Posts Tagged ‘recession’

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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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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Leverage For Main Street? It’s In Front Of Your Nose.

Mar 4th, 11 / 2 Comments

Evans Liberal Politics
March 4, 2011

 

Leverage For Main Street?
It’s In Front Of Your Nose.

Leverage For Main Street? It’s In Front Of Your Nose., Daily Kos, March 3, 2011, by Bob Swern, used with permission, quoted verbatim:

A week ago, I posted a diary about the government’s proposed $20B “Mortgage Fraud Whitewash,” wherein we learned it was being floated by the Obama administration, the soon-to-be-official Consumer Financial Protection Bureau staff, and others that Wall Street would receive a $20 billion wristslap for pillaging Main Street via the mortgage industry for the past decade, and bankers would end up in a “…get-out-of-jail-free program…” and they would “…be excused for the abundant mortgage fraud they’ve committed.”

Webroot Software Inc.

In a lead story in the Business section of (Thursday) morning’s NY Times (SEE: “Officials Disagree on Penalties for Mortgage Mess“), we’re once again reminded that when one initiates negotiations with the status quo at such a pathetically low mark–essentially, at a point where it’s a travesty from the get-go–it’s all downhill from there.

After we review this latest status quo turd, we’ll do a slightly deeper dive on a fairly simple proposal by Yves Smith which would actually enable our government to–at the very least–put a very real threat of incarceration on the table for many of these assh*les, virtually overnight; and, if nothing else, humiliate these sociopaths in $4000 suits into ponying up a few hundred billion to cover some real mortgage relief for us poor and unwashed types on Main Street, too.

What? Leverage for Main Street? It’s right in front of our collective nose.

In between, some background from my diary from last week; words that give us hope that at least one of President Obama’s new appointees to the Federal Reserve might just have the spine we’ve been looking for; and then coverage of this latest Wall Street bullsh*t (i.e.: the feigned indignation(s) of a financial services sector that comprehensively owns the agencies that regulate it); and, finally, Yves Smith, with an awesome, Wall-Street-ass-kicking concept.

As I noted in >my diary, (Wednesday), it is now widely-acknowledged that the U.S. mortgage/residential real estate sector is in a double-dip recession which has already reached and/or eclipsed levels set during our country’s Great Depression. When one realizes that equity in one’s home — not stock market investments, where over 95%+/- of all marketable securities are owned by the top 10% of our society — represents the largest single asset for most Americans,  one may begin to achieve some factual context for the state of our economy and the housing industry’s depressing effect upon Main Street, today.Late yesterday, as Naked Capitalism’s Yves Smith and FireDogLake’s Marcy Wheeler note, below, the Obama administration proposed a $20 billion “…get-out-of-jail-free program…” so, in the words of FDL’s Wheeler, “…banks could be excused for the abundant mortgage fraud they’ve committed.”

HAMP II: The $20 Billion Get Out of Jail Free Card

By: emptywheel
FireDogLake
Wednesday February 23, 2011 6:44 pmA day after the Case-Shiller Index confirmed that the housing market is in a double dip, the Powers that Be (a subsidiary of the Masters of the Universe, currently CEOed by one Barack Obama) have floated their proposal for a mortgage fraud settlement.

The settlement terms remain fluid, people familiar with the matter cautioned, and haven’t been presented to banks. Exact dollar amounts haven’t been agreed on by U.S. regulators and state attorneys general.

For the low, low price of $20 billion, the Administration proposes, banks could be excused for the abundant mortgage fraud they’ve committed….

…$20 billion won’t even begin to compensate those victims of fraudulent appraisals for the fraud committed on them.

IMHO, in light of the fact (as I also noted in my diary, Wednesday) that it’s projected by some of our country’s most highly-respected housing finance experts that approximately half of all U.S. mortgageholders will be underwater (owing more to the bank than the value of their home) on their mortgages by mid-year, this represents the equivalent of a minor wristslap to Wall Street, as our country’s middle class faces ongoing pillaging at the hands of a status-quo-gone-wild; all thanks to the unbridled, ongoing support of our bought-and-paid-for federal government…

So, a week passes, and here we have the already-pathetic narrative becoming an even greater travesty than it was just a week ago: “Officials Disagree on Penalties for Mortgage Mess.”

Officials Disagree on Penalties for Mortgage Mess
By NELSON D. SCHWARTZ and DAVID STREITFELD
New York Times
March 3, 2011 Even as state attorneys general and regulators in Washington approach the end of their investigation into abuses by the nation’s biggest mortgage companies, deep disputes are emerging over how much to punish the banks as well as exactly who should benefit from a settlement.

The newly created Consumer Financial Protection Bureau is pushing for $20 billion or more in penalties, backed up by the attorneys general and the Federal Deposit Insurance Corporation.

But other regulators, including the Office of the Comptroller of the Currency, which oversees national banks, and the Federal Reserve, do not favor such a large fine, contending a small number of people were the victims of flawed foreclosure procedures.

As the negotiations grind on, there are signs that the banks still have not come to grips with the problems plaguing the foreclosure process….

…The nation’s largest mortgage servicer, Bank of America, is already readying what will be among the industry’s main arguments: that it is unfair to reward homeowners who are delinquent or underwater but cannot point to specific errors in their case…

(It’s definitely worth reading this whole article!)

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So, let me get this right…Bank of America, one of the biggest recipients of taxpayer bailouts and ongoing government backstops, to the tune of billions upon billions of dollars, even to this day, is saying it’s unfair to reward homeowners that have been royally screwed over–and moreso by BofA’s own Countrywide Financial subsidiary, perhaps, than any other corporate entity on the planet–but, when it comes to Main Street, f*ck ‘em?

The Times’ piece quotes a spokesman for the bank who’s “concerned” that…“Too broad a rescue package, he said, ‘could forestall the housing market recovery or even create perverse incentives.’”

And, to get a picture of how pathetically “captured” Treasury Secretary Tim Geithner’s former righthand man, Ass’t Treasury Secretary Michael Barr, truly is, we have this gem in the article…

“There has been a tension in this country during the financial crisis,” said Michael S. Barr, a former Treasury official now at the University of Michigan Law School. “People want those who are in economic trouble to get a fair shake. But they don’t want them bailed out for making their own mistakes, like buying too big a home.”

So, in Mr. Barr’s view of the universe (as long as we overlook origination fraud, appraisal fraud, investor fraud, conveyance fraud, ratings agency fraud, foreclosure fraud, and on and on…), it’s okay for the too-big-to-fail, Wall Street banks to get permanent, trillion-dollar taxpayer backstops for committing rampant fraud, but when it comes to Main Street, “…they don’t want them bailed out for making their own mistakes, like buying too big a home.”

Uh, huh.

While regulators worry about how punitive any eventual settlement should be, lawyers and other advocates for the foreclosed who were hoping for criminal charges are set to be disappointed. That sanction, everyone seems to agree, is off the table. In testimony in December about the improper foreclosures by banks, Daniel K. Tarullo, a Federal Reserve governor, floated the notion of imposing fines on individuals found responsible for violations or banning them from banking, but officials involved in the talks said this idea had not gotten much traction either.

Well, Yves Smith has come up with a GREAT idea to obtain some “traction” for our government and for Main Street as far as obtaining some leverage with Wall Street is concerned. It’s a great concept: jail the bastards! (SEE: “A Straightforward Criminal Case Against Wall Street CEOs and Senior Executives.”)

(Or, at least threaten to do so with some real teeth in that effort, for a change!)

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

A Straightforward Criminal Case Against Wall Street CEOs and Senior Executives
Yves Smith
Naked Capitalism
Wednesday, March 2, 2011 4:04 AM Various people who ought to know better, such as the New York Times’ Joe Nocera, have taken to playing up the party line of the banking industry and I am told, the SEC, that we should resign ourselves to letting senior financial services industry members get away with having looted their firms and leaving the rest of us with a very large bill.

It is one thing to point out a sorry reality, that the rich and powerful often get away with abuses while ordinary citizens seldom do. It’s quite another to present it as inevitable. It would be far more productive to isolate what are the key failings in our legal,
prosecutorial, and regulatory regime are and demand changes.

The fact that financial fraud cases are often difficult does not mean they are unwinnable. And a prosecutor does not need to prevail in all, or even most, to serve as an effective cop on the beat.

Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operations. I’ll call them “dealer banks” or “Wall Street firms” to distinguish them from very big but largely traditional commercial banks like US Bank.

Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years.

The responsible officers must certify that, among other things, they:

(A) are responsible for establishing and maintaining internal controls; (B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared; (C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and

(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

These officers must also have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):

(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls

The premise of this requirement was to give assurance to investors as to (i) the integrity of the company’s financial reports and (ii) there were no big risks that the company was taking that it had not disclosed to investors.

This section puts those signing the certifications, which is at a minimum the CEO and the CFO, on the hook for both the adequacy of internal controls around financial reporting (to be precise) and the accuracy of reporting to public investors about them. Internal controls for a bank with major trading operations would include financial reporting and risk management.

It’s almost certain that you can’t have an adequate system of internal controls if you all of a sudden drop multi-billion dollar loss bombs on investors out of nowhere. Banks are not supposed to gamble with depositors’ and investors’ money like an out-of-luck punter at a racetrack. It’s pretty clear many of the banks who went to the wall or had to be bailed out because they were too big to fail, and I’ll toss AIG in here as well, had no idea they were betting the farm every day with the risks they were taking.

Not surprisingly, it isn’t difficult to find widespread shortcomings in risk management at major dealer banks. Risk management deficiencies most relevant to Sarbanes Oxley are related to pricing. The accuracy of the accounts, meaning the valuations, is the primary focus. Risk management weaknesses that impact reportable disclosures (in the accounts or the notes) have highest relevance. However, crappy risk management that leads to poor positioning may not be germane to the Sarbanes Oxley violations issue.

We discussed the issue at some length in ECONNED. Risk management was kept weak; if push came to shove, it was subordinate to the producers. Richard Bookstaber, a former chief risk officer, discussed at some length how most chief risk officers were engaged in what amounted to busywork. While they might indeed prevent particularly egregious excesses, their form over substance exercises also provided useful cover for the top brass and the board of directors. As he noted in 2007:

If you are the Chief Risk Officer and everything blows up, don’t you bear some responsibility?…In the CRO job 99% of the days there is nothing going wrong. The only test you get of how well you are doing – short of pouring out risk reports and looking ponderous and prudent in meetings – is what happens to the firm during times of market crisis. Every few years something calamitous happens in the market; if the firm gets blown away, that suggests you did not do a very good job.

Readers may have better suggestions of where to start, but I’d target Lehman. First, it already has a smoking gun: a May 2008 letter written by former senior vice president Michael Lee to senior management, including the CFO Erin Callan. It describes numerous accounting shortcomings, none of which look to be new and many of which look to be Sarbanes Oxley violations.

Second, its derivatives books were by all accounts an utter disaster at the time of its collapse:  multiple non-integrated systems, to the point where the bank did not even have a good tally of how many positions it had (bankruptcy overseers Alvarez & Marsal first said the bank had 110,000 positions; they later changed their tally to 120,000). This is important because despite all the efforts to identify why the Lehman losses were so massive, most analysts have focused on the asset side, and the numbers don’t add up. That means understatement of positions and/or gross understatement of risk on the liability side is the probable culprit.

This is an egregious accounting 101 control breakdown, It indicates that the most basic operatonal controls, reconciliation of accounts, were not effective (see here for further support). Lehman would have to take the position that its basic control weaknesses were all immaterial. At all times there’s an inventory of control weaknesses that exist. That inventory must be constantly monitored and reviewed (and attested to in the 404 internal control assessments signed by the responsible officers). Materiality determinations are decided by managers, internal and external audit and ultimately the CFO and CEO. Dick Fuld also made statements in Congressional testimony about his ignorance of his ignorance of Repo 105 and a failure to include commercial real estate in stress tests starting with the end of 2007 that also seems consistent with a lack of adequate risk controls.

At other banks, prosecutors will probably need to proceed in a bottom’s up manner. The structured credit and CDO desks are targets even now for criminal securities fraud actions (the statue of limitations has not expired). These units, as Bloomberg’s Jonathan Weil has pointed out, were also ground zero of misreporting at Citigroup. The bank’s defenders claim it has a free pass by virtue of a letter from the bank lapdog OCC that did not rise to the level that would force disclosure but its basis was that the valuations Citigroup used were with market ranges. This seems a dubious argument.

The fact that a defective speedometer happened to provide a 60 mile per hour reading when the car was going 57 miles per hour does not prove the device was reliable.

Moreover, anyone with an operating brain cell knows “market prices” were being gamed by dealer banks passing small trades between them or with friendly clients, typically hedge funds who might also like to show high valuations, to establish flattering marks. If the marks Citi was relying on were the result of collusion, and the bank was either involved in or aware of the collusion, this undermines the OCC view of the validity of the marks at Citi and other banks. If yours truly knew of this practice, it had to be widespread and well known at the firms themselves.

My understanding (and reader input is welcome here) is that the authorities could file a civil suit for Section 302 certification violations. If they prevailed in that, a criminal case under Section 902 should be an easy win. The 906 certification basically says the reports are fully compliant with all regulations, including those specifically certified in the 302.

(Note that the SEC initiated a criminal case against HealthSouth CEO Richard Scrushy which included Section 302 charges. Scrushy was acquitted in a jury trial, but having followed the proceedings a bit, and also seeing another example of a trail in Birmingham, I’d be careful of generalizing from Alabama courts to other jurisdictions. The deck, even more than in other jurisdictions, is stacked in favor of the local bigwigs).

Will any of this happen? Of course not. The decision was made at the time of the TARP, and reaffirmed early in the Obama administration when there was serious talk of resolving Citigroup and Bank of America, that no one at the helm of the senior banks would be subject to serious scrutiny, much the less actually expected to be held accountable for actions that wrecked the economy and have imposed serious costs on ordinary Americans.

The case we described above is relatively simple to explain to a jury and has the advantage of being the sort where the plaintiffs could build on their experience in one action in subsequent cases.

But that sort of truth, that most, probably all, of the major Wall Street banks were engaged in the same sort of misconduct and the violations extended to the very top of the firms, would expose numerous other parties as complicit. So we’ll permit the cancer in our society to metastasize rather than threaten the power structure. But at least we citizens can make it clear, even if we cannot change the outcome, that we are not buying the canard that nothing can be done to fight this disease.

Leverage for Main Street?

It’s more than just a concept.

In fact, it’s staring us in our face.

Please feel encouraged to visit Bob Swern’s blog on Daily Kos.

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Why America’s Two Economies Continue to Drift Apart, and What Washington Isn’t Doing About It

Dec 14th, 10 / 0 Comments

Evans Liberal Politics
December 15, 2010

 

Why America’s Two Economies Continue to Drift Apart,
and What Washington Isn’t Doing About It

Why America’s Two Economies Continue to Drift Apart, and What Washington Isn’t Doing About It, Robert Reich.org, December 14, 2010, by Robert Reich, used with permission, quoted verbatim:

America’s two economies are getting wider apart.

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The Big Money economy is booming. According to a new Commerce Department report, third-quarter profits of American businesses rose at an annual record-breaking $1.659 trillion – besting even the boom year of 2006 (in nominal dollars). Profits have soared for seven consecutive quarters now, matching or beating their fastest pace in history.

Executive pay is linked to profits, so top pay is soaring as well.

Higher profits are also translating into the nice gains in the stock market, which is a boon to everyone with lots of financial assets.

And Wall Street is back. Bonuses on the Street are expected to rise about 5 percent this year, according to a survey by compensation consultants Johnson Associates Inc.

But nothing is trickling down to the Average Worker economy. Job growth is still anemic. At October’s rate of only 50,000 new private-sector jobs, unemployment won’t get down to pre-recession levels for twenty years. And almost half of October’s new jobs were in temporary help.

Meanwhile, the median wage is barely rising, adjusted for inflation. And the value of the major asset of most Americans – their homes – continues to drop.

Why are America’s two economies going in opposite directions? Two reasons.

First, big profits are coming from overseas sales of goods and services made abroad, not here. The world’s fastest-growing markets are China and India, whose inhabitants are eager to buy “American” products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.

Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.

Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.

In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply.

So what is Washington doing about all this?

Making the tax code more progressive so more Americans reap the benefits enjoyed by those at the top? Increasing the bargaining power of American workers? Forcing Wall Street banks to reorganize under bankruptcy mortgage loans that are dragging down the housing market? Expanding early childhood education, hiring more teachers, putting fewer kids into each classroom, and making higher education more affordable – so more working and middle-class kids can become tomorrow’s high-priced “talent”?

No. None of this. In fact, Washington is busily separating the two economies even further.

It’s extending the Bush tax cuts – the lion’s share of which go to the very wealthy; reducing the reach and rate of the estate tax; and giving corporations additional tax breaks for investing in software and equipment. Meanwhile, the states are cutting back on pre-schools, firing teachers, and yanking up tuitions and fees at public universities.

Oh, and yes, Washington is also extending unemployment benefits for the long-term jobless. Which is the least it can do, given that their ranks continue to swell.

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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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Video: The Unemployment Disaster Continues

Dec 4th, 10 / 0 Comments

Evans Liberal Politics
December 4, 2010

 

The Young Turks:
The Unemployment Disaster Continues


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Obama Calls the Question on Geithner

Oct 11th, 10 / 3 Comments

Evans Liberal Politics
October 12, 2010

 

Obama Calls the Question on Geithner


Obama Calls the Question on Geithner, Common Dreams.org, October 11, 2010, by Robert Kuttner – original post on The Huffington Post, quoted verbatim:

By pocket-vetoing the bill that sailed through Congress to expedite mortgage foreclosures, President Obama may have begun a chain reaction that will blow up Treasury Secretary Tim Geithner’s confidence game with the banks. Let me explain.
Michael Shear:

Webroot Software Inc.

In early 2009, Obama and his top economic aides faced a fateful choice: either do an honest accounting of the nation’s big insolvent banks, like Citigroup; or keep propping them up and collude with the banks in camouflaging just how bad things were — and still are.

They opted for camouflage. Geithner and the Federal Reserve devised a “stress test” exercise that avoided an honest accounting of the junk on the banks’ balance sheets; instead they used economic models based on very rosy assumptions about how bad the recession would be. Citi and the others were pronounced basically healthy.

This move avoided the kind of reckoning that would break up (and clean up) the big banks. Instead, the camouflage policy allowed the big banks to very slowly rebuild their balance sheets with speculative profit centers, relying first on TARP money and then on zero interest rate advances from the Federal Reserve.

But there was a huge downside for the economy. The banks reverted to the same kind of speculative plays that crashed the system; they also continued gouging consumers. And thanks to the Federal Reserve, the banks could make very easy money borrowing from the Fed at almost zero interest rates and investing the money in government guaranteed Treasury securities.

By 2010, the banks were again making large profits and paying huge bonuses — as if the financial collapse had never occurred. What they did not, however, do was make very many loans to small and medium sized businesses or hard pressed consumers.

Meanwhile, regional and community banks, which do make loans to business, have been hard hit by the collapse in commercial real estate prices, and have tightened terms for ordinary business borrowers. So all but the largest businesses, which can access the bond market directly, are starved for credit.

Thanks to Geithner’s permissive accounting standards, the big banks have also been allowed to carry on their books at full value securities based on underwater mortgage loans — securities that are really worth between 30 and 70 cents on the dollar. If the banks had to honestly account for their depressed market value, the banks’ balance sheets would look even worse.

This is an exact repetition of what befell Japan in the 1990s — a lost decade of economic growth caused by a financial collapse and the collusion of the government with the banks to pretend that all was rosy. Indeed, the US economy today is in far worse shape than Japan was, because all during that period Japan continued to be a major export power while the US today runs a huge trade deficit.

But Obama’s veto of the foreclosure-streamlining bill calls the question on Geithner. We are now learning that a lot of the securities were not properly documented, which makes them worth even less.

If the foreclosure machinery is suddenly gummed up because the President has ruled out a quick fix that favors bankers, the banks may be forced to recognize what the junk on their balance sheets is really worth (not much). And the whole game of pretending that all is fine with the banks is in jeopardy.

The fact is that a vast number of mortgages that we turned into mortgage backed securities are legally flawed. This calls into further question the value of massive portfolios held by banks — and forces some kind of reckoning.

For aficionados who want more detail, Mike Konczal has provided a very useful idiots’ guide to the next great unraveling.

Obama’s veto also pulls the rug out from under the pretense that the Administration’s mortgage relief program is working. For nearly two years, the Treasury and the Department of Housing and Urban Development have sponsored a mortgage modification program known as HAMP (Home Affordable Modification Program).

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This program is voluntary to the banks, who get a few thousand dollars in incentive payments from the government in exchange for reducing monthly payments. But the relief is usually shallow and something like half of borrowers who do get modifications go back into default. Fewer than 500,000 have gotten modifications out of several million at risk of foreclosure.

Most of the underwater homeowners, now almost one in three, are not speculators or people who took out sub-prime loans. They are simply ordinary Americans whose houses are suddenly worth less than the mortgages on them, because of the general collapse in housing prices.

The lame HAMP program, the joint creation of Treasury and HUD, is another part of Geithner’s grand design to disguise just how bad things are at the big banks and prevent an honest accounting or a serious reckoning.

Meanwhile, housing prices are declining again, despite record low mortgage interest rates (available only to blue chip borrowers), which creates another serious drag on the economy. And the housing market won’t return to normal until the mortgage mess is resolved.

But the belated recognition that millions of mortgages are inadequately documented could be a blessing in disguise. It could force the administration to come up with stronger medicine both to clean up the banks and to help distressed homeowners.

The Dodd-Frank Act (PDF) gives the Treasury the tools to do an honest accounting of the big banks, and shut down or break up zombie banks that are insolvent — so that successor banks can get on with the business of lending. With a serious strategy for both the banks and the mortgage mess, we could remove two of the main drags on the economy.

White House political chief David Axelrod, speaking on CBS’s Face the Nation Sunday, tried to back-pedal from the significance of Obama’s action. (Heaven forbid that three weeks before a crucial election Obama should sound like he is siding with consumers against bankers.) Meanwhile, the indispensable Rep. Alan Grayson of Florida called for a national moratorium on foreclosures.

Of the three prime architects of Obama’s inadequate economic program, two have now moved on — economic policy czar Larry Summers and budget chief Peter Orszag. It’s time to for Geithner to join them, so that Obama can get real about the banking and mortgage crisis.

The president’s veto of the foreclosure bill shows that his Obama’s own instincts are better than his advisors’. It’s a start. But if Obama temporizes now, he faces a slow unraveling of the flimsy financial house that Geithner built, and an even weaker economy.

Robert Kuttner is co-editor of The American Prospect, and a senior fellow at Demos. His latest book is A Presidency in Peril.

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Economy loses 95,000 jobs as government cuts payrolls

Oct 8th, 10 / 6 Comments

Evans Liberal Politics
October 8, 2010

 

Economy loses 95,000 jobs as government cuts payrolls


Cuts in Government Led U.S. Economy to Lose 95,000 Jobs, © The New York Times, October 8, 2010, by Catherine Rampell, excerpt quoted verbatim:

The economy shed 95,000 nonfarm jobs in September, the Labor Department reported Friday, with most of the decline the result of the layoffs by local governments and of temporary decennial Census workers.

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The steep drop was far worse than economists had been predicting. Most estimates were for a loss of only a few thousand jobs.

“September’s U.S. payroll report adds to the evidence that the recovery is losing what little forward momentum it had,” said Paul Ashworth, senior United States economist at Capital Economics.

The recovery that officially began in June 2009 has slowed considerably in recent months, raising concerns about the long slog the country will have to endure to dig itself out of the deepest downturn since the Great Depression. Private payrolls have been growing throughout 2009 but at a rate too sluggish to make much of a dent in unemployment. The outlook for the rest of the year is equally discouraging, economists say.

“We’re looking for companies to get more confident in the pace of recovery and start to hire around 150,000 jobs a month, which is what we need just to keep the unemployment rate flat,” said John Ryding, chief economist at RDQ Economics. “But I just don’t see that happening between now and the end of the year.”

While total government jobs fell by 159,000, private sector companies added 64,000 jobs last month. The unemployment rate, which measures the percentage of workers who are actively looking for but unable to find jobs, stayed flat at 9.6 percent.

A broader measure of unemployment, which includes people who are working part-time because they cannot find full-time jobs, and people who have given up looking for work, rose to 17.1 percent from 16.7 percent in August. This was largely because of a jump in the number of people who are reluctantly working part-time. ….

Read the full article here.

Comment by Evans Liberal Politics owner Paul Evans: 77,000 of the newly unemployed were Census workers whose job ran out of time. Also, keep in mind that unemployment is not evenly distributed throughout the economy. For those workers making $200,000 a year or more, unemployment remains at a very acceptable rate of 3.2 percent. But for those workers making $20,000 a year or less, the official unemployment rate stands at 31 percent. That doesn’t count the underemployed, those working part time jobs who really want full time jobs, nor those workers who have given up and stopped looking for work.

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