest loans to cash-starved states and cities, so they don’t have to lay off teachers, fire fighters, police officers, and reduce other critical public services.

8. Provide partial unemployment benefits to people who have lost part-time jobs.

9. Enlarge and expand the Earned Income Tax Credit – a wage subsidy for low-wage work.

10. Impose a “severance fee” on any large business that lays off an American worker and outsources the job abroad.

Some of these won’t cost the federal government money. Others will be costly in the short term but lead to faster growth.

Remember: Faster growth means a more manageable debt in the long term. Which means the President could tie this (or any other jobs bill of similar magnitude) to an even more ambitious long-term debt-reduction plan than he’s already proposed.

A bold jobs bill is good politics and good policy. Let’s wait to see what the President actually proposes.

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Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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Robert Reich: The Wageless Recovery

Apr 28th, 11 / 0 Comments

Evans Liberal Politics
April 28, 2011

 

Robert Reich: The Wageless Recovery

The Wageless Recovery, Robert Reich.org, April 26, 2011, by Robert Reich, used with permission, quoted verbatim:

This week’s biggest economic show occurs tomorrow (Wednesday) when Fed chair Ben Bernanke steps in front of the cameras for the Fed’s first-ever news conference. The question on everyone’s mind: Will the Fed signal it’s now more worried about inflation than recession?

Wireless from AT&T

Much of Wall Street thinks inflation is now the biggest threat to the US economy. As has been the case in the past, the Street is dead wrong. The biggest threat is falling into another recession.

The most significant economic news from the first quarter of 2011 is the decline in real wages. That’s unusual in a recovery, to say the least. But it’s easily explained this time around. In order to keep the jobs they have, millions of Americans are accepting shrinking paychecks. If they’ve been fired, the only way they can land a new job is to accept even smaller ones.

The wage squeeze is putting most households in a double bind. Before the recession, they’d been able to pay the bills because they had two paychecks. Now, they’re likely to have one-and-a half, or just one, and it’s shrinking.

Add to this the continuing decline in the value of the biggest asset most people own – their homes – and what do you get? Consumers who won’t and can’t buy enough to keep the economy going. That spells recession.

Why doesn’t Wall Street get it? For one thing, because lenders always worry more about inflation than borrowers – and, in general, the wealthier members of a society tend to lend their money to people who are poorer than they are.

But Wall Street’s inflation fears are also being stoked by several specifics.

First are price upswings in food and energy. The Street doesn’t seem to understand that when most peoples’ wages are dropping, additional dollars they spend on groceries and at the gas pump means fewer dollars they have left to spend in the rest of the economy. Rather than cause inflation, this is likely to lead to more job losses.

The Street is also worried that the Fed’s easy money policies are pushing the dollar down and thereby fueling inflation – as everything we buy abroad becomes more expensive. But if wages are stuck in the mud and everything we buy abroad costs more, Americans have even fewer dollars to spend. This also spells recession, not inflation.

Finally, the Street worries that if Democrats and Republicans fail to agree to a plan to cut the budget deficit, the credit-worthiness of the United States as a whole will be in jeopardy – causing interest rates to rocket and inflation to explode. Standard & Poors, the erstwhile credit-rating agency, has already sounded the alarm.

The Street has it backwards. Over the long term, the deficit does have to be tackled. But not now. When job growth remains tepid, when wages are dropping, and when the value of most households’ major asset is declining, government has to step in to maintain overall demand.

This is the worst possible time to cut public spending or reduce the money supply.

The biggest irony is that the Street is doing wonderfully well right now, in contrast to most Americans. Corporate profits for the first quarter of the year are way up. That’s largely because corporate payrolls are down.

Payrolls are down because big companies have been shifting much of their work abroad where business is booming. The Commerce Department recently reported that over the last decade American multinationals (essentially all large American corporations) eliminated 2.9 million American jobs while adding 2.4 million abroad.

What the Commerce Department didn’t say is the pace is picking up. In 2000, 30 percent of GE’s business was overseas and 46 percent of its employees; now 60 percent of its business is outside the U.S., as are 54 percent of its employees. Over the past five years, Oracle added twice as many workers overseas as in the US; 63 percent of its employees now work abroad.

Corporations are simultaneously finding ways to cut the pay of their remaining U.S. workers – not just threatening job losses if they don’t agree to the cuts, but also automating the work or sending it to non-union states. (The Wall Street Journal’s editorial page, an unremittingly reliable barometer of Street thought, argued earlier this week that such states offer workers the freedom to choose whether to join a union – in reality, the freedom to lose even more bargaining power and be forced to accept even lower wages.)

America’s jobless recovery is becoming a wageless recovery. That puts the odds of another recession greater than the risk of inflation. Wall Street and its representatives in Washington don’t understand – or don’t want to.

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Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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Guilty Verdict in $3 Billion Florida Bank Fraud Case

Apr 20th, 11 / 0 Comments

Evans Liberal Politics
April 20, 2011

 

Guilty Verdict in $3 Billion Florida Bank Fraud Case

Justice Dept Hails Guilty Verdict in Florida Bank Fraud Case, CNBC, April 19, 2011, by Scott Cohn, excerpt quoted verbatim:

A top Justice Department official says a sweeping guilty verdict in a Florida mortgage fraud case adds another face to the financial crisis.

Webroot Software Inc.

A federal jury in Virginia on Tuesday found Lee Farkas, the former chairman of mortgage lender Taylor Bean and Whitaker, guilty on all 14 criminal counts in what authorities say was a $2.9 billion fraud that contributed to the 2008 financial crisis.

“The financial crisis has many faces, and today, Lee Farkas’ face is one of them,” said Assistant Attorney General Lanny Breuer in a conference call with reporters following the verdict.

Breuer called the scheme “one of the largest bank fraud schemes in history.”

Not only did Taylor Bean and Whitaker fail in 2008, but so did TBW’s lender, Colonial Bank. One of the 50 largest banks in the country, Colonial failed in 2009, but not before attempting to access half a billion dollars in federal bank bailout funds.

Prosecutors said that beginning in 2002, TBW used overdrafts from Colonial to hide its failing mortgages, and got millions in funding for mortgages that did not exist. Another company, Ocala Funding, bundled those mortgages into asset-backed securities and failed as well.

Farkas’ conviction, coming on top of six other guilty pleas in the case, gives the Justice Department an important victory at a time when officials have been criticized for a lack of high-profile convictions following the financial crisis.

Read the full article here.

Comment by Evans Liberal Politics owner Paul Evans: one of the headlines said that the convicted executive, Lee Farkas, is gay, for what that’s worth, which I hope is nothing but which is nonetheless interesting. I am certain that, having made an example of Bernie Maddoff, Farkas will get away with a slap on the wrist. But all of these big bank executives are sleazeballs, with few exceptions. For example, Paul Krugman in his video Income Inequality and the Middle Class, says that in 2008, about, the largest hedge fund manager in that one year made more money than did the 80,000 teachers of the New York City school system, IN THREE YEARS. And that was completely legal and that is totally OBSCENE.

But I’m sure Farkas will get off with a slap on the wrist. After all, what’s $3 billion among friends? Obama has appointed just as many former Goldman Sachs executives to important posts in the federal government as did Bush. All these guys go to the same country clubs….

Maybe Farkas will have to do a little jail time, though, because Farkas is gay, (and then there’s that name…), so he may actually go down as a scapegoat. Sentencing is July 1st. Xargaw over at the Huffington Post thinks it will just be a slap on the wrist. What do YOU think the penalty for this should be? Consider exactly what the figure $3 billion means, and how many investors were badly hurt by this. Please leave a comment with your views. Here is what xargaw had to say:

“So what’s the penalty for a $3billion fraud these days? Will he have to sell a couple vacation homes, perhaps a yacht, or give up some of his offshore stash? Jail time, if any, will surely be at some club fed with dorm like accomodati­ons, parklike grounds and no fences. Anthony Mozillo is still walking around and Countrywid­e’s scandal was huge.”

Why Derivatives and Hedge Funds
Must Be Made Illegal

See Hedge Funds Now Manage All-Time Industry High Of $2.02 Trillion, The Huffington Post, April 19, 2011, by Reuters.:

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Hedge funds are back and bigger than ever. Fueled by fresh investor demand, these loosely regulated portfolios now manage $2.02 trillion, marking an all-time high for the industry, data released on Tuesday by Hedge Fund Research (HFR) show.

The previous record for assets was $1.93 trillion and was reached in the second quarter of 2008.

Investors added $32 billion in new money during the first three months of 2011, sending the biggest amount of new dollars to hedge funds since the third quarter of 2007, HFR said.

COMMENTARY by Paul Evans: I don’t like to use this word but HELL, it’s just like executives’ bonuses being larger than ever. Wall Street reform? Who do Congress and the Obama administration think they’re fooling?

Wall Street, and all you rich people, you cannot go on raping the average American as you have been. Republicans and Democrats alike: IF you continue to make the lives or ordinary Americans one of hardship and travail, with no real chance of getting ahead, sure as there is a God in heaven, there WILL be consequences. Be not deceived by your riches. As God shall not be mocked, in the manner that you cheat and misuse investors, mortgage holders, credit card users, and ordinary citizens, in so many ways, for that, God WILL judge you. I don’t care how strong you profess your faith to be: as ye sew, so shall ye reap.

Hedge funds and derivatives must be made illegal. Do you realize what these hedge funds constitute? This is BETTING on whether stocks, bonds, derivatives packages or anything else will go up or down. You can invest $1 billion in AAA mortgage based derivatives (or con investors into doing so), and cover yourself with an $800 billion hedge fund which BETS THAT THE BONDS ARE GOING TO TANK, and EITHER WAY, you are going to make money.

And that is exactly what big investment banks like Goldman Sachs did, and THAT is how obscene this is. You CON investors into buying these absolutely LOUSY packages of mortgage based derivatives, which somehow you bribe officials to rate AAA – because most of these were rated that – and you then realize, or KNEW ALL ALONG, that these bonds or derivatives would tank, so you have covered yourself to STILL MAKE MONEY with hedge funds. At least the smart banks did, most of the time, and did before the crisis, and still do in this way.

And the derivatives? Investors would never have made their investments in these derivatives that tanked so badly if the packages were at all transparent so that one could see that value of the investments. Derivatives are thus basically DESIGNED to be the vehicles of investment banking fraud. There is no other reason to make the math involved and the composition of these derivative packages so complex and opaque that investors cannot know what they are investing in. They are designed for investors to make or lose money at the banks’ discretion.

Again, hedge funds are just a way for banks (or knowledgeable investors with inside information) to make a lot of money when they offer bad investments and must foot part of the bill for that. You con the investors with the bad derivatives packages or other bad investments, or you are a bank which has made massive investments in worthless mortgage based securities yourself, and then you cover your ass with the hedge funds. A bad investment is a bad investment, and banks need to face the music. Folks, we have to make hedge funds — and derivatives, too — ILLEGAL. ~ Paul Evans

Here is a PowerPoint presentation about what went on with the selling of these subprime mortgage based derivatives packages to investors. WARNING: this presentation is highly obscene, and wonderfully illuminating. Watch it here.

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Context Re: Wall Street Propaganda And Mind-Boggling Beltway Spin

Apr 3rd, 11 / 0 Comments

Evans Liberal Politics
April 3, 2011

 

Context Re: Wall Street Propaganda
And Mind-Boggling Beltway Spin

Context Re: Wall Street Propaganda And Mind-Boggling Beltway Spin, Daily Kos, March 3, 2011, by Bob Swern, used with permission, quoted verbatim:

The next time you see a story, online or in the MSM, about the “great” job that’s being done by those managing our economy and/or the “genius” of Treasury Secretary Tim Geithner and Federal Reserve Board Chair Ben Bernanke, perhaps you should consider the following inconvenient realities.

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IMHO, here’s the latest on the ongoing story that gets the “award” for being the most egregious violation of the public’s trust, at least when it comes to illustrating the true state of regulatory enforcement on Wall Street, today (Tim Geithner and Bernanke, among others, have been running the show for a lot longer than President Obama’s been in office): “Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering.”

(Diarist’s Note: Naked Capitalism Publisher Yves Smith has provided written authorization to diarist to reproduce her blog’s posts in their entirety for the benefit of the DKos community.)

Wachovia Paid Trivial Fine for Nearly $400 Billion of Drug Related Money Laundering
Yves Smith
Naked Capitalism
April 3, 2011If this news story does not prove that banks are effectively above the law, I don’t know what does. The Guardian, in an account yet to be picked up anywhere in the US media (per Google News as of this posting, hat tip readers May S and Swedish Lex) reports that Wachovia was at the heart of one of the world’s biggest money laundering operations, moving $378.4 billion into dollar-based accounts from Mexican casas de cambio, which are currency exchange firms. While these transfers took place over a period of years, the article notes that it equals 1/3 of Mexican GDP. And the resolution?

Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year’s “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine.

The operation may have started sooner, but Wachovia admitted in the settlement that as of 2004 it had reason to address the procedures used for these transfers and chose not to. Martin Woods, a London-based employee and former member of the Metropolitan drug squad, had been hired as a senior anti-money laundering officer and started tightening up the activities within his reach. In 2006, he identified a number of obviously problematic transactions coming out of the cases:

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Woods discussed the matter with Wachovia’s global head of anti-money laundering for correspondent banking….He then undertook what banks call a “look back” at previous transactions and saw fit to submit a series of SARs, or suspicious activity reports, to the authorities in the UK and his superiors in Charlotte, urging the blocking of named parties and large series of sequentially numbered traveller’s cheques from Mexico. He issued a number of SARs in 2006, of which 50 related to the casas de cambio in Mexico. To his amazement, the response from Wachovia’s Miami office, the centre for Latin American business, was anything but supportive – he felt it was quite the reverse.As it turned out, however, Woods was on the right track. Wachovia’s business in Mexico was coming under closer and closer scrutiny by US federal law enforcement. Wachovia was issued with a number of subpoenas for information on its Mexican operation. Woods has subsequently been informed that Wachovia had six or seven thousand subpoenas. He says this was “An absurd number. So at what point does someone at the highest level not get the feeling that something is very, very wrong?”

In April and May 2007, Wachovia – as a result of increasing interest and pressure from the US attorney’s office – began to close its relationship with some of the casas de cambio. But rather than launch an internal investigation into Woods’s alerts over Mexico, Woods claims Wachovia hung its own money-laundering expert out to dry….

Later in 2007, after the investigation of Wachovia was reported in the US financial media, the bank decided to end its remaining relationships with the Mexican casas de cambio globally. By this time, Woods says, he found his personal situation within the bank untenable…

On 16 June Woods was told by Wachovia’s head of compliance that his latest SAR need not have been filed, that he had no legal requirement to investigate an overseas case and no right of access to documents held overseas from Britain, even if they were held by Wachovia…

Late in 2007, Woods attended a function at Scotland Yard where colleagues from the US were being entertained. There, he sought out a representative of the Drug Enforcement Administration and told him about the casas de cambio, the SARs and his employer’s reaction. The Federal Reserve and officials of the office of comptroller of currency in Washington DC then “spent a lot of time examining the SARs” that had been sent by Woods to Charlotte from London.

The article recounts how the DEA, the criminal division of the Internal Revenue Service and the US attorney’s office in southern Florida were taking a hard look at wire transfers out of Mexico and found that they wound up at the correspondent bank account of the casas at Wachovia which were supervised by its Miami branch. From the Guardian:

“On numerous occasions,” say the court papers, “monies were deposited into a CDC by a drug-trafficking organisation. Using false identities, the CDC then wired that money through its Wachovia correspondent bank accounts for the purchase of airplanes for drug-trafficking organisations.” The court settlement of 2010 would detail that “nearly $13m went through correspondent bank accounts at Wachovia for the purchase of aircraft to be used in the illegal narcotics trade. From these aircraft, more than 20,000kg of cocaine were seized.”

The story provides a great deal more detail about the money laundering operations and the investigation. It is an excellent job of reporting and I urge you to read it in full. It is very clear the US put a lot of resources into the investigation. So why did Wachovia get off so easy?

At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were “the only liquid investment capital” available to banks on the brink of collapse. “Inter-bank loans were funded by money that originated from the drugs trade,” he said. “There were signs that some banks were rescued that way.”…[Paul] Mazur [lead infiltrator of the Medellin drug operation] said that “a lot of the law enforcement people were disappointed to see a settlement” between the adlture ration and Wachovia. “But I know there were external circumstances that worked to Wachovia’s benefit, not least that the US banking system was on the edge of collapse.”

I suspect you never imagined “too big to fail” and “too big to jail” were this intimately connected.

So, given this culture of Wall Street being above the law, and of our government looking the other way, it should come as no surprise that there are people in the MSM and in some parts of the blogosphere, including right here on Daily Kos, that continue to tell us via their rec’d diaries: “There’s nothing to see here. Move along,” when it comes to the latest public disclosure of corporate kleptocracy. Specifically, I’m referencing the Federal Reserve’s public disclosure of its actions at its discount window during “the height” of nation’s financial crisis in late 2008.

Quelle Surprise! Fed Lent Over $110 Billion Against Junk Collateral During Crisis
Yves Smith
Naked Capitalism
April 1, 2011Former central banker Willem Buiter once remarked that the Federal Reserve’s “unusual and exigent circumstances” clause, which enables it to lend to “any individual, partnership or corporation” if it can’t get the dough from other banks, allows the Fed to lend against a dead dog if it so chooses.
It looks like the US central bank did precisely that.
Readers no doubt know that Bloomberg entered into a hard-fought battle over its Freedom of Information Act request to compel the Fed to release the details of its various lending programs during the crisis to the public. The banking regulator used the patently bogus excuse that revealing that information could damage the competitive positions of firms that had received the loans. That was patently bogus since all the major recipients are in the market on an ongoing basis and rejiggering their exposures based on market opportunities.
The only party at risk at this juncture was the Fed, since it would have its decisions scrutinized. And in a democracy, it is of vital public interest that an organization as influential as the Fed, which committed large amounts of funding outside Constitutionally-mandated budget processes, be held accountable for its actions.
The information was released yesterday and Bloomberg has provided a first cut on a small but juicy portion of it, the Primary Dealer Credit Facility. From a risk standpoint, the loans mace under this program violated the central bank guideline known as the Bagehot rule: “Lend freely, against good collateral, at penalty rates”. That is the prescription if the borrower is facing a bank run, meaning a liquidity crisis. The fact that 72% of the Fed’s loans on September 29 from the Primary Dealer Credit Facility were junk or equivalent (defaulted and unrated securities or equity) is further proof that many financial firms were facing a solvency, not a liquidity, crisis. The breakdown:

Equities comprised $71.7 billion, or 43.6 percent of the total. High-yield debt, including the defaulted issues, accounted for $18.4 billion, or 11.2 percent. Collateral of unknown rating was $28 billion, or 17 percent…..The U.S. central bank allowed borrowers to use $929 million in market-valued debt that had gone into default, rated D, as collateral on that day, 2008, more than the $905.5 million in Treasuries that were pledged…

And the haircuts were so low that the ideas that these were collateralized loans is a joke. The “collateralization” was a necessary legal fiction for throwing cash at anyone who thought they needed it:

The Fed loans on Sept. 29, 2008, represented a 5.49 percent “collateral cushion,” the amount by which the pledged assets exceeded the loan value….To put things in perspective, the market haircut on most debt securities during the period of the crisis starting in September 2008 was above 40 percent,” [Craig] Pirrong [a finance professor at the University of Houston} said....The cushion “was far too small for the risk of the underlying collateral,” Pirrong said. “Collateral that’s junk or defaulted debt and equities at a time when market volatility was huge is pretty eye opening.”

It wasn't just "most debt securities" that had tanked in value. Consider the fate of AAA rated ABS CDOs, which were one of the most serious black holes at virtually all of the dealer banks. We reproduced this chart on repo haircuts in ECONNED:

(Diarist's Note: CHART: International Monetary Fund illustration from Yves Smith's, "Econned," where the Fed was providing Wall Street "Primary Dealers" with loans at almost face value on assets where the banks should have taken: "...a 95% haircut on AAA rated ABS CDOs," post-Lehman.)

Note these prices were as of August; things were clearly even worse post Lehman. A 95% haircut on AAA rated ABS CDOs means the paper was effectively worthless.
This first cut by Bloomberg also shows that Morgan Stanley was the biggest user of the facility, receiving $61.3 billion of funds for securities "worth" $66.5 billion, 71.6% of which was junk or unrated. As eye-popping as those numbers are, the funds received are less than half the fall in Morgan Stanley's liquidity pool in the two weeks after the Lehman failure, per Economics of Contempt. Merrill Lynch was second, getting $36.3 billion in funding for $39.1 billion of collateral, 83.4% of which was junk or unrated.

A separate Bloomberg story on the discount window operations found that 70% of the credit extended, including four of the five biggest users during the peak usage week, in October 2008, were foreign. More high (or more accurately, low) points:

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.Dexia SA, based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion...

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said [Ron] Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

Expect some fun Congressional hearings in the not-too-distant future.

A further remark: the fact that Bloomberg can say anything intelligent at this juncture is a testament to the cleverness of its reporters. The central bank quite deliberately responded to the request by providing the information in the most disaggregated, difficult to work with form imaginable. The central bank did a version of the same trick with its data on Maiden Lane II. The holdings of that asset management vehicle were various real estate exposures, some of which were hedged. The hedges were reported separately from the bonds and loans. Clearly, Blackrock, the asset manager, had far more useful and understandable reports that they used internally and provided to the New York Fed, but those were withheld. This data will presumably be as enticing as the Wikileaks cables, so enough eyeballs on it will eventually overcome the Fed’s efforts to hinder analysis.

Given the voluminous amount of information provided, future FOIA requests may need to explicitly include that the relevant government body provide information in the form in which it is used internally, including any higher level aggregations, to prevent future “fuck yous” in the form of technically permissible but nevertheless obstructionist compliance.

While Federal Reserve documents just provided to the public last Thursday are voluminous, above and beyond what Yves covers above, we’ve already learned, via Gretchen Morgenson in today’s NY Times, that the Fed also made an autonomous decision to backstop to the world (or, at least just about everywhere else other than Main Street):

The Bank Run We Knew So Little About
Gretchen Morgenson
New York Times
April 3, 2011…“The striking thing was the large amount of borrowing that the New York Fed accepted during the crisis from European banks that had only a minimal presence in the U.S. and arguably posed no threat to the U.S. payment system,” said Walker F. Todd, a research fellow at the American Institute for Economic Research and a former assistant general counsel and research officer at the Federal Reserve Bank of Cleveland. Such a thing would never have occurred 20 years ago, he added.

As Morgenson also notes, everything lent via the Fed’s discount-window during the crisis was repaid.

..But the precedent was set: The Fed was the financial backstop to the world.
Since 2000 or so, the mind-set at the Fed in New York and Washington has been that the central bank must step in when there is a global crisis, Mr. Todd said, even if it appears to exceed its mandate.

Ben S. Bernanke, the Fed chairman, seemed to foreshadow this view early in the crisis. Addressing the Fed’s annual symposium at Jackson Hole, Wyo., on Aug. 17, 2007, Mr. Bernanke said: “It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.”

Note Morgenson’s closing paragraph. (I really get a kick out of how Morgenson often “buries the [real] lead.”)

Protecting global lenders and investors from the effects of their financial decisions was exactly what the Fed decided it had to do. Bankers and investors on the receiving end of this largess have long known the extent to which the Fed rescued them in their time of need. Now, thanks to these Fed documents, the rest of us can see it, too.

Bold type is diarist’s emphasis.
Yes, it truly is amazing what a great job our government (most notably, the Treasury Department) and the Federal Reserve does when it comes to protecting “…lenders and investors from the effects of THEIR financial decisions.” But, as we’ve learned of late, and as we’re constantly reminded, once again tonight on 60 Minutes, when it comes to Main Street, not so much: “Foreclosure Fraud Featured This Sunday On 60 Minutes.”

For more on the shameful, ongoing pillaging of Main Street by Wall Street–aided, abetted and obfuscated by their minions in our government with the support of even a few folks in this community and via their respective independent blogs–here are some additional links loaded with the details (and, I’m talking about just the past 72 hours):

“Matt Stoller: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal”

“Gauging the Pain of the Middle Class”

“Banksters’ Counteroffer Makes A Further Mockery of Fraudclosure Settlement Negotiations”

“David Apgar: Is That a Horse’s Head Under the Sheets or Are You Just Happy to Fleece Me?”

So, while on Friday we were told that the March employment report added 216,000 jobs to the economy, the truth behind the numbers is far different than the spin. You see, as Dean Baker reminds us about the absurdity of the spin we’re witnessing in the MSM and even in the blogosphere, on a daily basis…

…[Over the past year] The drop in the unemployment rate over this period was entirely due to people leaving the labor force. Now is that good news or what?

Then again, as noted above and as it will be self-evident on 60 Minutes tonight, there are fleeting moments in the MSM, these days, where we are now starting to hear about these inconvenient truths.

Who knows? Maybe even the folks inside the Beltway will get a clue; but, I doubt it.

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“ADDED DIARY BONUS” (heh…if you’ve made it this far): Speaking of inconvenient truths, if you haven’t seen this year’s Oscar-winning documentary, “Inside Job,” it’s now available online, FOR FREE!

Evans Liberal Politics would like to thank Bob Swern for permission to republish his work on an ongoing basis. Bob is our favorite progressive economics writer (along with Robert Reich). More than even Paul Krugman, Mr. Swern fleshes out his articles with lots of details and links, and so provides real grist for liberals and progressives to learn from. You are invited to email Bob Swern here.

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Robert Reich: The Truth About the Economy: We’re Heading Back Toward a Double Dip

Mar 31st, 11 / 0 Comments

Evans Liberal Politics
March 31, 2011

 

Robert Reich: The Truth About the Economy:
We’re Heading Back Toward a Double Dip

The Truth About the Economy: We’re Heading Back Toward a Double Dip, Robert Reich.org, March 30, 2011, by Robert Reich, used with permission, quoted verbatim:

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip – but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

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Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn’t get back to 6 percent unemployment until 2016.

But isn’t the economy growing again – by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.

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Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

So why aren’t we getting the truth about the economy? For one thing, Wall Street is buoyant – and most financial news you hear comes from the Street. Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street’s creativity hasn’t been watching.

To the extent non-financial companies are doing well, they’re making most of their money abroad. Since 1992, for example, G.E.’s offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group that’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.

Washington, meanwhile, doesn’t want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it like it is Americans will want government to do more rather than less. They’d rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit we’ll get more jobs and higher wages).

I’m sorry to have to deliver the bad news, but it’s better you know.

InformIT (Pearson Education)

Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

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As the Global Economy Trembles, Our Nation’s Capital Fiddles

Mar 19th, 11 / 0 Comments

Evans Liberal Politics
March 19, 2011

 

As the Global Economy Trembles,
Our Nation’s Capital Fiddles

As the Global Economy Trembles, Our Nation’s Capital Fiddles, March 17, 2011, by Robert Reich, photo of tsunami damage in Wakuya, Japan courtesy of U.S. Navy and Wikimedia Commons, article used with permission, quoted verbatim:

Why isn’t Washington responding?

The world’s third largest economy suffers a giant earthquake, tsunami, and radiation dangers. A civil war in Libya and tumult in the Middle East cause crude-oil prices to climb. Poor harvests around the world make food prices soar.

Japan 2011 Tsunami Damage

U.S. Navy photography of tsunami damage in Japan's 2011 killer earthquake

All this means higher prices. American consumers, still reeling from job losses and wage cuts, will be hit hard. (Wholesale food prices surged almost 4 percent in February, the largest upward spike in more than a quarter century.)

Even before these global shocks the U.S. recovery was fragile. Consumer confidence is at a five-month low. Housing prices continue to drop. More than 14 million Americans remain jobless, and the ratio of employed to our total population is at an almost unprecedented low.

So you might think our elected representatives would want to avoid a repeat of what happened the second half of 2010 when the fragile recovery began tanking. They’d certainly want to prevent a double-dip recession.

You’d think they’d be creating booster rockets to counter these recessionary forces – freeing up more spending, exempting the first $20,000 of income from payroll taxes, imposing a moratorium on bank foreclosures, giving Americans another six months to file their income taxes, lending states whatever money they need to prevent more of their own budget cuts.

Think again.

Amazingly, the big debate in Washington is about how whether to cut $10 billion or $61 billion from the federal budget between now and September 30.

House Majority Leader Eric Cantor recently stated the Republican view succinctly: “Less government spending equals more private sector jobs.”

In the past I’ve often wondered whether they’re knaves or fools. Now I’m sure. Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.

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They figure it’s the one sure way to unseat Obama. They know that when the economy is heading downward, voters always fire the boss. Call them knaves.

What about the Democrats? Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.

And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized. So they’re reduced to mumbling “don’t cut so much.” Call them fools.

The U.S. economy is flirting with another dip at a time when the global economy is teetering and most Americans are still in economic trouble. But nothing is being done in our nation’s capital because knaves and fools are in charge.

Robert Reich was the nation’s 22nd Secretary of Labor under Bill Clinton and is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations. In 2008, Time Magazine named him one of the Ten Most Successful Cabinet Members of the century. He has written eleven books, including “The Work of Nations,” which has been translated into 22 languages. His recent book is “Supercapitalism.” For Professor Reich’s book page for Supercaptialism at Amazon, go here. Reich’s newest book, Aftershock: The Next Economy and America’s Future has been released September 21, and is available for ordering at this link (Amazon.com). The above article is from Reich’s new blog, and can be viewed here.

Robert Reich’s commentaries are available for listening to at Publicradio.com. Watch the video Aftershock: The next economy and America’s future (about his new book). Thanks to Professor Reich for permission to publish his articles on an ongoing basis.

InformIT (Pearson Education)

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Union Battleground Shifts From Wisconsin to Ohio—and Ballot Box

Mar 13th, 11 / 0 Comments

Evans Liberal Politics
March 13, 2011

 

Union Battleground Shifts From Wisconsin
to Ohio—and Ballot Box

Union Battleground Shifts From Wisconsin to Ohio—and Ballot Box, Common Dreams.org, March 12, 2011, by Michelle Chen of In These Times, republished under Creative Commons license, quoted verbatim:

The movement has been set back for now, but the standoff in Madison captured labor’s political imagination. Although the Republicans have cynically used the “nuclear option” to ram through the anti-union bill, the battleground will now just shift to other states.

Michelle Chen

Ohio lawmakers are mulling a bill similar to Wisconsin’s, which would restrain the collective bargaining rights of some 360,000 state and local employees.

Ohio does not need as many votes for a quorum. This means Democrats cannot hold up the voting process by going AWOL, as they did in Wisconsin and are still doing in Indiana (where unions are fighting proposals to further erode union rights and public education). But in Ohio’s case, Madison-style people power could be deployed in a more concrete way, according to some lawmakers. House minority leader Armond Budish told Bloomberg News that even if the bill initially passes, he and other Democrats will mobilize citizens to thwart the legislation through other channels, through public pressure and perhaps ultimately, the ballot box:

Too few to block Republicans from having a quorum, Ohio Democrats are asking for more public involvement and hearings on the bill in an effort to sway opinion and will seek a ballot issue to repeal it if necessary, Budish said.

“If I have to take the lead on a statewide referendum, we will fight until we win,” Budish, the House minority leader, said in a telephone interview from Columbus….

With Republicans holding a 59-to-40 seat advantage in the House, Democrats should focus on a repeal referendum, said Representative Robert Hagan, a Democrat from Youngstown.

“What we’re doing now is performing a charade,” Hagan said in an interview. “They should get it over with, and we should put this on the ballot as soon as possible.”

With passage in the House all but certain, Ohio could now overtake Wisconsin as a bellwether for the struggle. After the fireworks in Madison, labor activists recognize that the partisan gridlock over collective bargaining rights is merely a proxy battle for a new kind of class antagonism that has emerged from the Great Recession.

Ohio’s referendum process offers a form of direct democracy that Wisconsin Republicans stridently denied to protesters by ignoring, vilifying and shutting out demonstrators at the capitol.

Bloomberg reports that voters can launch a ballot initiative

if petition forms with more than 231,000 voters’ signatures are filed within 90 days of the law’s approval, according to the secretary of state’s office. The number of signatures is 6 percent of the total vote cast for governor last year.

Gathering that many petitions in three months is no small feat, though the required number of signatures equals just under two-thirds of the number of workers potentially impacted by the bill. More importantly, the spirit of protest across the Midwest has truly gone viral, inspiring parallel demonstrations in Indiana, Ohio and other states, and cheers across the Twitterverse, pizza from Haiti, and picketing from Cairo. And on top of potential court challenges, there are rising calls for a general strike to paralyze Gov. Walker’s administration. In the wake of that outpouring of solidarity, a conventional referendum seems almost too easy.

In many ways, it is. Which is why the temporary defeat in Wisconsin should have a more enduring influence on the campaign to protect union rights than any other tactic. The battle for labor’s integrity won’t be won or lost on the political chessboard of a state legislature.

As activists regroup and take stock of what they’ve gained these past few weeks, they can still claim one victory: they never gave an inch. And by standing their ground, they gave workers across the country the momentum to push ahead to November and beyond.

© 2011 In These Times

Michelle Chen’s work has appeared in AirAmerica, Women’s International Perspective, Extra!, Colorlines and Alternet. She is a regular contributor to In These Times’ workers’ rights blog, Working In These Times. She also blogs at Racewire.org.

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