Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Bleak Picture in Asia, More Gloomy ThoughtsOn Asia, from the Financial Times.. A tidbit:"The figures are further proof that Asia's economy fell off a cliff in the closing months of 2008 and raise the likelihood that the bad news will continue to flow as the region's export-dependent nations are forced to cut jobs and manufacturing capacity because of weak western consumer demand. The collapse in Asian exports over the fourth quarter was "nothing short of breath-taking", said Frederic Neumann, Asia chief economist at HSBC. "Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before." Ambrose Evans-Pritchard has this to say about the global situation in general, and this on a possible reversal in Germany's view of the EU project. Labels: Ambrose Evans-Pritchard, Asia Times, bailout, European Union, financial crisis, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Warren Buffet Feels the PainMore from Across the Curve. And here's what the FT has to say out it:Buffett's Berkshire has worst results ever By Justin Baer in New York Published: February 28 2009 20:18 | Last updated: February 28 2009 20:18 Warren Buffett conceded that his holding company, Berkshire Hathaway, turned in its worst performance on record as the financial crisis drew the world's economy into a deepening recession, and gave investors little reason to believe a turnaround is imminent. In his annual letter to Berkshire shareholders, Mr Buffett recounted how frozen credit markets dovetailed with tumbling home and stock prices to imperil many of the world's biggest banks and produce "a paralyzing fear that engulfed the country." "By yearend," he wrote, "investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game." The billionaire also urged his legions of followers to remember that the stock market usually rises--the Standard & Poor’s 500 Index has produced annual increases in 75 per cent of the past 44 years--and may do so again even if the downturn persists. "We're certain, for example, that the economy will be in shambles throughout 2009--and, for that matter, probably well beyond--but that conclusion does not tell us whether the stock market will rise or fall," he wrote. Regardless, Mr Buffett wrote, Berkshire will stick with a strategy that has produced an annual compounded growth in book value of 20.3 per cent: maintaining its "Gibraltar-like" financial strength, improving the competitive position of its existing businesses and making new acquisitions that bolster earnings. Read the rest of the article Labels: Across the Curve, Berkshire Hathaway, financial crisis, Warren Buffet Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nordic Economies TankingEven the virtuous Nordics (including Finland)are feeling the full effect of the crisis. From LSE Macroeconomic News, courtesy of Across the Curve. Remember that especially Swedish banks are heavily exposed in Eastern Europe, with loans there up to the value of some 30% of GDP.WRAPUP_1Financial_crisis_slams_Nordic_economies_in_Q4 Macroeconomic News Saturday, 28th February, 2009 By Niklas Pollard STOCKHOLM, Feb 27 (Reuters) The global financial crisis slammed into the Nordic region with full force in the fourth quarter, with the Swedish and Danish economies contracting at record paces while Finland joined its neighbours in recession. Hit by a dramatic fall in demand for its many heavyweight exporters, Sweden's gross domestic product (GDP) shrank 4.9 percent in the fourth quarter from a year earlier and 2.4 percent from the preceding three months, the statistics office said on Friday. The outcome for the Nordic region's biggest economy was the worst GDP reading since Swedish statistics office SCB began publishing seasonally adjusted quarterly data in 1993. It compared with median forecasts of a 2.0 percent decline year-on-year and a 1.6 percent fall on a quarterly basis, as seen in a Reuters poll of economists. 'It was a very, very weak figure. It was, in fact, weak across the board,' RBS analyst Peter Kaplan said.' 'I think that the Riksbank is going to cut all the way to 0.10 percent -- in practice, zero rates. All the Riksbank's models are going to shout 'cut to zero', although the weak crown adds a little uncertainty.' The Swedish central bank has already slashed rates by a total of almost 4 percentage points from September to the current level of 1.00 percent in a running battle to ward of an economic downturn. Sweden's industrial sector, which includes top-flight manufacturers such as world number two truckmaker Volvo and carmakers Saab and Volvo, has so far been hardest hit, resulting in the loss of thousands of jobs. Read the rest of the article Labels: bailout, financial crisis, Nordic region Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Essential Reading from Yesterday's FTIn case you missed it, due to Friday night carousing, or whatever...--Whistleblower contacted US regulators (should they even be called this anymore?) on fraudster Sir Allen Stanford five years ago. --Banking editor Peter Thal Larson writes that the UK plan for Royal Bank of Scotland amounts to nationalization in all but name, "maintaining the fiction that the ailing bank is anything other than fully state-owned." This certainly has relevance in light of US policy with regard to Citi. --The excellent Gillian Tett on how CDOs may be worth even less than the pitiful estimates bandied about these days. And, in a point too rarely rarely made in the financial press, "as the zeroes relating to writedowns multiply, a peculiar--and bitter-- irony continues to hang over these numbers. Notwithstanding the fact that bankers used to promote CDOs as a tool to create more "complete" capital markets, very few of those instruments ever traded in a real market sense before the crisis--and fewer still have changed hands since then." Labels: bailout, CDOs, financial crisis, Financial Times, Gillian Tett, Peter Thal Larsen, Royal Bank of Scotland, Sir Allen Stanford Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Report from Eastern Econ. Assoc. MeetingsI (D&S co-editor Chris Sturr) am in New York City for the annual meetings of the Eastern Economics Association, the sweet kid sister to the Allied Social Sciences Association (which would make the latter the bullying older brother, if we're going to go with the metaphor), from which I blogged a couple of times back in early January (here and here, and here's D&S collective member Arpita Banerjee's ASSA report).It's hard to say what makes the EEA meetings so much nicer than the ASSA. Part of it is that they are much smaller (I don't have the numbers, but the program is much thinner, as are the crowds, and the book exhibit, where we spend most of our time, is about 1/10th the size), and maybe there is a critical mass of left or left-ish or at least not left-averse economists on the east coast. All in all, there is a more relaxed and less corporate feel to the EEA. Our comrades at the Union for Radical Political Economics (with whom we share an exhibit table) are sponsoring seven panels this year, which is a pretty high number for a relatively small conference. Back at the ASSA, one of the plenary sessions that drew big crowds was (as I reported in my earlier post) the spectacle of Marty Feldstein rediscovering fiscal policy after years (a career?) of denying that it was necessary. Meanwhile, at the EEA this year, this year's Nobel Prize winner, Paul Krugman was a big draw, as was another leftish Nobel Prize winner, Joseph Stiglitz, who gave the presidential address (since he's the current president of the EEA). I missed Krugman's talk, but I made it to see Stiglitz, and I'm really glad I did. (Stiglitz was introduced, by the way, by Steve Pressman, secretary of the EEA, who co-authored an article in our July/August 2007 issue on debt poverty in the United States--more evidence of the EEA's left-friendliness.) Stigliz's topic was the current economic crisis ("What else is there to talk about?" he asked), and he set himself two questions: (1) "What shall we do about our failed banks?" and (2) "What role did the economics profession--or rather *some* members of the profession--play in the crisis?" His assessment of the inadequacies of the responses to the crisis so far (including the stimulus, efforts to address the foreclosure crisis, and the bank bailout) was great, though his "Plan B" was a bit rushed and hard to follow. His critique of the mainstream economic views that contributed to the crisis was also a bit rushed, but gratifyingly scathing. One big reservation I had about the talk was that he was nearly as timid on the issue of bank nationalization as he was in the interview he did with Amy Goodman (which we blogged about a couple of days ago). I have pretty extensive notes from the talk, and there were some great bits (e.g., he quipped, a propos of the way the "experts" denied the crisis for so long, seeing recovery around the corner, until we had turned corner after corner: "The light that was at the end of the tunnel turned out to be a train coming right at us."). I would like to write up more on his talk, but in my hotel room on a Friday night in NYC with the nightlife beckoning, this post is starting to feel like a grotesque combination of a diary entry and a term paper, so I will aim to say more tomorrow with more EEA updates. Labels: ASSA, bailout, EEA, financial crisis, Joseph Stiglitz, Martin Feldstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's ($1.7 Trn Deficit) First BudgetFrom The Financial Times:Obama forecasts $1,750bn deficit By Andrew Ward and Edward Luce in Washington Published: February 26 2009 11:24 | Last updated: February 27 2009 09:56 Financial Times President Barack Obama on Thursday unveiled the most expansive blueprint for federal government involvement in the US economy in more than a generation in a ten-year budget outline that showed this year’s deficit quadrupling to $1,750bn. The document, which lays out ambitious plans to create universal health insurance and adopt an economy-wide carbon permit trading system by 2012, was heavily panned by Republicans. The budget would see George W. Bush’s tax cuts for the wealthiest expire by 2011 and introduce new tax increases on families earning $250,000 or more to pay for healthcare expansion. In a sign of intense partisan battles to come, Mitch McConnell, the Republican leader in the Senate, where the US president needs supermajorities of at least 60 votes to push bills through, said: “Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off." The budget also allowed for about $750bn for "financial stabilisation efforts", on top of the $700bn already granted to Wall Street. The potential aid was shown as a net cost of $250bn because the government would anticipate recouping some of the money. Peter Orszag, White House budget director, said there were "no plans" to seek more aid for banks but the measure indicated it was a strong possibility. The 134-page document outlines a legacy inherited from Mr Bush of what it calls "mismanagement and missed opportunities and of deep, structural problems ignored for too long". Read the rest of the article Labels: bailout, Barack Obama, budget, financia crisis, fiscal policy, fiscal stimulus, taxes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US and UK Increase Stakes in BanksFrom Reuters, again:Governments tighten grip on banksFri Feb 27, 2009 11:55am EST Reuters By Steven C. JohnsonNEW YORK (Reuters) Governments on both sides of the Atlantic moved to tighten their grip over banks on Friday to stem a financial crisis that has pushed the U.S. economy into its deepest contraction in more than a quarter century. U.S. stocks sank to a 12-year low after Washington struck a deal in which it could end up with more than a third of crisis-hit Citigroup. The World Bank and other development banks launched a $32 billion lending plan to help east European banks and businesses survive a deepening recession. Citigroup (C.N) shares tumbled some 30 percent after the U.S. Treasury struck a deal to convert $25 billion of its preferred stock to common shares, which could give it a stake of up to 36 percent in the bank by diluting existing investors. While the government will not add to the $45 billion it has already invested in what was once the world's largest bank, the stock conversion will shore up the most conservative gauge of the bank's health. The U.S. government is struggling to shore up its banks as part of its approach to restoring growth. Data showed the U.S. economy shrank a staggering 6.2 percent in the last three months of 2008, its biggest slide since the first quarter of 1982, as exports fell and consumers cut spending. "The fear is the government having a big stake in the company will create obstacles for Citigroup to be competitive, and there remain questions about the viability of the financial system," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York. "The (gross domestic product) number," he added, "just threw gasoline on the fire." Across the Atlantic, investors were eyeing Lloyd's Banking Group (LLOY.L) as the second major British financial firm lining up to tap a government-backed insurance scheme. The bank, which revealed a 10 billion pound ($14.28 billion) loss for 2008, said it had not finalized a plan yet but said talks with the UK government were "well advanced." On Thursday, Britain agreed to insure 500 billion pounds ($715 billion) of risky bank assets and struck a deal that could raise the government holding in Royal Bank of Scotland (RBS.L) to 95 percent. Global development banks also launched a two-year plan to lend up to 25 billion euros to shore up troubled banks and businesses in eastern and central Europe. The crisis has dried up credit and capital flows into the once-booming region, pressuring exchange rates and forcing some countries to seek help from the International Monetary Fund. Fannie Mae (FNM.P), the government-controlled company seen by the U.S. administration as a key conduit to stabilize the housing market, reported a $25.2 billion fourth-quarter loss, forcing it to ask for $15.2 billion from the U.S. Treasury Read the rest of the article Labels: bailout, banking crisis, banking system, Citibank, Fannie Mae, financial crisis, Royal Bank of Scotland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US 4Q GDP Falls 6.2%, Biggest Drop Since '82From Reuters:U.S. fourth-quarter GDP drop biggest since 1982 Fri Feb 27, 2009 12:29pm EST Reuters By Lucia Mutikani WASHINGTON (Reuters) The U.S. economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2 percent annual rate as exports plunged and consumers slashed spending. A month ago, the Commerce Department had estimated the economy shrank at a 3.8 percent pace in the October-December quarter. But downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday. "It's just doom all over. There's nothing good to take away from this report. I think there's a few more bad quarters to come," said Boris Schlossberg, director of currency research at GFT Forex in New York. The grim data shocked Wall Street, which had braced for a downward revision, but not one nearly so deep. The consensus was for a decline of 5.4 percent. U.S. stocks fell, with the Standard & Poor's 500 Index hitting a fresh bear market low, weighed down by the data and news the government could take a large common equity share in troubled financial firm Citigroup. Government bond prices rallied. A separate report showed mounting job losses turned consumers gloomier in February, evidence the U.S. recession continues to deepen. The final Reuters/University of Michigan consumer sentiment index fell to 56.3 from January's 61.2. Read the rest of the article Labels: bailout, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Over 250 Banks On The EdgeThe FDIC reports that 252 US banks were on its list of troubled at the end of 2008, meaning they are at high risk of failure. This is the highest number since 1994. The total value of the assets of the banks on the watch list are $159 billion.Fourteen banks have failed so far this year, or an average of nearly two every week. From CNN: NEW YORK (CNNMoney.com) -- The government's closely watched list of troubled banks grew during the fourth quarter to its highest level since 1994, regulators said Thursday. Full story here. Labels: bad bank, bank failures, banking crisis, banking system, FDIC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Jobless Claims At Record HighThe US shed 600,000 jobs in January alone. It's looking like we'll lose another 700,000 in February. From the wires:WASHINGTON (Reuters) - The number of U.S. workers drawing jobless aid jumped to a record high in mid-February, while the recession undercut demand for manufactured goods last month and sent new homes sales to their lowest since 1963. Full story here. Labels: economic meltdown, unemployment, unemployment benefits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chicago Factory Workers To Be RehiredA rare piece of good news on the jobs and labor front. The former workers of Chicago's Republic Windows and Doors factory will be getting rehired by a California company that is buying the plant. More good news -- the company specializes in energy efficient and eco-friendly products.See our previous posts and commentary on the amazing organizing effort by these workers here. From the Huffington Post: CHICAGO — The factory where laid-off workers staged a highly publicized sit-in that garnered national attention last year was sold to a California company that hopes to rehire them and open in about a month, the workers' union and the new owner said Thursday. (This is the complete post) Labels: labor organizing, Republic Windows and Doors Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). G.M. Loses $9.6 BillionJust posted to the New York Times website. Sorry if this ruins tomorrow morning's paper for you. It probably won't be such a good day for Rick Wagoner either, and he's probably ruining lots of UAW members' days too.DETROIT—The chief executive of General Motors met with government overseers on Thursday to explain the carmaker's financial situation, hours after G.M. reported a $9.6 billion south-quarter loss and said it was rapidly spending its cash reserves. The G.M. chief, Rick Wagoner, is expected to ask for more assistance as he sits down with the auto industry task force created by President Obama. The panel, led by Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, the White House economic adviser, will oversee the restructuring at G.M. and Chrysler. Even as the meeting unfolds, G.M. finances were reaching a crucial point. The company said Thursday that its cash reserves were down to $14 billion at the end of 2008, including $4 billion it had borrowed from the government that month. G.M. spent $19.2 billion of its cash reserves in 2008. It spent $6.2 billion of the reserves—$2 billion a month—in the fourth quarter alone. Since then, G.M. has borrowed $9.6 billion more, but the company expects to go through that money quickly, and says more aid is necessary to remain solvent. "The economic situation is having a dramatic impact on our industry, on General Motors," G.M.'s chief financial officer, Ray Young, said on a conference call Thursday. "We're still forecasting a cash flow burn of $14 billion in '09, so we will need some additional funding support." The company has said that it needed a minimum of $11 billion to $14 billion in reserves to finance operations, but the estimates were made before the recent drop in auto sales and cuts by G.M. in response. G.M. lost $30.9 billion, or $53.32 a share, in 2008. For the fourth quarter, it lost $9.6 billion, or $15.71 a share, as its global sales fell 26 percent. In 2007, the company lost $43.3 billion, a record, mostly the result of a noncash accounting charge; it adjusted the figure higher by $4.6 billion on Thursday. The losses, though, are unlikely to shake investors, who have already realized the automaker's perilous state. G.M. said last week that it might need as much as $30 billion to complete the restructuring plan that it has submitted to the Treasury Department. Read the rest of the article. Labels: auto industry, auto industry loans, bailout, financial crisis, General Motors, Rick Wagoner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stiglitz Criticizes O.'s Speech, Favors Single-PayerThis seems pretty explosive to me: Nobel-Prize-winning economist Joseph Stiglitz came put in favor of a single-payer universal health program as "the only alternative" in an interview with Amy Goodman on Democracy Now!. Hat-tip to Dr. Christine Adams of Health Care for All Texas. Very interesting also that he also criticizes Obama as having "confused saving the banks with saving the bankers." (Amy Goodman's phrase, but Stiglitz responded: "Exactly.")There's also a discussion of nationalization, and from what I can tell Stiglitz calls for a Swedish-style "nationalization," which is really just temporary receivership (or what Krugman usefully calls "preprivatization"—though this is what Krugman favors too). This puts him barely to the left (on this issue at least) of Alan Greenspan, who as we've reported here, has said that "nationalization" will probably be necessary. Wish Amy had asked him about full, permanent nationalization... Click here for Fred Moseley's argument for it in the March/April issue of D&S. We'll have an article about single-payer in that issue too. Here is the beginning of the DN! transcript: AMY GOODMAN: Your first assessment of the speech last night? JOSEPH STIGLITZ: Oh, I thought it was a brilliant speech. I thought he did an excellent job of wending his way through the fine line of trying to say—give confidence about where we're going, and yet the reality of our economy—country facing a very severe economic downturn. I thought he was good in also giving a vision and saying while we're doing the short run, here are three very fundamental long-run problems that we have to deal. The critical question that many Americans are obviously concerned about is the question of what do we do with the banks. And on that, he again was very clear that he recognized the anger that Americans have about the way the banks have taken our taxpayer money and misspent it, but he didn't give a clear view of what he was going to do. AMY GOODMAN: Let's go to the clip last night. During his speech, President Obama acknowledged more bailouts of the nation's banks would be needed, but didn't directly say, as Joe Stiglitz was saying, whether the government would move to nationalize Citigroup and Bank of America. PRESIDENT BARACK OBAMA: We will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible; force the necessary adjustments; provide the support to clean up their balance sheets; and assure the continuity of a strong, viable institution that can serve our people and our economy. AMY GOODMAN: President Obama on Tuesday night. Joe Stiglitz, is he holding the banks accountable? JOSEPH STIGLITZ: Well, so far, it hasn't happened. I think the more fundamental issues are the following. He says what we need is to get lending restarted. If he had taken the $700 billion that we gave, levered it ten-to-one, created some new institution guaranteed—provide partial guarantees going for, that would have generated $7 trillion of new lending. So, if he hadn't looked at the past, tried to bail out the banks, bail out the shareholders, bail out the other—the bankers' retirement fund, we would have easily been able to generate the lending that he says we need. So the question isn't just whether we hold them accountable; the question is: what do we get in return for the money that we're giving them? At the end of his speech, he spent a lot of time talking about the deficit. And yet, if we don't do things right—and we haven't been doing them right—the deficit will be much larger. You know, whether you spend money well in the stimulus bill or whether you're spending money well in the bank recapitalization, it's important in everything that we do that we get the bang for the buck. And the fact is, the bank recovery bill, the way we've been spending the money on the bank recovery, has not been giving bang for the buck. We haven't gotten anything out. What we got in terms of preferred shares, relative to what we gave them, a congressional oversight panel calculated, was only sixty-seven cents on the dollar. And the preferred shares that we got have diminished in value since then. So we got cheated, to put it bluntly. What we don't know is that—whether we will continue to get cheated. And that's really at the core of much of what we're talking about. Are we going to continue to get cheated? Now, why that's so important is, one way of thinking about this—end of the speech, he starts talking about a need of reforms in Social Security, put it—you know, there's a deficit in Social Security. Well, a few years ago, when President Bush came to the American people and said there was a hole in Social Security, the size of the hole was $560 billion approximately. That meant that if we spent that amount of money, we would have guaranteed the—put on sound financial basis our Social Security system. We wouldn't have to talk about all these issues. We would have provided security for retirement for hundreds of millions of Americans over the next seventy-five years. That's less money than we spent in the bailouts of the banks, for which we have not been able to see any outcome. So it's that kind of tradeoff that seems to me that we ought to begin to talk about. AMY GOODMAN: So, you say Obama, too, has confused saving the banks with saving the bankers. JOSEPH STIGLITZ: Exactly. AMY GOODMAN: Should they all have been fired? JOSEPH STIGLITZ: Well, I think one has to look at it on a bank-by-bank basis. Clearly, the banks that have not been managed very well, we need to not only fire them, we have to change their incentive structure. And it's not just the level of pay; it's the form of the pay. Their incentive structures encourage excessive risk taking, shortsighted behavior. And in a way, it's a vindication of economic theory. They behaved in the irresponsible way that their incentive structures would have led them to behave. Read or listen to the rest of the interview. Labels: Amy Goodman, bailout, bank nationalization, Barack Obama, financial crisis, Joseph Stiglitz, Paul Krugman, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's Address (Dave Lindorff--Counterpunch)Recently posted to Counterpunch. Hat-tip to Bob F. For an assessment of O.'s address by frequent D&S blogger Larry Peterson, click here; someone just left a nice comment on it: "Thanks, Larry. Some of the best writing on the economy is here at Dollars and Sense."Obama's Address to Congress Smooth? Yes. Transformative? No. By DAVE LINDORFF | Counterpunch | February 26th, 2009 Barack Obama's first address to Congress provided Americans with yet another example of competent speechmaking, and I suppose, given that we've just endured eight painful years of oratorical farce, being able to listen to your president without wincing is something. The problem is that the way forward proposed by the president as laid out in this address was almost always half-hearted, wrong-headed or doomed. Obama declared at the outset of his address that the economic crisis was the major issue confronting the country, and while one could argue that this crisis is merely a symptom of much bigger issues, like the nearly completed deindustrialization of the nation, the death grip of militarism, and the growing political power of corporations, one could also concede that there is an urgent need to deal with the deepening recession. But clearly, the proposals offered by the president for tackling the crisis are not up to the task. He spoke primarily of the need to "get banks lending" again, explaining that this would require pouring still more hundreds of billions of dollars into these failing institutions. You'd think that with a whole stable of bankers at his elbow, the president would by now have heard from at least someone that this is nonsense, but apparently not. Nobody in the White House or the Cabinet seems to want to point out to the boss that the reason banks aren't lending is because most people—and companies—aren't interested in borrowing. The economy is tanking and assets are sinking in value by the day. Why would anyone want to borrow to invest in such an economy? Furthermore, even if someone did want to borrow, banks will not want to lend unless they think there's a reasonable prospect of having the money repaid. That means they want to see income, they want to see a full order book, they want to see, in the case of a mortgage, an asset that is fairly valued. None of this exists. That's why the first $350 billion that was given to the banks last fall was simply pissed away and lost, not lent out, and it's why the same thing is likely to happen to the next $350 billion Obama is preparing to give away. It won't matter if he establishes a monitoring system for the second tranche of the Troubled Assets Relief Program bailout funds, or a mandate that they be used for making loans. What is needed to fix this crisis is job security, and the only way to create that is by creating jobs. Obama talks of creating 3-3.5 million jobs, but most of these won't even be created, even in smaller numbers, until the end of this year, by which time the official rate of unemployment could be above 9 percent , and the real unemployment rate possibly more than twice that (that would be including people who've given up looking for work, or who are involuntarily working part time). Read the rest of the article. Labels: Barack Obama, financial crisis, jobs, recession, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Alternative Job Creation Plan (S. Aronowitz)This is from Bob Feldman—he sent it to me before the last item he sent for me to post about alternative job creation plans (the one from a 1973 book), but I forgot to post it. It raises interesting issues that we have covered in D&S, e.g. the idea of a "basic income guarantee" (and he might have also mentioned the related idea of "employer of last resort," which we covered in our March/April 2008 issue), and the key issue of tax havens, which we'll be covering in our May/June issue.Aronowitz's Alternative Jobs Creation Plan Of 2005 If you're wondering what an alternative left jobs creation program to the Obama Administration's recently enacted "stimulus" economic program might look like, here's what CUNY Grad School Professor Stanley Aronowitz proposed in his 2005 book Just Around The Corner: The Paradox of the Jobless Recovery: "Slightly less than 10 percent of the annual military budget (not counting emergency Iraq funds), $50 billion, would create almost 2.5 million jobs...Jobs could be created to build low-and moderate-rental or limited-equity cooperative housing (where `owners' are obliged to sell their apartments back to the co-op rather than offer them for sale in the private market)... "...The housing story of the postwar era has been one of federal, state and local abandonment and betrayal of the brave New Deal public-housing program. It was replaced by a program that used public funds to subsidize private developers... "Where will we get the funds for creating public jobs and for building new housing...? We urgently need to reinstitute a progressive tax system where large corporations and wealthy individuals are required to pay their fair share and no individual or profitable business is exempt from paying taxes. In addition, in the interest of creating these jobs, loopholes for upper-middle-income taxpayers should be closed. And the bloated military budget, much of which neither enhances our security nor is justified if we had a reasonable foreign policy that was not oriented toward empire, could be slashed and reorganized. The savings could help fund a labor-intensive public-service jobs program. "Would this jobs program require a new government institution such as the New Deal Public Works and Works Project Administration (PWA and WPA)? Probably...It would be important to stipulate that these are public jobs to expand public goods, and slots should not be crated to subsidize wages in the private sector. Right now, huge quantities of federal funds are shoveled into private contractors' pockets... "...When will working people share in the benefits of the technological revolution of our time? "We need to amend the Wage and Hour Act to provide for overtime pay for work performed after 6 hours in any day, and after 30 hours a week... "What to do about the unwaged and the underwaged?...America needs a basic-income guarantee...It is time to revive the concept of a basic guaranteed income for all Americans... "...Corporations that register offshore must be required to pay U.S. taxes. Those who avoid such taxes should lose their right to sell their goods and services in this country. (Of all U.S. corporations, 60 percent failed to pay taxes in 2003. Many of them were registered in another country, usually a Caribbean site; others simply took advantage of gaping loopholes in U.S. tax law.)" --b.f. Labels: basic income guarantee, Employer of Last Resort, jobs, militarism, Stanley Aronowitz, tax havens, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs (Feb. 22-28)From Mark Heschmeyer of the CoStar Group:Nationwide: The Goodyear Tire & Rubber Co. is taking aggressive action to reduce tire production and cut costs by approximately $700 million in 2009. Actions include further reducing personnel levels by nearly 5,000 in addition to almost 4,000 reductions in the second half of 2008 and freezing salaries. In addition, Goodyear plans to eliminate between 15 million and 25 million units of additional manufacturing capacity worldwide over the next two years. Local: [There's a long table listing company, location, whether it's a closure or a layoff, how many workers are involved, and when it will happen—very useful, but the table won't transfer to blogger. Click here for the full report.] Labels: closures and layoffs, Goodyear Tire, Mark Heschmeyer, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dull Compulsion (vi): Obama's SpeechThe Dull Compulsion of the EconomicA series of posts by D&S collective member Larry Peterson Obama's Mixed Up Metaphor I suppose it's a luxury, of sorts, these days, to look at a presidential address as something more than an opportunity for a good laugh, but President Obama's first attempt to articulate his vision of economic recovery to the suffering nation was, if more sincere and confident, all the more incoherent. And it wasn't just me: markets clearly didn't buy Obama's line, falling on the morning after the speech. They recovered later, but much of this was on the back of a rising oil price (which boosted oil stocks), while losing the momentum that saw Tuesday's rally bring the indices away from dangerous lows. The main problem with the speech was crystallized in one particular statement of the president: "You see, the flow of credit is the lifeblood of our economy." I suppose we've all become so inured, in the wake of the fall of Lehman Brothers, to economists and economic commentators using the metaphor of the circulatory system, so that we are conditioned to accept such references to the financial system, tacitly assuming money in the place of blood. But to use the metaphor in relation to credit is another thing altogether. And the fact that this statement made it past the president's handlers, and attracted no comment, so far as I have seen, concerns me. As anyone who read my post of last week knows, I'm hardly a stickler on the issue of the definition of money; and I'm certainly not going to push some rigid definition that neglects the central role of credit creation in any modern economy. But the economic crisis has featured not only a credit system that was a little oversized: as we all know now, credit creation, under the sleepy eyes of the ideologues and crooks who "regulated" the financial industry for decades, reached altogether ruinous heights in the run-up to the crisis. So, far from being like blood, the credit injected into the economy for much of the time leading up to the crisis resembled the tainted blood samples we've read about in China, only watered down by a factor involving several digits. This is important because Obama appealed earlier in the speech to the capacities that would allow the nation to fend off the crisis: the work being done in the laboratories, the imaginations of entrepreneurs, and so on. And, in this vein, Obama said his entire agenda "begins with jobs." Some of us would say that this is more like the true lifeblood of the nation's economy. But Obama, after making his circulatory analogy, and even adding a few boilerplate denunciations of bankers, tries to steer us in the following rhetorical direction: we have to accept that rescuing the banking system, in much the same form as we have come to know it, is absolutely essential to reviving the economy. Why? Because only bank lending will create the means of reproducing, and even enhancing the American lifestyle: "That's what this is about. It's not about helping banks; it's about helping people. Because when that credit is available again, that family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they get a loan, too, maybe they'll finally buy that car, or open their own business." Failure to do this, on the other hand, will lead to years of stagnation, and more remedial government spending down the line. This doesn't exactly sound like a jobs-led recovery to me: it sounds more like the type of trickle-down thinking that brought us the subprime mess in the first place. And the fact that Obama failed to mention our abysmal, if rapidly rising savings rate, reveals clearly the level of duplicity being at least tacitly employed in the speech, especially insofar as President Obama did mention the looming Medicare crisis. This is all the more the case if one looks at some of the appeals to patriotism Obama made. No doubt, many of them could not but have been looked at by attentive foreign creditors as hints of a possible protectionism to come: "Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders and I know you don't either. Its' time for America to lead again." So it seems Obama is trying to force the peons into signing onto his program: one that has, as one of its main goals, no less, a re-uptake of highly leveraged players looking for big yields, who have been sitting on top of big, if declining cash piles on the sidelines as the crisis has progressed, into the financial system, with the huge loans they depend on being backed somehow by taxpayers and foreign bondholders. And these people have hardly shown themselves to be big job-creators. This is what the so-called P-PIF (Public-Private Investment Fund) seems to be about. So Obama must find something to connect, rhetorically, the former with the indispensable banking system, while downplaying the fact that the latter still, somehow--and they continue to borrow US bonds as fast as the Treasury can print them, even as their economies decline--hold an important veto power over the plan. And then, Obama added insult to injury by saying "three-quarters of the fastest growing occupations require more than a high-school diploma" when he discussed his education proposals. As Doug Henwood noted in his fine book, After the New Economy in 2003, "Of the top 30 occupations [projected by the Bureau of Labor Statistics], about 40% of job growth will be among those in the lowest quarter of the income distribution. Another 28% will be in the top-paying quartile, with only 31% in the middle two. Less than a quarter of the top 30 jobs will require a bachelor's degree or higher; 54% will require short on-the-job training." The upshot? "It's hard to see from this how "the problem is that many people don't have the right skills,"" and that "[i]t is, however, easy to see the polarizing tendencies in today's labor market...It produces a fair number of high-end jobs, a lot of low end jobs, but not much in the middle (New Press, pages 72-73)." Though his emphasis on education is laudable, the structure of the American economy remains less than favorable for most job seekers, educated or not, and will remain so, whether or not their taxes subsidize the "indispensable" recapitalization of the banks, and the re-integration of leveraged players into the financial system. This is all the more the case, of course, as the economy continues its unavoidable (given all that bad debt) decline. And it is the rhetorical device of a circulatory system which is the focal point which is employed to illustrate a totally disingenuous connection between the debt-based financial system and working people (especially inasmuch as it airbrushes the connection of foreign creditors in propping up this arrangement to the latter, even as it attempts to appease them with appeals to their patriotism, while tacitly threatening the foreigners who pay a big part of the bill). And as long as working people accept this ruse, he's right: the financial system will have to be revived in much the way it was, even if that serves no economic purpose for the workers. But if we can look beyond Obama's flawed metaphors--as well as those of economic commentators and the financial press--maybe we can move in a better direction. Labels: bailout, Barack Obama, Doug Henwood, financial crisis, Larry Peterson, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Throws $Million Bailout PartyYou know it's bad when entertainment blog TMZ breaks a story on a bank blowing millions on a party after it received $1.6 billion in bailout funds, which is exactly what happened to Chicago bank Northern Trust.The bank not only spent millions sponsoring a golf open at the Riviera Country Club in Los Angeles, it flew hundreds of clients and employees to LA, put them up in some of the fanciest hotels in town (including the Ritz), treated them to swanky dinners, hosted a private concert by Chicago (because they are a Chicago-based bank, of course) rented a hanger for a private concert with Earth, Wind, and Fire, rented out the House of Blues for another fancy dinner and a private concert with Cheryl Crow, and gave female guests trinkets from Tiffany and Co. TMZ has posted pictures and camera footage of all the fun. For it's part, the bank claims that it is all part of the normal course of business, and that it is doing fine financially. It did, however, lay off 450 workers (4% of its workforce) in December. No word of whether laid-off employees were invited. Labels: bailout, banking crisis, financial crisis bailout, Northern Trust, TMZ Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Cheese Sandwiches For School KidsCash-strapped school districts from California to Florida are taking a tough approach on the growing number of school kids whose parents have fallen behind on their school lunch bills. Instead of hot meals, the children are given a cold cheese sandwich, a piece of fruit, and a milk carton.From the wires: ALBUQUERQUE, N.M. - A cold cheese sandwich, fruit and a milk carton might not seem like much of a meal - but that's what's on the menu for students in New Mexico's largest school district without their lunch money. Rest of the story here. Labels: economic crisis, school lunches Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Delasantellis on Foreclosure EndgameHe has some great observations about US politics setting the upper middle class against the working and lower classes as well. From his Asia Times column:A scam at the heart of the US By Julian Delasantellis Asia Times, February 26th, 2009 Travelers visiting New York city from Americas's rural heartland in the 1980s might have been able to regale the folks back home with tales of encounters with knife-wielding drug addicts and/or disease-scourged prostitutes, but it's not like their predecessors who made the same trek back in the 1950s didn't have a tale to tell around the cracker barrel as well. They might have come back to the square dance and talked about playing and losing at the game of three-card monte. Set up on rapidly movable folding card tables, in order to remain mobile against the disproving eyes of the constabulatory, three-card monte games were operated by New York sharpies who, when spying a rural rube from Racine, Wisconsin, or maybe Red Wash, Utah, would invite the visitor to play a simple card game. Three cards from a deck would be dealt face up-one a face cardsuch as a King or Queen. Then the cards would be turned face down, the "dealer" would arrange and re-arrange them on the table, and, the contestant would be invited to chance a wager as to which card was the face card. This was a lot harder than it seemed, especially with the dealer usually employing sleight of hand to hide the face card in his sleeve. No matter how hard he tried, no matter with how much concentration he watched the dealer's hands, the contest could never be won by its very nature; the player was destined to lose the card and his wager - rather like the chances of those facing foreclosure in the current mortgage and financial crisis of ever gaining relief from their hardship. Read the rest of the article Labels: Fannie Mae, financial crisis bailout, Fredddie Mac, housing market, Julian delasantellis, mortgage innsurance, mortgage meltdown, securitization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Job Creation Proposal from 1973From Bob Feldman:Perlo's 1973 Alternative Jobs Creation Proposal Revisited Most hip anti-war people in the United States (and most long-time readers of Dollars & Sense) probably realize by now that the U.S. government's recently passed "economic stimulus" legislation won't really create enough high-wage jobs for U.S. workers to really restore economic prosperity for most U.S. working-class people; or quickly stop the rapid rise in long-term unemployment rates for U.S. blue-collar and office workers. Yet until anti-war left dissidents in the United States are able to quickly present some kind of anti-militarist alternative left jobs creation program for U.S. working-class people to mobilize in support of on the U.S. streets, the suffering of U.S. working-class people in the current U.S. historical "era of permanent war abroad and economic depression at home" will probably continue to increase--until there's finally some kind of upturn in U.S. capitalism's business cycle. In a 1973 book, The Unstable Economy: Booms and Recessions In The U.S. Since 1945 (International Publishers), a Marxist economist named Victor Perlo indicated what an anti-war alternative left jobs creation program for the U.S. economy might look like by proposing the following: "Nationalization and government operation of major economic units are essential for overcoming monopoly domination of the economy to the extent necessary for realizing significant progressive reforms. "Plants abandoned by private owners, or left with substantially curtailed operations, are prime targets for nationalization. Conspicuous in this respect are enterprises in the aerospace and other armament-connected industries, whose private owners have proved unwilling or unable to shift to civilian production. Also there has been large-scale phasing out of electornic plants, as multinational corporations have shifted output to foreign lands. There continues a constant flow of industrial enterprises from urban areas, where workers are organized into relatively strong unions, into rural areas, and especially to open-shop southern areas offering special tax concessions and a prospect of low wages and no resistance to inferior working conditions. "The government should take over all such plants, fully maintain employment, and charge the corporation with all transitional costs. "It should take over munitions plants generally, thereby weakening the economic base of the notorious `military-industrial complex.' "The transportation system should be nationalized...The entire system should be made into an integrated public system for freight and passengers, covering all modes of transportation, with lowered fares and rates, greatly increased and improved service. "The telephone system and other `public utilities' should be made really public, to end the superhigh charges and corresponding private profits now guaranteed by business-dominated regulating commissions. "Along with a system of socialized medicine, available without charge to all, there should be nationalization of the drug industry, hospitals, and related industries. "The construction of new housing should be nationalized. That is the only way to build quickly the tens of millions of units needed to decently house America at rents the illl-housed can afford, with adequate employment opportunites for Black and other minority workers... "Nationalization of industry should not be like that of the `public authorities' and some quasi-government corporations run by boards of directors and managers from the officialdom of the private big corporations and banks, for the profit of these enterprises rather than service to the public. "Democratic nationalization is required, involving direct, major participation by the workers of the nationalized enterprises in their management, and a real voice for the users of the services. It calls for boards of directors to be elected directly by the voters and by the enterprise workers... "Aa whole series of measures would be directed towards cutting unemployment...A major element in the fight against unemployment is to win a shorter work week and the elimination of overtime. This, of course, would directly add millions of jobs... "...The demand has become popular among workers for continuation of unemployment insurance for the full term of unemployment. This should be accompanied by expanding coverage to all workers, minimizing the waiting periods, ending the exclusion of strikers and other categories of workers, and ending the humiliating compensation offices with their pressure on the client to take sub-standard jobs at sub-standard pay. "A uniform Federal system should be substituted for the state systems, and the payments should be financed out of general revenues. "Every enterprise, private and public, should be required to employ Black and other minority workers at least in proportion to their numbers in the area's population at each occupational level, including the highest managerial and professional levels... "All Government support for and privileges granted to existing foreign investments would be ended. New private corporate foreign investments would be completely prohibited or sharply curtailed. This would encourage economic growth in the United States, by making it not longer possible for big corporations to give priority to overseas operations while cutting back at home..." --b.f. Labels: 1973, employment, jobs, militarism, nationalization, Victor Perlo Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Rich Americans Suing UBSFrom yesterday's Times—interesting ongoing case about the Swiss bank UBS, the world's largest private bank, which agreed to pay $780 million "to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes." The Justice Department is trying to force UBS to disclose 52,000 of its U.S. clients' names, which could be very juicy. Don't you want to know who they are, how much money they have in UBS, and how much in taxes they have evaded? Well--these folks don't want you to know.Group of Rich Americans Sues UBS to Keep Names Secret in Tax Case By LYNNLEY BROWNING | February 24, 2009 UBS was sued on Tuesday in a Swiss federal court by wealthy American clients seeking to prevent the disclosure of their identities as part of a tax-evasion investigation by the United States Justice Department. The lawsuit accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman of UBS, and Eugen Haltiner, the chairman of Finma, as defendants. The suit, filed by a lawyer in Zurich, Andreas Rued, on behalf of nearly a dozen American clients, underscores the growing clash between Swiss banking secrecy laws and those of the United States. Tax evasion is not considered a crime in Switzerland. Disclosing client names under Swiss law is a criminal offense and can expose bank executives and officers to fines, prison terms and other penalties. UBS is the world’s largest private bank and Switzerland is the world’s largest offshore tax haven, with trillions of dollars in assets. The lawsuit, which UBS described in an internal memo late Tuesday, stems from UBS’s agreement last week to turn over to federal authorities in Washington the names of 250 wealthy Americans suspected of using secret UBS offshore accounts and entities to evade taxes. UBS reached a $780 million deferred-prosecution agreement to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes. But the bank is still under scrutiny by the Justice Department, which is seeking to force it to disclose the names of the 52,000 American clients it suspects may have evaded taxes. Mr. Rued could not be reached for comment. [This is the full article.] Labels: Switzerland, tax havens, taxation, the rich, UBS Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Eastern Europe's Economies TankingFrom RGE Monitor, Nouriel Roubini's outfit. Who knew that the Baltic countries have been running current account deficits much larger (relative to GDP) than the United States?Eastern European Tinderbox: How Explosive Could It Get? Read the whole piece here. Labels: Eastern Europe, economic crisis, Europe, Nouriel Roubini Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economic Ignorance (Michael Yates)A great post from Michael Yates' blog.Michael Steele is a Nitwit and Wolf Blitzer is a Jackass Economic ignorance is widespread in the United States. People think they know something about the subject, but few do. My mother is convinced that China is the cause of all our economic problems. When I challenge her, she doesn't think it matters that I have spent forty years studying and teaching the dismal science. If Lou Dobbs says it's so, it must be true. I once taught classes for automobile workers who were employed at a General Motors plant near Pittsburgh. A man insisted that recessions were caused by the media. Newspapers and television were apparently so pessimistic and intent on presenting only bad news that the public became too demoralized to spend money. It never occurred to him to ask why the media, which depend on us spending money for their existence, would want this to happen. Had my UAW student argued that the media were a constant source of economic misinformation, he would have been on to something. Every day I watch that talking heads on television and read the columnists in our newspapers and I marvel at the stupidity that passes for wisdom. Dick Morris, the prostitute-loving former presidential advisor and current Fox News savant, sagely advised nearly every night during the Obama-McCain campaign that economic recovery would not be possible unless the capital gains tax was eliminated. There is no evidence remotely consistent with this view, but analysis seems irrelevant to Morris and his Fox friends. To any suggestion that it might be necessary for the federal government to temporarily nationalize some troubled banks, most of which are now insolvent, Fox's wise men and women screamed "socialism." Never mind that this would be socialism for the rich, with the wealthy reaping the rewards of a boom but the public pays for the losses in the downturn. Their answer is always that markets will regulate themselves, though there is even less evidence that this ever happens. They also say that during a recession, taxes should never be increased. But if the taxes are levied on the highest incomes, the recipients of these incomes can pay them without reducing their spending at all. That is, they can pay the taxes out of their savings, money they wouldn't have spent anyway. Then if the government uses the taxes paid out of money that wouldn't have been spent in the first place to do things like build public transit systems or housing for the poor, total spending, output, and employment will all rise. "Well," you say, "That's Fox." Let's hit the remote and tune into CNN. You might catch the demagogue Lou Dobbs blaming immigrants, again without proof, for all our economic woes. If you are really lucky, you'll see newscaster Wolf Blitzer. Here is a man with an empty head. A few weeks ago, I saw something on his show that amazed even me. He was interviewing Michael Steele, who had just become the first black person to be selected to chair the Republican National Committee. Steele was a constant presence on Fox News during the recent presidential campaign, and like almost all Fox commentators, he said plenty of stupid things. Not as many as Sean Hannity or Ann Coulter. But no one would mistake Steel for a bright guy. The topic of the exchange between Steele and Blitzer was the economic stimulus package proposed by the Obama administration. The U.S. economy is in the midst of its worst crisis since the Great Depression. Legendary Wall Street investment banks have failed, as have scores of commercial banks. Millions of homeowners have been either foreclosed or are expecting to be soon. Credit is frozen, as lenders don't trust that borrowers will pay them back and borrowers are so strapped with debt that they cannot take on new loans. The unemployment rate is at 7.6 percent and heading toward double digits. This translates into 11.6 million people, and these do not include the 7.6 million people who want full-time work but can only get part-time jobs and the 734,000 workers too demoralized by the lack of employment opportunities to look for work. If these two groups were counted as suffering labor market distress the same as the officially unemployed, the unemployment rate would be 13.1 percent. State governments across the country are facing serious tax revenue shortfalls and have or will cut their spending, which will cause spending, output, and employment to fall, and exacerbate the crisis. Economic misery has spread to every corner of the globe, and this means that U.S. exports, until recently the one bright spot in our economy, have started falling and will continue to do so, increasing unemployment still further. There is not a hopeful sign on the horizon. Not one. Over the past year or so, the Federal Reserve and the Treasury have pumped a couple trillion dollars into the financial system with little result. The Fed has pushed its target interest rates to near zero without getting banks to lend or businesses to borrow. Many mainstream economists, including Joseph Stiglitz and Paul Krugman, have concluded that only direct and massive fiscal stimulus, in the form of federal government spending can plug the hole in spending now plaguing the economy. Obama's economic team proposed a trillion dollar stimulus plan, since enacted into law, albeit with too many tax breaks for business and not large enough to compensate for the enormous drop in private sector spending. Included in the legislation is aid to state and local governments, which will help them to maintain employment and social services in the face of declining tax revenues. Monies are provided for the unemployed, as well as for infrastructure spending. Our roads, bridges, ports, sewage systems, schools, hospitals, communications and energy networks, and public transit systems are all in need of repair, upgrade, and expansion. Federal spending on these, especially those that are already in the planning pipeline, will have a dramatic impact on spending and employment. When Blitzer interviewed Steele, the plan had yet to be voted on by Congress. I paraphrase but Steele said this about it: "The government has never created a single job." I did a double take. What??? Not one job? So the $787 billion dollars the Congress had just approved won't put anyone to work? It is bad enough that monetary policy hasn't worked. Now fiscal policy won't do the trick either, according to Mr. Steele. Boy, we are really in a bad way. But wait a minute. Do you know a police officer? A firefighter? A public school teacher? A secretary at the local college? An air traffic controller? A career military officer? A clerk at the state liquor store? A janitor in a federal office building? A mail carrier? Do you have a son or daughter on duty in Iraq? All of these are public employees, hired directly by local, state, or federal government. The Bureau of Labor Statistics (BLS) collects employment data every month in a survey of hundreds of thousands of private and public establishments. The BLS produces among the best labor market statistics in the world. It is a creation of the government, and all of its workers are public employees. For January 2009, the BLS estimated that there were 134,580,000 non-farm employees in the United States. Of these, 22,539,000 were public employees, 16.7 percent of all employment, divided as follows: Federal government employees: 2,792,000 State government employees: 5,187,000 Local government employees: 14,560,000 I hate to tell Mr. Steele, but every one of these jobs was created by the government. And this does not tell the whole story. For three decades, governments have been busy privatizing, that is, contracting out public services to private businesses. Everything from local transit services to prisons to college food services to security forces in Iraq. The workers are private employees, but they are paid from public funds. What is more, all of these workers, direct and indirect public employees, spend their paychecks every month and this spending generates a lot more employment. These wages amount to at least 1.5 trillion dollars, which will support plenty of spending on outputs that someone has to produce. When the Obama plan is implemented, it probably will not end our current economic crisis. But one thing is certain: the money spent will cause employment to rise. The government will create jobs, just as it has always done. We could put Steele's statement to a test. If we put the most charitable light on what he said, perhaps he meant that public employment always "crowds out" private employment. A public worker just replaces a private one but doesn't add anything to total employment. This is an argument conservative economists have used to say that public investment just takes the place of private investment, which would have occurred but for the public spending. Therefore, if Steel is right, we could eliminate every single government job and employment would not fall at all, because private employment would rise by he same amount that public employment fell. To put it so baldly tells us just how preposterous Steele's remark was. What mechanisms would cause the private sector's demand for labor to rise by more than 20,000,000 persons? Would falling wages from all the new unemployed scrambling for and willing to labor for next to nothing do the trick? How could it when the massive public layoffs would cause the demand for private sector goods and services to drop drastically? Employers don't hire when demand for what they make collapses. Steele and his fellow nitwits think that what another nitwit, Ronald Reagan, called the "magic of the marketplace" will somehow right our economic ship. This is not only a foolish idea. It is a dangerous one. After Steele made his statement, Wolf Blitzer had a golden opportunity to challenge it and educate his audience. Instead he said nothing. He just moved on to his next question. It was as stunning example of the depths to which journalism has sunk as you'll ever see. That a jackass like Wolf Blitzer has a prime spot on a major news outlet anddraws a very large paycheck every month is enough to make me sick. I hope it makes you sick too. Addendum: I just watched Louisiana governor Bobby Jindal (he calls himself Bobby after a character on the Brady Bunch) give the Republican response to President Obama's speech to Congress. If Steele is a nitwit and Blitzer a jackass, Jindal is a dolt. Labels: economics, ignorance, jobs, Lou Dobbs, Michael Steele, Michael Yates, recession, Wolf Blitzer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CEOs Not Worried About Pay CapsAs they say, it's good to be a Bankster.From the WSJ President Barack Obama's crackdown on Wall Street pay contains loopholes, and may have limited impact in restraining compensation, according to some executive-pay consultants and management attorneys. Full story here. Labels: executive pay, Wall Stree bonuses Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Diamonds No Longer De Beers Best FriendDiamond behemoth De Beers has announced that it is shutting down all its mines, something that hasn't happened since the Great Depression.From the Telegraph: Debswana, a joint venture between De Beers, the company founded by Cecil Rhodes, and the government of Botswana, produces a fifth of all the world's diamonds – around half of de Beers' global output – from four open-cast mines in the arid country. Labels: De Beers, diamonds, global downturn Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Detroit Houses Going For $7,500Actually, $7,500 is the median price of a home sold in Detroit in December, so many went for even less.From the Chicago Tribune DETROIT — It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card. Read the full story here. Labels: Detroit, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UAW Reaches Deal With FordFrom the wires. Ford hasn't received bailout money, but pressed the union for concessions because they didn't want to be disadvantaged if the union made concessions with Chrysler and GM. The deal still needs to be ratified by the union.DETROIT – The United Auto Workers and Ford Motor Co. said Monday they agreed to let the automaker change how it pays for a health care trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC. Full story here. Labels: auto industry, auto industry loans, Chrysler, ford, GM, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). AMEX Takes Bailout, Boots CustomersLike other credit card companies that have received bailout billions, AMEX is hiking fees, penalties, and interest rates. Now the company, which received over $3 billion in TARP money, is taking the added step of offering $300 vouchers if customers cancel their accounts. Most financial analysts caution that it is a bad deal for cardholders.From the Wall Street Journal: It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts. Full story here. Labels: American Express, AMEX, Credit card industry, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Lines Swell At Food BanksAnother sobering sign of the times from the Times. Highlights both the lack of a safety net in the United States as well as the shame associated with falling on hard times, even during the greatest global economic crisis in a generation:Newly Poor Swell Lines at Food Banks Full story here. Labels: economic crisis, economic indicators, food pantry, food security, New York Times Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker on C-Span 2Dean Baker was on C-Span 2 this weekend; you can view the segment online, here. Hat-tip to Joel H. Here's what the C-Span website said:Plunder and Blunder:The Rise and Fall of the Bubble Economy Author: Dean Baker About the Program Mr. Baker discusses the growth and "predictable" collapse of the housing and stock market bubbles and is critical of both the Reagan and Clinton administrations. He details the mistakes of Alan Greenspan and Clinton Treasury Secretary Robert Rubin. He offers suggestions for preventing additional financial crises and advocates massive government spending to combat the recession. About the Author Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is a frequent guest on National Public Radio, Marketplace, CNN, CNBC and other news programs. Mr. Baker has authored several books, including "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" and "The United States Since 1980." He received his Ph.D in economics from the University of Michigan. Labels: Alan Greenspan, Dean Baker, financial crisis, housing bubble, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nigerians Scammers Pluck $27 mil. from CitiNigerian scammers have decided to skip the middleman and go straight to the bank. According to the NY Times, the scammers convinced the sharp minds at Citibank that they represented the National Bank of Ethiopia. The bank duly wired $27 million to the scammers. Citibank only became aware of the fraud when the folks from Ethiopia noticed some unauthorized withdrawals and some of the recipient banks weren't able to process the transactions.Citi has refunded the money to Ethiopia--not a hard thing for them to do since they aren't lending the billions in taxpayer bailout funds they have received. From the Times: Swindles in which someone overseas seeks access to a person's bank account are so well known that most potential victims can spot them in seconds. Read the full story here. Labels: bailout, Citibank, Nigerian Scam Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Anatomy Of a Foreclosure In ClevelandThere's a fantastic site detailing the foreclosure crisis in Cleveland (with the straightforward name of Foreclosing Cleveland). They have a wonderfully depressing story detailing the varied interests involved in the foreclosure of one particular home. The result says a lot about how we got into this mess.From the site: Here’s 4111 Archwood, a vacant foreclosed house four blocks down the street from me. Read the full post here. Labels: Deutsche Bank, foreclosures, mortgage meltdown, Polly Cleveland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Nationalization (P. Krugman, F. Moseley)Paul Krugman, in his NYT column today, joins the chorus of people calling for "nationalization" of the big banks. As we have noted here, that chorus includes even the so-called Maestro himself, Alan Greenspan, who told the Financial Times last week that nationalization may be the "least bad" option: "I understand that once in a hundred years this is what you do." Krugman is at least clear on what he understands by "nationalization"; here are the last three paragraphs of his column:
We wonder whom Krugman includes in his statement, "So do we all." We just posted an article from our March/April issue (to be printed soon) in which economist Fred Moseley argues for permanent nationalization of the "too big to fail" banks. If banks are too big to fail, they should be public, and run in the public interest. Read the article here. Labels: Alan Greenspan, bank nationalization, Fred Moseley, Paul Krugman, privatization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Great Real Estate Bubble of the 1920'sEconomists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again. But there's a different story: the story of the giant 1920's real estate bubble. It began with cars. Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949! The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectively allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year. In 1926, land values stagnated, then fell. By 1933, Chicago land values had fallen some 70% overall; peripheral areas fell even more dramatically. After 1929, home construction collapsed, and--paralleling the auto industry--did not again pass the 1926 level until 1950. Around Detroit, over 95% of recorded lots were vacant as of 1938. Nationally, there were an estimated 20 to 30 million vacant lots, compared to about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields. The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell. Thus a radical innovation of the early 1900's--the automobile--set off a destructive real estate bubble in the 1920's. Another radical innovation took hold in the late 1990's: "securitization", that is, the aggregation of consumer debts, especially mortgages, into marketable packages known as "collateralized debt obligations" or "CDO's." CDO's set off another giant real estate bubble by making houses "affordable" to poorer Americans. The collapse of the CDO bubble stuck banks once again with "toxic" real estate. Fortunately, economists--and markets-- now recognize that to limit damage, we must force banks to write down the garbage quickly. But write-downs will reveal that some big banks' liabilities exceed their assets, requiring drastic remedies, including restructuring, breakup, and possibly temporary nationalization. Unfortunately, so far our new Treasury Secretary, Tim Geithner, either lacks the nerve or the authorization. Unless he acts soon, we face another "lost decade" like the 1930's. Labels: 1920s, financial crisis, Great Depression, housing bubble, Polly Cleveland, real estate market, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dull Compulsion (v): LinksThe Dull Compulsion of the EconomicA series of posts by D&S collective member Larry Peterson Links (1) From Saturday's FT Weekend, two articles on the yen carry trade, which was instrumental in channeling Eastern savings into Western bubbles. The first traces the intriguing origins of the trade, which had to do with the peculiarities of Japanese savings alternatives and gender roles, while the second suggests that the trade may be unwound--to the advantage of the U.S. dollar. (2) I have a lot of sympathy for many of those undergoing foreclosure, and policy should address their plight in a vigorously sympathetic way (i.e. with more public housing alternatives, etc), but our housing market is still an expensively overvalued joke, and no one should be sad to see it--or its ludicrous supports for homeownership--go. As Willem Buiter and James Saft argue in these pieces, we should be constructing a new model of housing that depends less on ownership (and, hence, on political patronage) and more on affordability. (3) As a postmortem on the DeLong/Harvey exchange, an interesting debate took place on LBO Talk this week. Besides that, see the postings on Robert Fitch and Robert Brenner, which deal with sometimes related issues. (4) Someone finally takes on the preposterous "philanthrocapitalists." (5) The Wall Street Journal on Mexico's drug wars. Though this piece parrots foolishness from ex-"drug-czar" Barry McCaffrey and others, this is a truly vicious war that is spiraling out of control. (6) On the lighter side, is the contemporary art market a fraud? And, in a kind of weird transference and fetishization of the idea of species-being, can animals be considered protected by copyright? This must be one of the most ridiculous things I've seen for a long time.... (7) Speaking of "intellectual property," Michael Perleman relates a New York Times article that claims biotech companies are thwarting essential research. (8) Is Hillary Clinton telling the Chinese it's ok to keep the yuan undervalued? (9) Asians seek guarantees on Fannie Mae/Freddie Mac debt before they'll buy any more. (10) The EU says all markets must be thoroughly regulated, according to Reuters. (11) Obama pledges to halve deficit in four years. Good luck (and forget about health care/climate change?). (12) The FTs "banking guy" on why nationalization is inevitable, and another FT piece on a serious obstacle to nationalization (which may not make it any less inevitable). Labels: Larry Peterson, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Huge Protest over Irish EconomyFrom the BBC:Huge protest over Irish economy Up to 100,000 people have gathered in Dublin city centre to protest at the Irish government's handling of the country's recession. Many are angry at plans to impose a pension levy on public sector workers. Trade union organisers of the march said workers did not cause the economic crisis but were having to pay for it. In a statement, the Irish government said it recognised that the measures it was taking were "difficult and in some cases painful". The pension levy was "reasonable", the government said. reflecting "the reality that we are not in a position to continue to meet the public service pay bill in the circumstances of declining revenue". Read the rest of the article Labels: bailout, financial crisis, Ireland, labor unrest, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Two Down: How Many More To Go?The first being Iceland, a few weeks ago. From The New York Times:February 21, 2009 Latvia's Government Falls on Economic Toll By DAVID L. STERN KIEV, Ukraine Latvia's center-right coalition government collapsed Friday, a victim of the country's growing economic and political turmoil. It was the second European government, after Iceland, to disintegrate because of the international financial crisis. The government in Riga, faced with forecasts of a severe drop in the economy this year, was the first in Eastern Europe to succumb to turmoil caused by the crisis. Its collapse rounded out a week in which worries about feeble investment and output and shaky banks in Central and Eastern Europe coursed through international markets. Latvia has had a history of revolving-door politics and complex coalitions since pulling free of the Soviet Union in 1991. Prime Minister Ivars Godmanis, who presented his resignation to President Valdis Zatlers on Friday, had been in power only since December 2007. But the precipitous plunge of Latvia's economy, which helped provoke riots last month that were the country's worst since 1991, played a major part in the government's downfall. Mr. Godmanis said he would continue to govern until a new coalition was formed. His departure comes at a critical juncture for Latvia, a country of 2.2 million people. After entering the European Union in 2004, Latvia and its neighbors Estonia and Lithuania posted Europe's highest growth figures, earning the moniker the Baltic Tigers. Now Latvia shows the Continent's biggest losses. Gross domestic product shrank at an annual rate of 10.5 percent last month, and by the end of 2009, Latvia's economy is projected to shrink by a shocking 12 percent, Finance Ministry officials say. Other analysts believe that even these figures may be optimistic. "I wouldn't be surprised if it's 15 percent," Peteris Strautins, chief economist for Swedbank in Riga, said last week. The crisis led the government last fall to secure an aid package worth nearly $10 billion from the European Union, the International Monetary Fund and other sources. It came with strict conditions, and now the government is cutting spending wherever it can. Hospitals and schools throughout the country are under threat of closing, as local administrations find their budgets reduced by as much as 40 percent. Government salaries have been cut by 25 percent. Read the rest of the article Labels: bailout, Eastern Europe, financial crisis, labor unrest, Latvia Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Mass. Doctors Push for Single-PayerWe found a link to this on, of all places, Marginal Revolution—hardly a lefty site!—in a list of "Assorted Links" under the title "How is the Massachusetts health care plan working out?" The headline of the original link is a little misleading, since it suggests that (a majority of?) doctors in Massachusetts favor single-payer, but the report is really about Mass. docs who are members of Physicians for a National Health Program. But polls have shown that a majority of doctors in the United States favor single-payer, so I wouldn't be surprised if a majority in Mass. did too (especially given some of the snags of the new Mass. "universal" system).Meanwhile, in today's New York Times there's an article about closed-door sessions with the ailing Mass. Sen. Ted Kennedy to hammer out a consensus about what kind of health care reform congressional Democrats and the Obama administration should go for. "Lobbyists for a wide range of interest groups—some of which were involved in defeating national health legislation in 1993-4—are meeting with the staff of Mr. Kennedy, Democrat of Massachusetts, in a search for common ground." Lots of mention of insurance industry and big pharma lobbyists; no mention whatsoever of single-payer as an option. Forcing people to purchase insurance from private insurers is these folks' idea of universal health care. Similarly, Wednesday's Times reported that Kathleen Sibelius, governor of Kansas, is a leading candidate to be O.'s nominee for Secretary of Health and Human Services. The article quotes an insurance industry lobbyist as saying that she'd be a great pick: "Karen M. Ignagni, president of America's Health Insurance Plans, said Ms. Sebelius would be 'a very smart choice' for health secretary." Check out this article we ran last year on the high costs of the current system, many of which would remain under a compulsory "universal" system of the sort O. seems to be moving toward. And our March/April issue will include an article on management costs and how single-payer does better. Now here's that piece on the Mass. PNHP doctors: Massachusetts doctors say single-payer or bust By Sarah Arnquist Massachusetts members of the Physicians for a National Health Program released a report today faulting the state's experiment with health reform for failing to achieve universal coverage, being too expensive and draining funds away from safety-net providers. The doctors' punch line is that the reform has given private insurance companies more business and power without eliminating vast administrative waste. In fact, it says, the "Connector" in charge of administering the reform adds about 5 percent more in administrative expenses. In summary, nothing less than single-payer national health reform will work, according to authors Drs. Rachel Nardin, David Himmelstein and Steffie Woolhandler, all professors at Harvard Medical School.  The report criticizes the Urban Institute's largely favorable report that found only 2.6 percent of Massachusetts' residents were uninsured in mid-2008 because it failed to sufficiently reach non-English speakers in its survey. Reports in Health Affairs this winter also found significant positive support for the reform among employers and the public. There was little evidence of crowd-out. The PNHP doctors' report says health plans people are forced to buy are not affordable and often skimp, making the mandate that individuals buy them regressive. And moreover, it says, peoples' experiences have shown that insurance does not guarantee access to care. The Boston Globe chronicled the long wait for primary care last September. A final criticism the 19-page report offers is that the reform is financially unsustainable, as it does "nothing about a major driver of high health care costs, the overuse of high-technology care such as CT scanners and surgeries, and the underdevelopment of primary care." Last winter, Himmelstein spoke about health reform to students at Johns Hopkins School of Public Health. I asked him if single-payer advocates would work against any national reform effort that wasn't single-payer, as the single-payer camp did in California. Himmelstein said that if the reform plan looked like the Massachusett's reform he probably would prefer the status quo. He believes the reform has made most vulnerable patients in Massachusetts worse off. It looks like health reform is going to be a battle on the Left and Right. Labels: health care, insurance industry, Kathleen Sibelius, national health insurance, Physicians for a National Health Program, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stimulus Package Limits H1-B VisasHat-tip to Arpita B.Solve the Crisis by...Kicking Out the World's Best and Brightest? Posted by Michael Clemens at 04:01 PM February 17, 2009 The global economic crisis is already creating pressure for the United States to further restrict skilled migration. The economic stimulus act that President Obama signs today limits the ability of many companies receiving stimulus money to freely employ highly skilled foreign workers on H-1B visas. (Read the Act yourself here.) In other words: If we can just kick out of the United States enough bright and highly skilled workers, many of them top U.S.-trained students from developing countries, the crisis will somehow ease. That's just one example of a trend we can expect to grow: Last Friday at Columbia University I publicly debated one of rising number of Americans who feel that the crisis is a reason to welcome drastically fewer people to this country, even highly skilled workers. "Buy American", via immigration policy, is gaining credibility as a solution to the crisis. This trend is unfortunate and shameful, for at least three reasons. Read the rest of the post (including a great graph). Labels: H1-B visas, immigration, recession, stimulus package Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bard College Fires Joel KovelJoel Kovel, editor of the ecosocialist journal Capitalism Nature Socialism, was recently fired from his job as a professor at Bard College, apparently because of his political views on Zionism. See a statement from Kovel below; we found it at MRZine this morning. The March/April issue of Dollars & Sense will include an interview with Kovel on climate change and ecosocialism, part of our article series on the economics of climate change. (We will be posting the interview in full online soon.) There's information at the bottom of this post about how to contact the Bard administration.Statement of Joel Kovel Regarding His Termination by Bard College By Joel Kovel Joel Kovel holds the Alger Hiss chair in social studies at Bard College and is the author of Overcoming Zionism among other titles. He has recently been informed by the college that his contract will not be extended beyond July 1. In the statement below, by Kovel, he argues that his views are to blame. Introduction In January, 1988, I was appointed to the Alger Hiss Chair of Social Studies at Bard College. As this was a Presidential appointment outside the tenure system, I have served under a series of contracts. The last of these was half-time (one semester on, one off, with half salary and full benefits year-round), effective from July 1, 2004, to June 30, 2009. On February 7 I received a letter from Michèle Dominy, Dean of the College, informing me that my contract would not be renewed this July 1 and that I would be moved to emeritus status as of that day. She wrote that this decision was made by President Botstein, Executive Vice-President Papadimitriou and herself, in consultation with members of the Faculty Senate. This document argues that this termination of service is prejudicial and motivated neither by intellectual nor pedagogic considerations, but by political values, principally stemming from differences between myself and the Bard administration on the issue of Zionism. There is of course much more to my years at Bard than this, including another controversial subject, my work on ecosocialism (The Enemy of Nature). However, the evidence shows a pattern of conflict over Zionism only too reminiscent of innumerable instances in this country in which critics of Israel have been made to pay, often with their careers, for speaking out. In this instance the process culminated in a deeply flawed evaluation process which was used to justify my termination from the faculty. A Brief Chronology
Irregularities in the Evaluation Process The evaluation committee included Professor Bruce Chilton, along with Professors Mark Lambert and Kyle Gann. Professor Chilton is a member of the Social Studies division, a distinguished theologian, and the campus' Protestant chaplain. He is also active in Zionist circles, as chair of the Episcopal-Jewish Relations Committee in the Episcopal Diocese of New York, and a member of the Executive Committee of Christians for Fair Witness on the Middle East. In this capacity he campaigns vigorously against Protestant efforts to promote divestment and sanctions against the State of Israel. Professor Chilton is particularly antagonistic to the Palestinian liberation theology movement, Sabeel, and its leader, Rev. Naim Ateek, also an Episcopal. This places him on the other side of the divide from myself, who attended a Sabeel Conference in Birmingham, MI, in October, 2008, as an invited speaker, where I met Rev. Ateek, and expressed admiration for his position. It should also be observed that Professor Chilton was active this past January in supporting Israeli aggression in Gaza. He may be heard on a national radio program on WABC, "Religion on the Line," (January 11, 2009) arguing from the Doctrine of Just War and claiming that it is anti-Semitic to criticize Israel for human rights violations -- this despite the fact that large numbers of Jews have been in the forefront of protesting Israeli crimes in Gaza. Of course, Professor Chilton has the right to his opinion as an academic and a citizen. Nonetheless, the presence of such a voice on the committee whose conclusion was instrumental in the decision to remove me from the Bard faculty is highly dubious. Most definitely, Professor Chilton should have recused himself from this position. His failure to do so, combined with the fact that the decision as a whole was made in context of adversity between myself and the Bard administration, renders the process of my termination invalid as an instance of what the College's Faculty Handbook calls a procedure "designed to evaluate each faculty member fairly and in good faith." I still strove to make my future at Bard the subject of reasonable negotiation. However, my efforts in this direction were rudely denied by Dean Dominy's curt and dismissive letter (at the urging, according to her, of Vice-President Papadimitriou), which plainly asserted that there was nothing to talk over and that I was being handed a fait accompli. In view of this I considered myself left with no other option than the release of this document. On the Responsibility of Intellectuals Bard has effectively crafted for itself an image as a bastion of progressive thought. Its efforts were crowned with being anointed in 2005 by the Princeton Review as the second-most progressive college in the United States, the journal adding that Bard "puts the 'liberal' in 'liberal arts.'" But "liberal" thought evidently has its limits; and my work against Zionism has encountered these. A fundamental principle of mine is that the educator must criticize the injustices of the world, whether or not this involves him or her in conflict with the powers that be. The systematic failure of the academy to do so plays no small role in the perpetuation of injustice and state violence. In no sphere of political action does this principle apply more vigorously than with the question of Zionism; and in no country is this issue more strategically important than in the United States, given the fact that United States support is necessary for Israel's behavior. The worse this behavior, the more strenuous must be the suppression of criticism. I take the view, then, that Israeli human rights abuses are deeply engrained in a culture of impunity granted chiefly, though not exclusively, in the United States -- which culture arises from suppression of debate and open inquiry within those institutions, such as colleges, whose social role it is to enlighten the public. Therefore, if the world stands outraged at Israeli aggression in Gaza, it should also be outraged at institutions in the United States that grant Israel impunity. In my view, Bard College is one such institution. It has suppressed critical engagement with Israel and Zionism, and therefore has enabled abuses such as have occurred and are occurring in Gaza. This notion is of course, not just descriptive of a place like Bard. It is also the context within which the critic of such a place and the Zionist ideology it enables becomes marginalized, and then removed. Joel Kovel, the Alger Hiss Chair of Social Studies at Bard College is the author of, among other books, Overcoming Zionism. The statement was made available at <http://www.joelkovel.org/#bardstatement> and has been also published by the Alternative Information Center. For further information: www.codz.org; Joel Kovel, "Overcoming Impunity," The Link Jan-March 2009 (www.ameu.org). To write the Bard administration: President Leon Botstein president--at--bard.edu>. Executive Vice-President Dimitri Papadimitriou dpapadimitrou--at--bard.edu>. Labels: Bard College, climate change, ecosocialism, Israel, Joel Kovel, Palestine, Zionism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citi Warning on BrazilFrom Bloomberg, courtesy of Marxmail. Stocks in New York opened sharply lower, following losses worldwide. Could be a rough day on Wall Street.Brazil Stocks May 'Capitulate' on Economy, Citi Says (Update4) By Roger Neill and Michael Patterson Feb. 18 (Bloomberg) Brazil stocks may drop in the "next few weeks" because valuations climbed too high given the outlook for a "very sharp" recession in Latin America's biggest economy, according to Citigroup Inc. Brazilian shares trade for about 9.5 times estimated profits, above the long-term average price-to-earnings of 9, after the market rallied more than its developing-country peers since November, Citigroup strategist Geoffrey Dennis wrote in a research note dated yesterday. The benchmark Bovespa index has climbed 5.7 percent this year, the second-best performance after China among the world’s 20 biggest equity markets. Brazil stocks will "capitulate" as the economy contracts and the U.S. recession lasts through the third quarter, Dennis wrote. Investors should wait for the Bovespa to drop below 35,000 before they buy Brazilian stocks, he wrote. The Bovespa lost 4.8percent yesterday, the steepest retreat in a month, to 39,846.97. "The market’s sharp fall on Tuesday is likely to be followed by further losses over the next few weeks," wrote Dennis, Citigroup’s New York-based head of Latin America equity strategy. Shares are "likely to capitulate to this barrage of economic weakness at home and abroad," he wrote. 'Defensive' Stocks Dennis reduced his rating on Brazilian stocks to "neutral" from "overweight," saying the downgrade is a "trading call." He maintained his year-end target for the Bovespa at 55,000 and kept his "bullish long-term view." Within Brazil, investors should buy shares of "defensive" companies including utilities, phone companies and makers of consumer staples, while reducing holdings of raw-material producers and financial companies, Dennis wrote. The Bovespa today slipped 0.4 percent to 39,674.39. Mobile- phone carrier Tim Participacoes SA, picked by Citigroup as a preferred defensive stock, increased 6.1 percent to 6.95 reais. Dennis increased his rating on Colombian stocks to "overweight" from "neutral," citing the market’s "defensive" characteristics. Colombia’s benchmark IGBC Index has climbed 2.5 percent this year. Labels: Brazil, Emerging markets, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More on Canada (N. Folbre on NYT econ blog)More on Canada's banking system, as Pres. Obama visits our neighbor to the north. This one is by left economist and UMass-Amherst professor Nancy Folbre, at the New York Times Economix blog, to which she seems to be contributing regularly (we re-posted something by her from there on early childhood education last week). She makes some of the same points that Maurice Dufour makes in the article we posted this morning, but Folbre's discussion of public spending, and single-payer in particular, is excellent. And it is nice to see her criticize the fatuous Fareed Zakaria. (For a great critique of Zakaria's oeuvrre, see frequent D&S author Roger Bybee's article in Extra! from a few months back.Canada and the Recession: Angles of Deflection By Nancy Folbre O Canada. That big, beautiful country to the north is a lot like us, just colder and a few degrees less ... neoliberal. Canada has moved more slowly than the United States to deregulate its economy and shrink its social safety net. The resulting differences in the impact of global recession are small, but instructive. As Fareed Zakaria points out in a recent Newsweek article, Canada is weathering the financial crisis better than we are. Canadian banks are more old-fashioned (that is, centrally regulated) than our own. Stricter leverage requirements have been enforced. Subprime mortgages have not been encouraged. Prohibitions against foreign bank takeovers have protected Canadian institutions from competition from the United States, but also buffered them against financial contagion. Mr. Zakaria overstates the case when he claims that no government bailout has taken place there. The Canadian government has provided substantial assistance to the financial sector. But its efforts to increase available credit remain far less costly than our trillion-dollar subsidies. A more serious concern for Canadians is the likelihood that the sinking American and global economy will pull them down. If unemployment continues to rise over the next few months in the United States, as predicted, many families will lose their health insurance coverage or struggle to pay premiums they can ill afford. By contrast, increased unemployment won't reduce Canadian access to health care. As the economist (and fellow Economix blogger) Uwe Reinhardt explains, the single-payer Canadian health care system delivers very good results for about half the per-person cost of ours—with huge savings from reduced paperwork. Economic disparities in access to health care are significantly lower there. President Obama promises to expand health insurance coverage in the United States with little threat or inconvenience to the private sector. But some Democrats in Congress, led by Representative John Conyers, advocate a single-payer "Medicare for All" bill strongly influenced by the Canadian model. Both American and Canadian unemployment insurance systems are less generous than those of most countries of Northwestern Europe. Neither provides assistance for more than 40 percent of the unemployed. But Canadians have long provided a higher replacement rate for lost earnings. According to latest estimates from the Organization for Economic Cooperation and Development, a married worker earning the average wage, with two children, could expect 78 percent wage replacement in Canada, compared to 52 percent in the United States. The differences are even greater for those earning higher than average wages, because of low benefit ceilings. The recently passed Economic Stimulus and Recovery Act offers incentives to states to expand unemployment provision to part-time workers and to those leaving jobs for "compelling family reasons." The Canadian unemployment insurance system offers more comprehensive family benefits, including paid sick leave, paid compassionate care leave, and paid maternal and parental leaves of up to 50 weeks. Many American workers aren't even eligible for the 12 weeks of unpaid family leave guaranteed by the Family and Medical Leave Act—although President Obama promises to change that. There's no evidence that Canada's public provision of health care and social benefits has reduced its economic growth, and the federal budget just presented is the first to show a deficit in 11 years. What explains more support for public spending there? Slightly lower income inequality may encourage slightly more solidaristic policies. Such policies, in turn, reduce income inequality. The French social-democratic traditions of the province of Quebec exert a distinct influence. The Canadian political scientist Keith Banting argues that explicit efforts to develop a strong but multicultural national identity have strengthened norms of mutual support. The national anthem ends with a promise (at least in translation of the original French) to protect Canadian homes and rights. (This is the full post.) Labels: bailout, banking crisis, banking regulation, Barack Obama, Canada, Fareed Zakaria, financial crisis, Maurice Dufour, Nancy Folbre, Roger Bybee Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citi Execs Takes Care Of Their OwnCitigroup, Inc (parent of Citibank) lost $18.7 billion last year, laid off 39,000 employees, and took $52 billion in government bailout money, but that hasn't stopped them from honoring their commitments to their former directors.Bloomberg reports that Roberto Hernandez Ramirez (incidentally, the 7th richest Mexican) will continue to be reimbursed for private air travel, an executive secretary, a private office, and personal security (which all told cost about $2.6 million in 2007) after he steps down as a company director. Hernandez joins other former Citi CEOs Sanford "Sandy" Weill, John Reed, and Charles "Chuck" Prince who also continue to receive similar perks. Full Bloomberg article here. Labels: Charles Prince, Citibank, Citigroup, John Reed, Roberto Hernandez Ramirez, Sandy Weill Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Canadian Banks--Shovel-ReadyAs Obama visits Canada today, we are posting an article by Maurice Dufour on the supposed health of the Canadian financial sector. Maurice has been livening up our pages with satirical articles, including most recently "Hooked on Hydrocarbons?", a piece on the Alberta oil-sands that takes seriously (sort of) the notion that the United States is "addicted to oil." The article is available only in the January/February print edition (here's the table of contents). Order that issue here; subscribe here.Shovel-Ready in Canada Pundits are praising the financial health of the United States's northern neighbor—but should they? Canadians have long been trying to shed what they feel is an undeserved stereotype, namely, that our country is boring. Try as we might, we can't seem to shake the association with dullness. The gap between our self-image and the way others perceive us is still yawning, so to speak. Recent developments might offer an opportunity for an extreme image makeover, though. That's because, amidst the recent global economic carnage, this country's financial system appears to have emerged relatively unscathed. So more and more people these days are actually getting excited when they think about the land of moose, Mounties and maple syrup. Now every country wants to be more like Canada, it seems. Read the rest of the article. Labels: bailout, Barack Obama, Canada, financia crisis, Maurice Dufour Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UBS Admits To Massive Tax Evasion SchemeFrom the wires:Banking giant UBS has agreed to pay $780 million and turn over once-secret Swiss banking records to settle allegations it conspired to defraud the U.S. government of taxes owed by big clients. As part of the deal struck in federal court in Fort Lauderdale, Fla., UBS has made the unprecedented step of agreeing to immediately turn over to the U.S. government account information for U.S. customers of the bank's cross-border business. In doing so, federal authorities have struck a big crack in Switzerland's vaunted bank secrecy laws. UBS will pay $780 million in fines, penalties, interest and restitution for conspiring to create sham accounts to hide the assets of U.S. clients from the U.S. government. "We accept full responsibility for these improper activities," Peter Kurer, chairman of Swiss-based UBS AG, said in a statement. He added that the bank was determined to abide by the terms of the deal with U.S. criminal and securities officials. "Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections," he said Wednesday. According to U.S. officials, when an acquisition in 2000 of a U.S. company brought UBS a host of new, American clients, the bank set about to evade new reporting requirements for those clients. To do so, UBS executives helped U.S. taxpayers open new accounts in the names of sham entities. Prosecutors contend that UBS executives used encrypted software and other counter-surveillance techniques to prevent anyone from detecting that they were actively marketing such Swiss bank secrecy — and tax evasion — to American taxpayers. The clients, in turn, filed false tax returns that omitted the income they earned in their Swiss accounts, according to the court papers. Read the rest of the story here. Labels: Corporate Fraud, Corporate Swindles, Corruption, tax dodges, UBS Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What's Missing From the Housing PlanDetails are still coming out about the Obama Administration's housing plan announced today. From the early reports there seems to be a couple of major holes:1. Renters in foreclosed properties. 20% of homes in danger foreclosure are rental properties. As many of these are multi-unit buildings, about 40% of the people facing eviction because of foreclosure are renters. (source: National Low Income Housing Coalition). The bill includes insufficient funds ($1.5 billion out of the total $75 billion) to help renters relocate, does not stop banks from evicting tenants in the first place, and doesn't appear to help owners of multi-family buildings avoid foreclosure. 2. Underwater property owners in non-Fannie/Freddie-backed loans. This group includes owners in high-cost areas with loans that exceed Fannie and Freddie's loan limits (including many houses in Boston, NYC, California, etc.). Even those at the top end of "conforming" loans, they may be so stretched that they can't reduce their mortgage payments to the 31% loan to income target. 3. Speculators. There's not much sympathy for speculators in general, but the plan doesn't address what to do with all the unsold and abandoned properties in places like Tampa, Phoenix, and Las Vegas. Do we just let the houses rot? 4. Bankruptcy judges. Obama has endorsed the idea of allowing judges to modify the terms and amounts of mortgages when the owner reaches bankruptcy court (something current law only allows for things like second homes, yachts, and the like), but giving them this authority will require an act of Congress. Without this change, banks have plenty of incentives to make foreclosure the default option to avoid having to write down the losses from loans they had no business making in the first place. Labels: mortgage meltdown, Mortgage plan Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). What Lovely Weather for a Bank Run...From today's Guardian. A bank run in offshore tax shelters. Beautiful.Run on Stanford banks in wake of fraud charges People queue to withdraw deposits in Antigua, Panama and Venezuela amid fraud case against Twenty20 cricket mogul Staff and agencies guardian.co.uk, Wednesday 18 February 2009 18.12 GMT Hundreds of people in Antigua queued today to withdraw money from banks linked to Sir Allen Stanford, the Twenty20 cricket mogul and US financier, after being panicked by the 8bn pound fraud charges against his company. There was a run on two branches of the Bank of Antigua, owned by the Texan billionaire's Stanford Financial Group. The banks have not been linked to the allegations of fraud lodged at a federal court in Dallas yesterday. In Panama, bank regulators said they had taken over the local affiliate of Stanford Financial Group after a similar run on customer deposits. Hundreds of Venezuelans mobbed local offices of Stanford International. It was the second day that long lines formed at offices in Venezuela, people with investments at the company said. Venezuelans have an estimated $2.5bn invested in Stanford International, the country's banking regulator has said. Read the rest of the article Labels: offshore banks, Sir Allen Stanford, Stanford Financial Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UK Biz. Secretary Tirade at StarbucksStarbucks in the news: In today's New York Times business section, an article about a new product from the flailing coffee monolith: instant coffee. It sounds like a prank: the chain that taught Americans to be snobs about coffee is now peddling instant to save its sagging fortunes.And in the Guardian, Peter Mandelson, the UK Business Secretary, fumes at negative comments about the UK economy by Starbucks chair Howard Schultz. (He "said the UK was in an economic 'spiral' with 'very, very poor' consumer confidence.") And he knows downward spirals! Warning: Mandelson's tirade is quite, em, nautical in its vocabulary. He needs a nice instant decaf grande. Hat-tip to Larry P. Mandelson launches tirade at Starbucks boss over attack on UK economy The business secretary, Peter Mandelson, has launched an extraordinary tirade against the head of the Starbucks coffee empire, accusing him of spreading gloom and overly denigrating the state of the British economy. Angered at remarks by the company's chairman, Howard Schultz&mbash;who said the UK was in an economic "spiral" with "very, very poor" consumer confidence&mbash;Mandelson accused him of spreading unnecessary misery and speaking out of turn. Speaking at a diplomatic cocktail reception in New York last night, he said: "Why should I have this guy running down the country? Who the fuck is he? How the hell are they [Starbucks] doing?" Mandelson's remarks, made in front of journalists at the official residence of the British consul-general, came amid mounting concern in diplomatic and ministerial circles over hardening US opinion towards Britain's economic woes. British officials have been trying to persuade US economists and commentators that alarm over the country's recession is becoming exaggerated. Earlier in the day, Schultz singled out Britain as a source of anxiety for Starbucks—which has stores in 49 countries—during an interview with the CNBC television channel. "The place that concerns us the most is western Europe, and specifically the UK," he said. "The UK is in a spiral." He said it had taken a year to 18 months from the beginning of the credit crunch for consumer confidence to fracture in the US, but the deterioration had happened far more quickly in Europe once financial cracks appeared. Asked about his biggest concerns, Schultz said: "Unemployment, the sub-prime mortgage crisis, particularly in the UK, and I think consumer confidence, particularly in the UK, is very, very poor." Read the rest of the article. Labels: Britain, Howard Schultz, Peter Mandelson, recession, Starbucks Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). We've Outsourced UnemploymentFrom the Washington Post's Harold Meyerson:The Dysfunctional Duo Read the full article here. Labels: global downturn, Harold Meyerson, labor, labor law, labor organizing, low-wage labor, outsourcing, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Immanuel Wallerstein on the CrisisImmanuel Wallerstein on the crisis; hat-tip to Arpita B. Here are some choice paragraphs; the whole piece is short and worth reading:... For the moment, the United States government, which is still in a position to borrow money and print money, intends to throw some new money into circulation. This might work if the government threw an awful lot, and threw it wisely. But quite probably, it won't do it wisely. And quite probably throwing the amount that might work amounts to little more than creating another bubble. And the dollar might then really fall much faster than other currencies, pulling down the last important prop to the world-economy. In the meantime, there is less and less money for daily consumption of all kinds for the bottom 90% of the world's population (and it's not so good for the top 10%). People are getting restless. Just in the last month, we have seen people in the streets protesting economic difficulties in a growing number of countries - Greece, Russia, Latvia, Great Britain, France, Iceland, China, South Korea, Guadeloupe, Reunion, Madagascar, Mexico—and probably a lot more that haven't been noticed by the world press. In fact, it's been relatively mild up to now, but the governments are all on edge. What do governments do when their primary concern is dealing with internal unrest? They really have two choices—shoot the protestors, or appease them. Shooting works only up to a point. For one thing, the agents of force must themselves be well-enough paid to be willing to do it. And when there is a serious economic downturn, arranging this is not all that easy for the regimes. ... Read the whole piece. Labels: financial crisis, Immanuel Wallerstein, protest, recession, rioting Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Greenspan (!): Nationalize the BanksWe weren't so surprised when Noriel Roubini called for (temporary) bank nationalization in a Washington Post op-ed co-authored with Matthew Richardson this past Sunday. But now this bombshell from the Financial Times, via Naked Capitalism, with Yves Smith's excellent-as-usual commentary:Greenspan Predicts TARP Will Prove Insufficient, Supports Bank Nationalization Before readers start throwing brickbats at the mention of the name of Alan Greenspan, it's important to remember that he has become the poster boy of the policy errors that lead to our financial mess. And that isn't an accurate picture. This crisis had many parents, and even though Greenspan was one of the key actors, he was far from alone. Treasury Secretaries Robert Rubin and Larry Summers were also backers of the financialization of the economy, the permissive regulatory posture, and the strong dollar policy. Greenspan, to his credit, at least appears chastened by the mess helped create. As far as I can tell, very few of the other perps have questioned their decisions. Greenspan spoke this evening at the Economic Club of New York. Some of his comments show that he has made some considerable shifts from his libertarian, anti-regulation stance. But he hasn't had a Damascene moment; he seems to be changing his views incrementally. Nevertheless, it's remarkable that Greenspan has come out saying that nationalizing banks is the "least bad" policy option, as he did in a Financial Times interview. Now we are seeing role reversal: the loyal libertarian reluctantly admitting the need for regulation and the advantages of taking over dud banks, even big dud banks, while the Democrats tip toe around the idea of doing anything that might ruffle bankers feathers too much. Note that he stresses, as we have, the need to clean up the financial system for fiscal stimulus to be effective (as in kick the economy into a higher gear, rather than provide a temporary amphetamine hit that quickly wears off). He also sounded a warning similar to Willem Buiter's, that the US is fiscally constrained and cannot run deficits as large as we might otherwise like without incurring serious sdverse consequences. Buiter has warned of the danger of a collapse in dollar assets. Greenspan seems more concerned about immediate effects, namely, rising long term bond rates (the Fed in theory can suppress a rate rise by buying long-dated Treasuries, but I suspect in practice this policy would lead to private investors and other central banks abandoning the long end of the yield curve, knowing the Fed could not continue this strategy on an unlimited basis, and the Fed having qualms about ballooning its balance sheet to grotesque size. Even at this level, the Fed seems cautious about further balance sheet growth, even though some have argued the Fed would need to expand its balance sheet far more aggressively to combat deleveraging). From the Financial Times: The US administration will have to go back to Congress for additional funds to recapitalise the banking system to restore the normal flow of credit in the economy, Alan Greenspan, former chairman of the Federal Reserve, said yesterday.... As for the idea of increasing capital levels, it's a poor second best to rethinking what the financial system ought to look like. And it is truly sobering how little serious thought has been done on that front. As for Greenspan depicting Congress champing at the bit to reform the industry, that couldn't be further from the truth. Enacting strict limits on pay to TARP recipients is a far cry from meaningful regulatory reform. From the Financial Times interview:
However, he wimped out on cramming down bondholders (note Martin Wolf and Nouriel Roubini, among others, have advocated that step, although Wolf did warn that it would need to be done with ample preparation for temporary disruption): "You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks," he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt." Greenspan is a consultant to Pimco, and Pimco has consistently bet that the Feds would be nice to banks (I am told by someone in a position to know that they own a lot of junior bank debt). So this statement may be de facto an admission by Greenspan that he sees nationalization as inevitable and is trying to shape what form it takes. (This was the full post.) Labels: Alan Greenspan, bailout, bank nationalization, financial crisis, Nouriel Roubini, TARP program, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Germany May Rescue Debt-Laden EU MembersFrom Ambrose Evans-Pritchard's column. Yves Smith has linked to this page, too. But I haven't seen anything about it in my brief perusal of German newspapers today.Germany may rescue debt-laden EU members Germany has acknowledged for the first time that it may have to rescue eurozone states in acute difficulties, marking a radical shift in policy by the anchor nation of Europe's monetary union. By Ambrose Evans-Pritchard Last Updated: 7:18PM GMT 17 Feb 2009 Finance minister Peer Steinbruck said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation. "The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty." Credit default swaps (CDS) measuring risk on Irish debt rose to 386 basis points yesterday despite Berlin's show of support, suggesting that the markets remain sceptical over hard-line German financier's change of heart. The CDS on Austrian debt surged to 180 on fears of banking contagion from Eastern Europe, while Greece, Belgium, Italy and Spain have all seen a surge in default costs. However, it is clearly Ireland that is now in the eye of the storm as Dublin struggles to prevent the budget deficit spiralling up to 12pc or even 13pc of GDP as the economy contracts. Fears are mounting that Ireland may not be able to cover the massive liabilities of its banking system. The Maastricht Treaty prohibits eurozone bail-outs by EU bodies but Article 100.2 allows for aid to countries facing "exceptional occurrences beyond its control". The European Investment Bank is already providing aid by steering project finance to regions in distress. This could be expanded subtly into short-term help. Read the rest of the article Labels: Ambrose Evans-Pritchard, bailout, Eastern Europe, financial crisis, Germany, Ireland, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 2009 Global Economic Picture BleakThe latest economic snapshot from the Economic Policy Institute (EPI):Economies of major developed countries will shrink in 2009 The full post (including their nifty chart) is here. Labels: Economic Policy Institute, EPI, GDP, global downturn Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Plan: They've Got Their Work Cut OutAt least if the latest housing data from HSBC are any indication. Thanks to Across the Curve (here's what the writer of the blog--I forget his name, but he's good--has to say about the stats: "I mentioned in my opening that UBS economists took some solace from the fact that a poor housing starts number would have the beneficial effect of speeding the reduction in inventories. That process will eventually lead to stability in prices.Well what they wished for came to pass as the housing data was a debacle at every level with permits and starts lower. And it looks as though the collapse is across regions and sectors." Here's a summary of the HSBC data: This is the note which HSBC sent out to clients on the Housing Starts Data. There is no recovery or stability brewing in housing market. Housing starts continue to decline steeply, falling 17% in January to a new all-time low (back to 1959) of 466k (consensus 529k) Starts are down 39% over the last three months, down 57% since last June, and down 79% since the cycle high in January 2006 Building permits fell 5% to 521k (consensus 525k), also hitting a new record low. Both starts and permits have fallen for seven straight months, with permits falling 54% over this period In spite of this reduced activity, the month’s supply of new homes for sale rose to an all-time high of 12.9 months as of December. This overhang is likely to keep new construction quite low until home sales recover Evidence of any sales improvement has been scant, although December pending home sales rose for the first time in four months (+6.3%), and the yesterday’s NAHB index showed a slight improvement in buyer traffic (+3pts to 11) Ryan Wang Labels: Across the Curve, Barack Obama, financia crisis, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Mortgage Relief PlanReuters just posted a preview of the plan to be delivered later today:Obama mortgage plan to aid up to 9 million families Wed Feb 18, 2009 9:52am EST WASHINGTON (Reuters) President Barack Obama's much-anticipated plan to deal with the U.S. housing crisis aims to help as many as 9 million families avoid foreclosure on their homes, one of the root causes of the global financial meltdown. "The plan not only helps responsible homeowners on the verge of defaulting but prevents neighborhoods and communities from being pulled over the edge too," according to a summary of the plan that Obama is due to formally unveil at 12:15 p.m. EST in Mesa, Arizona. It aims to help 4 million to 5 million "responsible homeowners" to refinance and another 3 million to 4 million homeowners by lowering the risk of imminent default with a $75 billion "homeowner stability initiative" that will help to reduce their monthly payments. The Obama administration's summary said the plan could offer a buffer of up to $6,000 against value declines on the average home. The plan also aims to increase confidence in mortgage giants Fannie Mae and Freddie Mac through Treasury funding to "ensure the strength and security of the mortgage market and to help maintain mortgage affordability," the plan summary said. "This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly," the summary said. As part of the housing rescue plan, the Treasury Department will double its financial support for housing finance giants Fannie Mae and Freddie Mac to allow them to play a bigger role supporting housing as part of a fresh foreclosure mitigation plan. The Treasury said it was increasing its preferred stock purchase agreements with the two government-controlled companies to $200 billion each from $100 billion. It also said it was raising the limit on the size of the mortgage portfolios the two companies can hold by $50 billion to $900 billion each, along with a corresponding increase in their allowable debt outstanding. (Editing by Bill Trott) Labels: Barack Obama, Fannie Mae, financial crisis bailout, Fredddie Mac, housing market, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elderly NYers Angry as Crisis Hits PoorestMore from Reuters; hat-tip to Bob F. More mentions of Madoff. A sweet picture accompanies this article, too. You can just hear them being interviewed.By Claudia Parsons | Tue Feb 17, 2009 1:28pm EST NEW YORK (Reuters) - From housebound grandmothers who rely on charity meal deliveries, to ailing retirees who cannot pay rising costs for medications, older Americans feeling the pinch of the financial crisis are getting angry and forming groups with names like "Senior Outrage." In New York, with city and state tax revenues tumbling, benefits and services to the elderly are being cut, and many older residents are furiously drawing comparisons to the billions of dollars spent to bail out banks -- and pay Wall Street bonuses. Dolores Green, 68, retired as a home help worker and lives on a government Social Security check of $740 a month. She pays $719 a month in rent, leaving just $21 for everything else. To eat, she relies on the federal food stamp assistance program, and worries that her cost for some medication she needs for her diabetes has gone up to $8 from $3. To get by, she said: "I run errands for seniors. They may hand me $2 or $3 or something." Green says she sees more people seeking government assistance, such as her daughter, who lost her job after 25 years. "She's just applied for food stamps, she's got two kids," Green told Reuters at a community center where some 25 elderly New Yorkers were eating a lunch of sandwiches, a gelatin dessert, milk and tomato juice. "That's why she can't help me, because she's got to help her children." "Maybe I'll move in with you," she jokes to her friend Alice Jordan, 80, a retired teacher who suffers from osteoporosis and high blood pressure. Jordan said her food stamp allocation had gradually eroded to $54 a month from $180. When she reads about the well-heeled victims of financier Bernard Madoff's suspected $50 billion Ponzi scheme, she says she wishes they would spare a thought for those who never had such wealth. "Just like this guy Madoff ripped them off, how did they feel when they lost their money and had to change their style of living? Think of us. ... How do you think we feel?" she asked. Read the rest of the article. Labels: Bernard Madoff, elderly, financial crisis, food stamps, ponzi, recession, safety net, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stanford Financial Charged with 'Massive' FraudFrom Reuters. There is a Madoff link: "Stanford's investment companies were exposed to losses from the alleged Ponzi scheme run by Madoff, and falsely reassured investors otherwise, the SEC charged." And there is a cricket link (hence the Antigua dateline): "Stanford came to prominence in the cricket world following his private Twenty20 competition in the Caribbean and, in particular, the $20 million game in November between England and his own team made up of West Indian players."By Anna Driver and Simon Evans | Tue Feb 17, 2009 2:42pm EST HOUSTON/ST JOHN'S, Antigua (Reuters) - U.S. authorities charged Texas billionaire Allen Stanford and three of his companies with "massive ongoing fraud" on Tuesday as federal agents swooped in on Stanford's U.S. headquarters. In a complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused the cricket-loving Stanford and two other top executives at Stanford Financial Group of fraudulently selling $8 billion in high-yield certificates of deposit. About 15 federal agents, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, a Reuters eyewitness said. Stanford Financial said it remained open for business, but was "under the management of a receiver," according to a sign taped to the door of the firm's Houston office. According to the 25-page SEC complaint, Stanford Investment Bank (SIB) sold $8 billion in CDs "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks." The SEC said it was seeking to freeze assets of the company and appoint a receiver "to take possession and control of defendants' assets for the protection of defendants' victims." The move came as investors, politicians and regulators focus on the returns promised and provided by investment firms, following an alleged $50 billion fraud by Wall Street investment manager Bernard Madoff. Read the rest of the article. Labels: Allen Stanford, Antigua, Bernard Madoff, cricket, fraud, ponzi, SEC, Stanford Financial Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Scared of Solar Power?Today's Wall Street Journal has an uplifting -- and yet disturbing -- article on a training program for solar-panel installers in Los Angeles. The story starts with a big, tough-looking ex-con named Albert Ortega, who we are told "sports tattoos of an Aztec warrior on his back, a dragon on his chest and the name of his former gang, the East Side Wilmas, rings his biceps." The article goes on to explain that some LA ex-cons are getting trained for "the new green economy" with help from Homeboy Industries, a Los Angeles nonprofit founded by a Jesuit priest, which helps people with criminal records find jobs.The writer seems to have struggled to "balance the story" between the fear of ex-felons, presumably failures, and the fact that the program is really a success. But the article ends on a positive note: "We expect to hire out of the program as quickly as they can get them to us," says Gabriel Bork, a vice president at Golden State Power, a solar-panel installation company. "These guys are much better trained than many others I have hired." Read the article or watch the video here. Labels: ex-prisoners, green-collar work force, solar power Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Julian Delasantellis on Stress TestingThe witty Delasantellis offers his thoughts. Nice to read in conjuction with our post on Bill Black today:Perhaps a cool hand by Julian Delasantellis Asia Times February 17th, 2008 It wasn't the planet-killing asteroid from 1998's Armageddon that you heard slamming into Earth with a deafening thud last week, but the consequences of what it was may be just about as serious. It was but the latest attempt, the Treasury Secretary Tim Geithner plan, to pull the US financial system out of the deep hole it so aggressively and enthusiastically threw itself into during the great credit boom early in this decade. How bad was it? Well, as Wall Street secretary pretending to be investment banker Tess McGill (Melanie Griffith), in 1988's Working Girl, observed on her attempt to pitch a corporate buyout seemingly going badly, "They don't exactly have bouncers atthese things, they're a little more subtle than that." Geithner should be thankful for that as well. If not, he would have been grabbed by his collar and thrown out into the gutter on Pennsylvania Avenue, beneath the statue of Alexander Hamilton, his country's first Treasury secretary, realizing that, on the basis of the tax problems and this dubious financial system rescue plan that have essentially become the coming-out party for the Treasury debutante, he has a long way to go to even match up to the standards of Ogden Livingston Mills, Herbert Hoover's second Treasury secretary, let alone the giants in the office such as Hamilton. The basic complaint about the Geithner plan was that it was vague. At a time as dire as this, the press, and, it turns out, the markets, with the Dow Jones Industrial Average dropping over 350 points just as Geithner was speaking, wanted something a bit more substantial than just the Treasury secretary playing coy and batting his baby-blue eyes before the entire world. Read the rest of the article Labels: bailout, bank failures, bank stress testing, banking regulation, banking system, financial crisis, Julian delasantellis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Weakness Unmatched in 35 YearsThis is from the Liscio Report. As John Maudlin explains at The Big Picture, "One of the best gauges of an economy is tax collections. No one pays taxes unless they have to, so collections are a real-world, real-time analysis of the US economy. And the best source I know of for tracking taxes is The Liscio Report, by Philippa Dunne & Doug Henwood." A grim report, and great charts. Hat-tip to Doug at lbo-talk.In January, 21% of the states in our survey met or exceeded their forecasted sales tax collections, up from 9% in December. Our index is based on states meeting their forecasts, not reporting strong or even positive over-the-year collections, so we need to point out that the entire improvement came from a large state doing slightly better than the stunning decline they had forecast. This decline was partially calendar related, but January 2008 was 7% below forecast, so they had a very low bar. In the words of our contact in that state: "Bad economy, good forecast." Had the revenue estimators in that state made a less dramatic forecast our survey would have slid to 6%, which we think is more in line with historical weakness reported for sales tax collections during the holiday season. States reporting over-the-year growth fell to 3% from 15% in December. The average decline, weighted by state population fell from December's -6% to -10%. (More on this in a bit.) Forecasts were negative in all but two of the states that met their projected collections. The exceptions include a state that collects sales taxes on groceries and attributes their relative strength to the spike in food prices, and another that put through a rate increase, which accounts for all of the growth. The energy-extraction states, which have held up the longest, are now weakening as well. To give you an idea of how powerful the surge in energy prices has been, our contact in one southern state told us that their Appalachian mine country is currently outperforming regions where manufacturing and research predominate. Read the rest of the report. Labels: Doug Henwood, LBO Talk, Left Business Observer, Liscio Report, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bill Black on 'Stress Tests' (Yves Smith)Yves Smith of Naked Capitalism interviews Bill Black, who wrote this article for Dollars & Sense for our Nov/Dec 2007 issue (we've posted about him frequently on the blog; he's been quoted frequently in the NYT and elsewhere since the credit crisis really started getting bad, and also on topics like John McCain's role in the S&L crisis). Hat-tip to LP.By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri—Kansas City. More germane for the purpose of this post, Black held a variety of senior regulatory positions during the S&L crisis.He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners. Via e-mail, he has confirmed our suspicions about the bank stress tests announced by Treasury Secretary Timothy Geithner: they simply cannot be adequate, given the number and experience of the staff, and perhaps as important, their relationship with the banks (see detailed comments below). I also asked him about the fact that bank examiners examine banks (duh) and would not have much (any?) experience in the capital markets operations or sophisticated products that the big investment bank, now banks, participated in. Goldman and Morgan Stanley ought to be subject to these exams; Citi, JP Morgan, and Bank of America have large capital markets operations. These firms are where the biggest risks and exposures lie. Do the examiners what to look for in a even the low-risk operations, like repo desks, much the less derivatives and proprietary trading books? He agreed (as presented below) that it was a near certainty that this was beyond their skill level. Read the rest of the post. Labels: banking regulation, credit crisis, financial crisis, stress tests, Timothy Geithner, William K. Black, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Strange Stirrings in Forex MarketsFrom Red Alert site, courtesy of Yves Smith. It may be related to Eastern Europe. Scary stuff....I do not know what is going on here, and I don't think I want to. Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading. It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling. At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company. There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation. Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once." The worse news is that if this happens Bernanke will have killed us (in the US) by extending those swap lines all over the planet during the last six months. These will become utterly uncollectable and they are massive, in the many hundreds of billions of dollars. To those who are reading this, I hope if you're in the markets you are prepared for extreme levels of violence. You must expect that the authorities will try to arrest the destruction if they are able, but you must also be prepared for the possibility that we have reached a "critical mass" point beyond which "duck and cover" is the only winning strategy. Unfortunately. I hope I'm wrong; this is going to be a long night. Labels: Eastern Europe, foreign exchange, Red Alert, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Were All the WPA Workers Still 'Unemployed'?In recent interviews, James Galbraith has been pointing to an odd twist in New Deal revisionism. Apparently, those economists who argue that the New Deal did little to address the Depression because unemployment remained high right up until the U.S. entered the war are using unemployment measures that don't count the workers in the New Deal jobs programs as employed. Of course, those workers likely considered themselves employed; their wives (or husbands) and kids probably did too...Galbraith has highlighted a paper by financial analyst Marshall Auerback, worth quoting at length: The key to evaluating Roosevelt's performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. Read the whole Auerback piece here. Labels: Great Depression, James K. Galbraith, unemployment, WPA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). No Car CzarFrom the Washington PostAs major U.S. auto companies approach a crucial deadline for submitting a plan to save themselves, the Obama administration has elected not to name any individual car czar to oversee their restructuring, instead planning to rely on a range of senior officials. Read the rest of the article here. Labels: auto industry, financial crisis bailout Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (iv)Links:(1) I forgot to post this New York Times piece yesterday: Do We Need a New Internet? (2) Yesterday I linked to a piece on the increasingly dire financial situation in Eastern Europe, which threatens to spill over into Western Europe (with both already seriously hobbled by the global financial crisis). Today, Baseline Scenario reminds us that Ireland requires immediate attention, and calls on G7 finance ministers, meeting in Rome, not to neglect another unexpectedly pivotal player in European finance. Unfortunately, as this article from Vienna's Die Presse (in German, but there's a good photo) recounts, the biggest news coming out of Rome seems to involve the possibly sozzled Japanese finance minister (3) I wish Veblen were alive to write about today's philanthropy barons. "Charity" really is turning into a kind of conspicuous compulsion that seems to have raw power (often ill-used at that) as its source. Lord knows what the effects could be. But I think it's key to understanding the evolution of a ruling class that has been the overwhelming beneficiary of a kind of economic growth that is itself only now evaporating away. (4) Nouriel Roubini writes that Republicans are starting to speak of bank nationalization. (5) Krishna Guha of the Financial Times writes of the strange shift in bond investors' perceptions of deflation risk in the medium term, and what that might mean for policy. (6) Plans for the "car czar" dropped in favor of a panel more subject to presidential control. (7) From Bookslut: "McGraw-Hill Cos., the owner of the Standard & Poor's credit-rating service, won't be publishing a book on the financial crisis that the author says addresses S&P's role in the markets' plunge." Thanks to Marginal Revolution. (8) More turmoil in UK financial sector as Lloyd's (buyer of HBOS) finds itself under the nationalization gun. (9) Yves Smith links to this FT story about big companies increasingly cutting links with partners they consider too risky to continue doing business with, in a kind of "corporate version of the paradox of thrift." Comment Response to Brad DeLong Yesterday I linked to an exchange between CUNY anthropology professor and political economy theorist David Harvey and Berkeley economist and former Treasury official Brad DeLong that I got off Marxmail. The exchange consisted of a blog entry by DeLong on his site that was prompted by the circulation on the internet of a short essay by Harvey on the Obama stimulus package, and Harvey's response to DeLong, published on his website. In my post, I made a short comment to the effect that DeLong seemed to be taking refuge in pedantry in his attack on Harvey. I didn't articulate why I felt this way, so it was in a sense unsurprising that DeLong left the following comment on our blog: Gee. And I remember when writers for Dollars & Sense had read Joan Robinson, and understood why objectively-reactionary Marxisant critiques of Keynesianism were ill-founded. DeLong has a point. I'm not an economist, and, of course, DeLong's knowledge of Marx almost certainly overwhelms my own (I've never read Theories of Surplus Value, for example), never mind his grasp of seminal figures in the non-Marxian tradition like Joan Robinson, Keynes and John Hicks (I'm sorry to say I've mostly read secondary literature on these writers, with the exception of Keynes). And I'm gratified that DeLong has a respect for the history of our magazine. For my part, I respect DeLong's work and visit his site almost every day. He's right: I shouldn't have posted the comment without some sort of substantive justification for my evaluation of the exchange between DeLong and Harvey; I could have simply directed readers to the exchange itself without comment. So, I offer Prof. DeLong a heartfelt and humble apology. That said, I still have reservations about Prof. DeLong's attacks on Harvey, though I do agree that Harvey lost the thread at several points in his response to DeLong. DeLong says that David Harvey's piece on the stimulus is lacking in intellectual rigor, and that this lack of precision serves a kind of obfuscatory purpose. His argument is reminiscent of those employed by logical positivists against metaphysics in the middle of the last century, but the tool with which DeLong proposes to both illuminate this confusion and rectify it is the marginalist economics of the neoclassical tradition. To put it simply, DeLong says that Harvey's condemnation of the stimulus is a convoluted harangue that can really be reduced to a simple proposition that can be analytically refuted by the invocation of what is essentially an identity relation in mainstream economics: that there is no inherent level of debt that cannot be financed, because interest rates will set at a point that eventually matches supply of savings with demand for debt, either at a national or international level. In a follow-up post, DeLong refers to Harvey's position as a kind of revival of the "Treasury View" (a belief that deficit spending had to be kept at a clearly ineffective or even in ways counter-productive level to prevent what was considered inevitably crippling inflation from taking hold, that prevailed in the British Treasury during the depression and played no small role in increasing the latter's severity). And DeLong notes that it may be true that the price of government deficits run up in response to the crisis may become so high that domestic private investment will become depressed (or "crowded out"), and hence that economic growth will fall as a result, though that hasn't happened so far: demand for US public debt has remained high, and yields on government debt surprisingly--even, until very recently, alarmingly--low (while debt levels have blown into the stratosphere). So, according to DeLong, Harvey is not merely befuddled: he's plain wrong in attacking the Obama stimulus package, even on his own confused terms. The certainly naive--in mainstream economic terms, of which I am, admittedly, hardly a virtuoso practitioner, as I know DeLong is--objection I have to DeLong's position (which I think I share with David Harvey) is that the world has changed so much since Hicks and others did their great, though by no means flawless work--and that is beyond dispute, even for a relative novice--that the old identities no longer make much sense. Hicks himself said the following about the IS-LM diagram which DeLong refers to for support: "The IS-LM diagram, which is widely, though not universally, accepted as a convenient synopsis of Keynesian theory, is a thing for which I cannot deny that I have some responsibility ("IS-LM: an Explanation," Journal of Post Keynesian Economics, 3 (2): 139-54, 1980, quoted in Steve Keen, Debunking Economics , 2001, London, Zed Books)" Again, I'm not going to try to punch above my own inconsiderable weight, as I did yesterday, by getting involved in the technical details surrounding debate about IS-LM analysis. All In want to do here is point out some of the things that even I have seen in the literature that suggest that the kinds of identities DeLong sees as decisive are, well, somewhat porous, at least on the surface. The Neoclassical synthesis of Keynes and the marginalist tradition was, after all, forged at a time when all the major economies except the US were relatively closed, and for a good reason: they were devastated by depression and a World War. Accordingly, the US used its unique powers of seigniorage in the early post-war period to run up balance of payments deficits, expand export markets, and allow its allies to rebuild their economies (partly out of fear that they would otherwise fall to communism). As these economies quickly became competitors, though, this system broke down, and was replaced by Neoliberalism, which entailed a partial (official, anyway) rejection of the Keynesian tradition. Now that Neoliberalism is being, happily, toppled, interest in the Keynesian tradition has revived. But that doesn't alter the fact that history has moved on, often-times in ways that leave us breathless in accounting for its crazy effects. The hugely and breathtakingly expanded role of debt in the leading economies has perhaps been the most obvious instance of this, giving rise to other controversies that have upset other certainties of conventional economics (the "dark matter" debate, which hearkens to--of all things--the supremely bizarre world of subatomic physics and quantum mechanics to account for something that had been considered a heresy in economics, the tendency of savings in labor-intensive countries to migrate to capital-intensive ones, being perhaps the best instance of this). Steve Keen mentions another, related controversy, one that should give us further pause in considering the solidity of neoclassical "identities": Testing the first hypothesis takes some sophisticated data analysis, which was done by two leading neoclassical economists in 1990. If the hypothesis were true, changes in M0 should precede changes in M2. The time pattern of the data should look like the graph below: an initial injection of government "fiat" money, followed by a gradual creation of a much larger amount of credit money: How can savings and investment helpfully be considered an identity at all under such conditions? Keen says we need to go on to consider credit as having, in an important sense, completely eclipsed the ability of the authorities to match savings to investment via interest rates targeted at underlying economic activity (so LM--the money markets--becomes detached from IS--the goods markets): If only it were the world in which we live. Instead, we live in a credit economy, in which intrinsically useless pieces of pape--or even simple transfers of electronic records of numbers--are happily accepted in return for real, hard commodities. This in itself is not incompatible with a fractional banking model, but the empirical data tells us that credit money is created independently of fiat money: credit money rules the roost. So our fundamental understanding of a monetary economy should proceed from a model in which credit is intrinsic, and government money is tacked on later--and not the other way round. DeLong would no doubt--and rightly--point out Marx's considerable errors in analysis and ask Harvey--and me, I guess--why we should refer to him as opposed to the neoclassical model, imperfect though it may be. Though Marx had much--much more than anyone at his time--to say about the occasional serious distortions caused by credit (itself an endogenous feature of a capitalist economy), surely he wouldn't have anticipated the sort of thing described by Keen. One thing that Marx does point us in the direction of, though, is, of course, the indispensable class dimension in which political and economic phenomena occur in a capitalist system. And here's where DeLong's refuge in neoclassicsism is, to me, a fault compared to a reference to the Marxian tradition. DeLong, as we have seen, sees the ability of a nation to run up debt in a crisis as dependent on whether or not the interest rates set in national or international markets can support the kind of economic activity required to pay off the debts incurred. To him, national and international prices of credit are determined, ultimately, in markets. But it seems that we may have reached a point in which governments are increasingly having to look toward some pacification of long-abused working classes, no matter what the consequence. We see this in places like China, as well as in the developed world. And though some of this activity is expressed in clearly reactionary terms, it's clear that we're moving toward a new world in which economic policy is made with the clear intention of meeting the needs of these classes. One hopes this will take place on an international level: otherwise, disaster threatens, just as it did in the 'thirties. I think this is the point Harvey wanted to make. This point is confirmed in Harvey's original piece, when he tells us to focus on what's really going on, as opposed to exaggerating the importance of debates about intangibles like the crisis of "trust" in the wake of the crisis. I hope Prof. DeLong responds to this piece. He says he's familiar with our magazine. He may or may not know that we are dedicated to conveying (in an unashamedly leftist-way) economics in a way that is accessible to a popular audience. If, as I imagine, he has objections to what I have said, I hope he will provide a rebuttal of the sort that relies on more than appeals to the (recognized) authority of luminaries like Joan Robinson. I may have acted amiss in being snarky towards him yesterday without support, but his brief response to us was no better. I have taken responsibility for my culpability here, apologized, and admitted my ignorance of things I'm too prone to discussing without support. But he hasn't, as yet, provided us with much better. I realize he's really busy, but if he's really interested that Dollars & Sense has taken a position on something he says, he should follow through in a way that will illuminate us, rather than belittling us. Larry Peterson Labels: auto industry, bailout, bond market, Brad DeLong, David Harvey, financia crisis, Karl Marx, Larry Peterson, Nouriel Roubini, Thorstein Veblen, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (iii)Links only today; there's lots of stuff out there, and I have a headache anyway:(1) Some people may have missed these Financial Times articles earlier in the week (I didn't see them covered on any of the blogs I monitor): (i) it seems that half of all Collateralized Debt Obligations (the favored vehicle for peddling subprime-mortgages) created out of other securitized bonds (namely, asset-backed securities, or ABSs) have failed; (ii) Could the TALF lead to a two-tier market? and (iii) in a sign that the yen carry trade, which played no small role in channeling Asian savings into wacky investments in the US, is kaputt, Japanese retail traders have started buying yen. (2) On climate change, a member of the International Panel on Climate Change refers to two mechanisms which may make climate change worse than forecasted. He also notes that the 2007 IPCC report, covering 2000-2007, seriously underestimated the amount of carbon emissions, largely because it failed to take into account the vast increase in coal-generated electricity use in India and China. (3) Ambrose Evans-Pritchard writes that Eastern Europe may prove to be the ruin of many Western European banks, if not the countries in which the banks are domiciled. He comments on the frantic efforts of Austria to cobble together a rescue plan, and notes that as European banks are more leveraged than American ones, they could be more harmed by losses in Eastern European than US and UK banks have been by the subprime mess and exposure to property bubbles. This is an extremely dangerous situation, particularly with the EU being pulled in several different directions in dealing with the crisis as it is. (4) The Independent on Sunday reports that the HBOS (which just announced a cool 10 billion pound loss) whistle-blower whose revelations led to the resignation of a top UK regulator plans to make public documents he says will show Prime Minister Gordon Brown's personal culpability in the banking crisis (Brown was Chancellor of the Exchequer during the lead-up to the crisis). (5) Business Week's Michael Mandel on the end of the "trade bubble". (6) Japan's 4Q GDP falls a jaw-dropping 3.3% (or 12.7% annualized). (7) Inquiries into the role of US officers in graft schemes in Iraq. This is important because, as the report says, "The wider investigation raises the question of whether American corruption was a primary factor in damaging an effort whose failures have been ascribed to poor planning and unforeseen violence." (8) Michael Perelman makes an important point about the lack of bank lending (short). (9) Marxist writer David Harvey reveals Brad DeLong's refuge in pedantry. Hat tip to Ian J. Seda-Irizarry of the Marxmail list. John Hicks' IS/LM formalization, which DeLong alludes to in support of his screed against Harvey, is dissected by Steve Keen in his book Debunking Economics; it's also referred to in several of his works available online for free, but I can't remember the titles right now. Larry Peterson Labels: bailout, Brad DeLong, climate change, David Harvey, Eastern Europe, financial crisis, Gordon Brown, HBOS, Iraq, Larry Peterson, Steve Keen, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Global Growth Is At Virtual HaltFrom the International Herald TribuneAround the world, a bleak jobs picture Read the rest of the story here. Labels: financial crisis, full employment, growth, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Drugs Companies and Research PublicationsThe Guardian had another important piece on the industry in today's edition. Here's the context:The British Medical Journal this week publishes a complex study that is quietly one of the most subversive pieces of research ever printed. It analyses every study ever done on the influenza vaccine--although it's reasonable to assume that its results might hold for other subject areas--looking at whether funding source affected the quality of a study, the accuracy of its summary, and the eminence of the journal in which it was published Series: Bad science Funding and findings: the impact factor Ben Goldacre The Guardian, Saturday 14 February 2009 This column is about tainted medical research, not MMR. Now don't get me wrong: it's still an interesting week to be right about vaccines. Brian Deer in the Sunday Times claimed that the medical cases in Andrew Wakefield's 1998 paper were altered before publication. The measles figures came out: they're up by 2,000% over the last seven years, and rising exponentially. On Friday, the Autism Omnibus court hearing in the US--a massive two-year case involving 5,000 children--ruled there was no evidence for MMR causing autism (nor for the mercury preservative thimerosal). There is no reason to believe that MMR causes autism. The anti-vaccine campaigners will continue to mislead, stifle, or even smear. But it's important to keep your head and not be polarised by the other side's foolishness: because there are plenty of genuine problems in vaccine research, even if the campaigners have focused on a bad--and perhaps simplistic--example. The British Medical Journal this week publishes a complex study that is quietly one of the most subversive pieces of research ever printed. It analyses every study ever done on the influenza vaccine--although it's reasonable to assume that its results might hold for other subject areas--looking at whether funding source affected the quality of a study, the accuracy of its summary, and the eminence of the journal in which it was published Read the rest of the article Labels: Ben Goldacre, industry and scientific research, intellectual property, patents, pharmaceutical industry, The Guardian Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GlaxoSmithKline in Major Reversal on DrugsThis is big news. Not sure about the motivations or strategy, but it may have a huge effect on the pharmaceutical industry. From today's Guardian. Here's an essential point:The move on intellectual property, until now regarded as the sacred cow of the pharmaceutical industry, will be seen as the most radical of his proposals. "I think it's the first time anybody's really come out and said we're prepared to start talking to people about pooling our patents to try to facilitate innovation in areas where, so far, there hasn't been much progress," he said. Drug giant GlaxoSmithKline pledges cheap medicine for world's poor Head of GSK shocks industry with challenge to other 'big pharma' companies Sarah Boseley, health editor guardian.co.uk, Friday 13 February 2009 21.44 GMT The world's second biggest pharmaceutical company is to radically shift its attitude to providing cheap drugs to millions of people in the developing world. In a major change of strategy, the new head of GlaxoSmithKline, Andrew Witty, has told the Guardian he will slash prices on all medicines in the poorest countries, give back profits to be spent on hospitals and clinics and--most ground-breaking of all--share knowledge about potential drugs that are currently protected by patents. Witty says he believes drug companies have an obligation to help the poor get treatment. He challenges other pharmaceutical giants to follow his lead. Pressure on the industry has been growing over the past decade, triggered by the Aids catastrophe. Drug companies have been repeatedly criticised for failing to drop their prices for HIV drugs while millions died in Africa and Asia. Since then, campaigners have targeted them for defending the patents, which keep their prices high, while attempting to crush competition from generic manufacturers, who undercut them dramatically in countries where patents do not apply. The reputation of the industry suffered a further damaging blow with the publication and film of John le Carre's book The Constant Gardener, which depicted drug companies as uncaring and corrupt. Read the rest of the article Labels: AIDS, Andrew Witty, GlaxoSmithKline, intellectual property, patents, pharmaceutical industry, poverty Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Ultimate Growth Industry (Nancy Folbre)UMass-Amherst econ prof Nancy Folbre was a guest economist on the New York Times's Economix blog yesterday. Here is her post.Willing to invest for the long term? Looking for a socially responsible growth industry offering consistently high returns? Want to "buy American" and create domestic jobs without discouraging international trade? Consider the benefits of public investments in early childhood education. Critics of proposed increases to Head Start in the House stimulus bill labeled them porky pet projects. But many economists argue that those forms of spending represent a very big collective piggy bank. Spending on programs specifically designed to provide high-quality early education—especially for children in low-income families—yields significant and measurable economic benefits. W. Steven Barnett, the director of the National Institute for Early Education Research, and other education experts have been making this argument for years. The University of Chicago economist and Nobel Prize winner James Heckman puts his reputation on the line for it, mobilizing a tremendous amount of evidence on the impact of model programs on children's cognitive skills and personality traits like conscientiousness. As he puts it, "learning begets learning." Reading though his dense, 100-plus-page PowerPoint presentations will make you wish you had attended a better pre-school. His estimate of the average rate of return—explained below—recalls a number that stockbrokers once promised us we could get in our private retirement accounts: 12 percent per annum. Read the rest of the post. Labels: economic stimulus, education, growth, jobs, Nancy Folbre Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs (Feb. 8-14)The latest from Mark Heschmeyer at CoStar Group.A Weekly Report on Future Corporate Downsizings By Mark Heschmeyer | February 11, 2009 Nationwide * Bashas' Supermarkets, the Chandler, AZ-based operator of AJ's and Food City grocery stores laid off about 350 full- and part-time workers statewide. The layoffs represent less than 3% of the firm's total workforce and were spread throughout the grocer's operations, including administrative offices, distribution centers and its network of retail stores. * Brooks Automation Inc. based in Chelmsford, MA, is in the process of restructuring its operations. Brooks will be combining its formerly separate vacuum pump and robotic product groups into a single Critical Solutions Group. This move will simplify the company's organizational structure, reduce facility and overhead requirements and more effectively leverage the overall capabilities of the two Chelmsford, Massachusetts-based groups. The company expects to eliminate approximately 350 additional positions which will reduce the global workforce by about 20%. In the quarter ended Dec. 31, 2008, Brooks reduced headcount by about 10% in response. * EntreMed Inc. entered into a lease amendment with its landlord, Red Gate III LLC, for its headquarters at 9460 Medical Center Drive in Rockville, Md. The material terms of the amendment include a reduction in the space occupied by the company from 46,267 square feet to 8,554 square feet and a 12-month extension to Feb. 28, 2010. The company's monthly rent has been reduced from approximately $85,000 to $16,288. The Lease Amendment also provides that the company may use other portions of the premises at no additional cost. * Ferro Corp. based in Cleveland, OH, is eliminating about 700 positions around the world, which would reduce total employment by approximately 12%. It also continues to consider additional staff reductions. * Hollis-Eden Pharmaceuticals Inc. based in San Diego, CA, is implementing an aggressive cost-cutting plan. The company is reducing its workforce by approximately 33%, or 20 employees, as well as freezing salaries and suspending bonuses for all company employees, including the company's executive officers. * King Pharmaceuticals Inc. based in Bristol, TN, announced restructuring and workforce reduction initiatives arising from its recent acquisition of Alpharma Inc. The actions will result in a total workforce reduction of approximately 22% or approximately 760 positions. Approximately 240 of these reductions are corporate positions associated with synergies from the Alpharma acquisition. Of the other 520 approximately 380 are field sales positions and approximately 140 are corporate positions. * Liz Claiborne Inc. is implementing additional cost reduction initiatives, including the elimination of approximately 725 positions or 8% of its U.S. workforce, the previously reported closing of its distribution center in Mt. Pocono, PA and the suspension of merit pay increases for all employees. Since 2007, the New York-based company has closed six distribution centers, eliminated about 2,200 global staff positions, and streamlined its brand portfolio by selling, closing or licensing 14 of its brands. * Magma Design Automation Inc., a San Jose-based provider of chip design software, announced a series of actions designed to reduce operating costs, including a 17% cut in worldwide employment, salary reductions and consolidation of some facilities. * Panasonic is cutting 15,000 jobs or 5% of its 300,000 workforce. Panasonic is shutting 27 manufacturing sites around the world in a drive to cuts costs and adjust output. * Pep Boys - Manny, Moe & Jack, the Philadelphia-based auto parts retailer, will implement approximately $20.1 million in pre-tax cost reduction initiatives. These initiatives include the elimination of approximately 50 positions, representing 11% of the store support workforce. * Pier 1 Imports Inc. based in Fort Worth, TX, has begun negotiating with landlords to achieve rental reductions across the chain. These negotiations may lead to the execution of early termination agreements for up to 125 underperforming store locations, if rental reduction negotiations on those locations prove unsuccessful. The company has engaged an outside firm, DJM Realty, to assist in completing these negotiations by the end of May 2009. * Rogers Corp. based in Rogers, CT, announced a cost reduction initiative that includes a workforce reduction that combines both voluntary and involuntary terminations and will affect about 200 of its salaried staffing worldwide or about 10%. In addition to the workforce reduction, the company is freezing salaries, and significantly reducing other operating and overhead expenses. Read the rest of the report (which is a chart with local closings/layoffs). Labels: closures and layoffs, financial crisis, Mark Heschmeyer, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Looting Social SecurityFrom The Nation, by sometime-D&S author William Greider:By William Greider | February 11, 2009 Governing elites in Washington and Wall Street have devised a fiendishly clever "grand bargain" they want President Obama to embrace in the name of "fiscal responsibility." The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system. They are also targeting Medicare and Medicaid. The pitch sounds preposterous to millions of ordinary working people anxious about their economic security and worried about their retirement years. But an impressive armada is lined up to push the idea--Washington's leading think tanks, the prestige media, tax-exempt foundations, skillful propagandists posing as economic experts and a self-righteous billionaire spending his fortune to save the nation from the elderly. These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what's happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as "fiscal reform." In fact, it's the political equivalent of bait-and-switch fraud. Defending Social Security sounds like yesterday's issue--the fight people won when they defeated George W. Bush's attempt to privatize the system in 2005. But the financial establishment has pushed it back on the table, claiming that the current crisis requires "responsible" leaders to take action. Will Obama take the bait? Surely not. The new president has been clear and consistent about Social Security, as a candidate and since his election. The program's financing is basically sound, he has explained, and can be assured far into the future by making only modest adjustments. But Obama is also playing footsie with the conservative advocates of "entitlement reform" (their euphemism for cutting benefits). The president wants the corporate establishment's support on many other important matters, and he recently promised to hold a "fiscal responsibility summit" to examine the long-term costs of entitlements. That forum could set the trap for a "bipartisan compromise" that may become difficult for Obama to resist, given the burgeoning deficit. If he resists, he will be denounced as an old-fashioned free-spending liberal. The advocates are urging both parties to hold hands and take the leap together, authorizing big benefits cuts in a circuitous way that allows them to dodge the public's blame. In my new book, Come Home, America, I make the point: "When official America talks of 'bipartisan compromise,' it usually means the people are about to get screwed." Read the rest of the article. Labels: bailout, Barack Obama, Medicaid, Medicare, Social Security, William Greider Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). WSJ Fires ResearchersThe Wall Street Journal has given notice to its in-house library/research staff that they are being let go.From Editor and Publisher mag: The library cutback is part of a 14-person newsroom job reduction announced last week by the Journal, which also includes news assistant Ed Ramos in the library. Norman and Ramos plan to remain on the job until at least March 23, the memo stated. In other words, the Journal is saying that its journalists are now going to have to rely on the Internet for their fact checking. Sounds like even the voice of capitalism can't handle the truth anymore. The full article is here. Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Companies Fighting Unemployment ClaimsFrom the Washington Post:
Rest of the story here. Labels: Corporate Fraud, unemployment, unemployment benefits, unemployment insurance Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Capitalism Hits the Fan: The FilmRick Wolff, professor of economics at UMass-Amherst and author of Capitalism Hits the Fan, which ran in our November/December issue, has out with a documentary film on the current economic crisis of the same title. Here are the details from Rick:I hope that you may find a new film that I made with the Media Education Foundation (MEF) interesting and useful. Called "Capitalism Hits the Fan," it is aimed at colleges, universities, and also high schools for instructional use, but it can serve other purposes as well. You can get a sense of it at www.capitalismhitsthefan.com. You gotta love his new website's domain name. I wonder why no one had registered that yet? Labels: banking regulation, capitalism, financial crisis, Keynesianism, Rick Wolff Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China to stick with US bonds (FT)From yesterday's Financial Times; hat-tip to Larry P. for this. The money quote is from Luo Ping, director-general of the China Banking Regulatory Commission: "We hate you guys" (said of the United States, or its financial system and government, at least). Treasuries—can't live with 'em, can't live without 'em.We cover this and related issues about the risk of capital flight (why it started to happen, but reversed when the financial crisis went global) in Marie Duggan's cover article in the current issue, "The Specter of Capital Flight: How Long Will the Power of the U.S. Dollar Protect the United States?" It's available only in the print edition, but you can order that issue here, or subscribe. By Henny Sender in New York | February 11 2009 23:33 Read the rest of the article. Labels: capital flight, China, Treasury bonds Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Employee Free Choice Act Info PageThe Political Economy Research Institute (PERI) has put together an excellent resource page on the Employee Free Choice Act. The page has links to the bill itself, a summary, a list of academic research directly related to the bill, blogs, news reports, policy briefs, etc.Click here for the resource page. PERI is also hosting an online sign-on for scholars in support of the bill. Click here for the sign-on. Labels: Employee Free Choice Act, PERI Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Class of 2009: Take Low-Skilled JobsFrom today's Guardian, a report on job prospects of UK university graduates. It's bound to be a similar scene in the United States.Take low-skilled jobs, class of 2009 told Polly Curtis | The Guardian | February 11, 2009 Students are being urged to take lower-skilled jobs or do voluntary work when they graduate this summer, after a poll of employers revealed widespread cuts in graduate recruitment. Vacancies for graduates in the City alone nose-dived 28% in the past year, the survey found. Leading companies from the banking, accountancy, construction and IT industries announced cuts to their graduate training positions for 2008, while across the board graduate pay has been frozen, the survey reported. In the worst hit industries starting salaries have been cut in an attempt to prevent further job losses. Students graduating this year will be the most indebted ever, being the first to pay top-up fees of £3,000 a year throughout their degree courses as well as facing the biggest battle to enter the job market. Read the rest of the article. Labels: education, financial crisis, recession, UK Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Geithner Plan Smackdown WrapFrom Yves Smith at Naked Capitalism:I cannot recall a major US policy initiative being met with as much immediate revulsion as the so-called Geithner plan. Even the horrific TARP, which showed utter contempt for Congress and the American public was in some ways less troubling. Paulson demanded $700 billion, nearly $200 billion bigger than the Department of Defense, via a three page draft bill, nothing more that a doodle on a napkin, save that it did bother to put the Treasury secretary above the law. But high-handedness was the hallmark of the Bush Administration; it was only the scale and audacity of the TARP that was the stunner. And the TARP initially did have some supporters (perhaps most important, among the media, who trumpeted the "Something must be done" case). Fans are much harder to find for the latest iteration of the seemingly neverending "let's throw more money at the banks" saga. As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street's interests as the Bushies were. The differences increasingly look stylistic, not substantive. Treasury Secretary Geithner presented today what in essence was a plan to come up with a plan. I now understand why he is so loath to have government run banks. He presumably sees himself as an elite bureaucrat, as his glittering resume attests. Yet the man has a deadline to come up with a proposal, yet puts off presenting it twice (the "oh he has to work on the stimulus bill" is as close to "the dog ate my homework" as I have ever seen in adult life). What he served up as an initiative is weeks to months, depending on the item, away from being operational (if even then; the public-private asset purchase program will either not see the light of day, or be far narrower and smaller than what is needed). And in case you think I am being unfair, yesterday I got an e-mail from a political consultant who got a report on the Senate Banking Committee briefing by the Treasury the night before the announcement. No briefing books, no documents. He deemed it to be no plan. That assessment was confirmed today by a participant at the session, who said that the details were so thin that one staffer asked, "So what, exactly, is the plan?" and repeated questions from one persistent Senator got "absolutely no answers". Thus Geither's belief that government can't manage assets is sheer projection of his own inability to deliver. The FDIC winds up banks all the time. During the S&L crisis, as William Black reminds us, FSLIC appointed receivership managers that later research determined did reduce losses. Sweden, Norway, and Chile all nationalized (and relatively quickly reprivatized) dud banks during their financial crises. This isn't like trying to go the moon (which was a government initiative, lest we forget). There are plenty of models and lots of good proposals. What is lacking is will. History says that an aggressive, take-out-the-dead-banks program is the fastest and all-in cheapest way out of a financial crisis. But if you believe that something will not work, as Geithner does, it isn't at all hard to produce that outcome. Read the rest of the post. Labels: bailout, financial crisis, Naked Capitalism, Timothy Geithner, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Geithner Prevailed In Bailout To Protect CEOsAccording to a report in the International Herald Tribune, Treasury Secretary (as of Tuesday) Geithner won over an internal battle within the White House over the terms of the bank bailout. According to the report, Geithner successfully stopped demands to institute comprehensive compensation limits for all employees at companies receiving bailout funds, to dictate to banks how bailout money should be used, to replace bank executives, and to wipe out shareholders of failed banks receiving taxpayer aid.The Obama administration's new plan to bail out the nation's banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy Geithner, against some of the president's top political hands. Read the full article here. Labels: bailout, financial crisis bailout, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Curcuit City Bosses Ask For Bonuses!Chutzpah has a new definition. Execs of bankrupt company demand bonuses or threaten to quit!RICHMOND, Va. (AP) — Circuit City Stores Inc. is asking a U.S. Bankruptcy Court judge to allow it to give incentives to executives and other workers to stay with the company during the wind-down process, according to court filings. Rest of story here. Labels: bankruptcy, Chutzpah, Circuit City, Corporate Swindles Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (ii)Links:(1) Japan and Latvia rack up whopping double-digit 4Q annualized GDP declines. That's two trade-loving nations in one day, one of them being a major trading partner of both the US and China, and the second largest economy, after the US, on earth. And Japan's (in an "unimaginable contraction") 1Q '09 could be worse. Comparable numbers from much of the rest of Asia are discussed here. All from today's (it's still Tuesday in Cambridge, MA) Financial Times. (2) Mexico's drug-related violence is horrific, and what the next story describes is the last thing they need given the fierceness of the former, but the next time anyone in the US threatens to decertify their efforts in the "war on drugs," Mexico should imprison all Coca-Cola executives (including former exec and President Vicente Fox). The dollar amounts (never mind the human cost) lost because of the obesity epidemic in Mexico to foregone productivity and increased health care provisioning must reverse to a respectable degree the GDP gains (disappointing and ill-distributed as they have been) from NAFTA so beloved of free-traders. And remember, much of this US production is subsidized. From The Financial Times. (3) The Treasury is issuing a record $67 billion in debt this week. This Lex column from The Financial Times gives a short summary of essential points (though one of its points became somewhat obsolete by the end of the day it was published, as will become apparent below). Today's comment: Stimulus Passes Senate, Bank Bailout Plan (Partially) Unveiled, Markets Tank Stock prices dropped sharply today, and bond prices surged, as investors expressed confusion at best, and in some cases contempt, for Secretary Geithner's bank bailout proposal. The Dow lost 4.6% in its biggest fall since December 1st, and other indices reported similar falls. The proposal, which, according to a JP Morgan summary (hat tip to the fine site Across the Curve), features the creation of a "Public-Private Investment Fund," or P-PIF (just what we need, after TARP, TALF, M-LEC and all the others...). Such a "bad bank" would operate much as the TALF, providing non-recourse loans (on which the lender can only collect the collateral in case of default) to purchasers of (bad) assets held by the banks. But, in this case, it would be private investors who would be the beneficiaries. And, as the JP Morgan report put it: ...this plan's so-called private sector pricing of assets would be directly related to hoe much leverage the P-PIF extends to other investors. The greater the share of non-recourse lending extended to investors, the higher will be the new "market" prices for assets. The dilemma that first surfaced last September--the higher the price the greater the support for the banking system, but also the greater the risk for taxpayers--is not resolved by the P-PIF but is instead transformed into a decision about how much leverage the P-PIF will provide to investors. Wonderful. This means that hedge funds and their ilk are the targets of this move. No doubt the Treasury is looking both at halting the record redemptions that have prevented this part of the financial industry from putting much needed cash on the markets. Once again, it seems the Obama administration and its acolytes consider that any recovery from the crisis will have to involve intimately the people who got us into it. Anyway, back to the report: There was nothing in today's announcement about providing insurance or guarantees to assets on bank balance sheets, a proposal that seemed to be the centerpiece of the reform as late as last Friday. Any announcement related to foreclosure mitigation was deferred for a few weeks. Note that it appears the majority of P-PIF and TALF would be funded by the Fed balance sheet, thus not requiring Treasury issuance and possibly not even requiring Congressional action. That's change we can believe in, all right: we just endured several months of it before the new administration took office.... Of all I've seen written on the subject, Brad Setser has the most intriguing notions on why the administration is looking to the leveraged players in this desperate attempt to get bad assets sold off once and for all: . This is simply unbelievable: assets worth virtually nothing because they consisted of much less than their hyper-excessive leverage multiples are to be peddled to the very same sort of investors who have just been burned by these things, simply because the leverage is now to be put up by uncomplaining (not to mention increasingly skint) taxpayers and foreign investors, and not the banks. And this in an attempt to make a transition to a less-leveraged system! It's no surprise that nobody seems to be buying it. All together, the proposals put forward today could amount to nearly $3 trillion. And everyone except the administration seems to believe that won't be nearly enough. Be prepared for new, and even clunkier acronyms.... Labels: Across the Curve, Asia Times, bailout, Barack Obama, financial crisis, Japan, Larry Peterson, Latvia, Lex, Mexico, the dull compulsion of the economic, Timothy Geithner, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Prison Fees Proposed in MassachusettsHere is a rather lame article (because not very balanced) from the Milford (Mass.) Daily News by Lois Ahrens of the Real Cost of Prisons Project. Apparently a Republican state legislator, Rep. Elizabeth Poirier (of North Attleboro) wants to start requiring prisoners to pay small "rooming" fees, and fees for visits to the doctor or the dentist. The most appalling claim from Poirier here is that, in addition to raising up to $10 million, "This may perhaps lessen the frequency of doctor visits, which will reduce the cost of prisons." Hm--I haven't heard that the problem with health care in prisons is that prisoners are getting too much of it.We've posted a couple times recently about some people's speculation that budget problems may lead state and local leaders to re-think expensive (and ineffective) policies of mass incarceration. We're skeptical, since people had the same hopes in earlier downturns and the prison boom has just chugged along. This kind of talk shows another direction things could go: balancing state and local budgets partly on the backs of prisoners (while simultaneously cutting social services that may help prevent crime, provide drug treatment, etc.). (The April 2008 issue of Prison Legal News had an article, "Making the 'Bad Guy' Pay: Growing Use of Cost Shifting as an Economic Sanction," about the trend of charging prisoners to offset the high costs of mass incarceration.) And the amount of criminal justice spending in the first draft of the stimulus plan (which we've also reported on) suggests that there might be an element of "penal Keynesianism" going on, too, in response to the larger economic crisis. Anyhow, here's that article: Local legislators weigh in on prison fee idea Read the rest of the article. Labels: prisons, Real Cost of Prisons Project Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Job Losses ComparedDollars & Sense collective member and Bentley University economist Bryan Snyder sent us this rather disturbing graph, based on Bureau of Labor Statistics data (including data from last Friday's jobs report), requesting that we post it to the blog with the following question: "Stare at this image for a few minutes...if you see a 'sailboat' or a 'tax cut,' chances are you are a Republican." Click on the image for a better view. Bryan just told me it's from Nancy Pelosi's website, and that he first saw it last night on Rachel Maddow's show. Labels: Bryan Snyder, Bureau of Labor Statistics, recession, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Collins Cuts Women's Jobs from StimulusEconomist Heidi Hartmann at the Institute for Women's Policy Research has analyzed the compromise stimulus package that came out of the Senate on Friday and finds that compared to the House version, it cuts deeply into the parts of the package that would most help women workers. The obvious irony: two of the three Republican senators who worked with Democrats to develop the bill are women, Susan Collins and Olympia Snowe, both of Maine.Hartmann notes the Senate compromise cuts deeply at the precise areas in which women typically work, Head Start, education, and health care. Half of the proposed additions to Head Start funding ($1 billion of a total of $2 billion in the House) and approximately half of the proposed aid to the states, which would largely be spent on education (a cut of $40 billion of $79 billion in the House version), are eliminated in the Senate proposal. Another huge proposed cut is the assistance that would be given to unemployed workers to enable them to exercise their COBRA benefits and purchase their employer-based health insurance policies (a cut of $19 billion of a House total of $41 billion). ... $11 billion of proposed child tax credits for working families are also proposed for cuts Read the full discussion here. Labels: economic stimulus, Heidi Hartmann, Institute for Women's Policy Research, Olympia Snow, Susan Collins, U.S. Senate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Immigrants Bring Big Bucks For JailsThe federal government pays sheriffs $90 a day to hold immigrants awaiting deportation. Some sheriffs are aggressively lobbying to have immigrants put in their jails. Local jailers receive $1.7 billion a year from taxpayers to keep people charged with overstaying their visas instead of releasing them pending trials.From the Boston Globe: In the newest wing of Bristol County jail, exclusively for immigrants facing deportation, inmates in sunshine-yellow uniforms pass the time in a stuffy dormitory playing cards, flipping through magazines, and chatting in Spanish, Portuguese, and Hebrew. Read the rest of the story here. Labels: immigrant detention, immigrants, immigration, prison crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Hindrance Than Help?From Reuters:Fannie, Freddie to channel mortgage rescue: sources Sun Feb 8, 2009 1:50pm EST Reuters By Patrick Rucker WASHINGTON (Reuters) - The Obama administration is crafting a mortgage-rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said. Late last week, officials from the Treasury Department and Department of Housing and Urban Development worked with the companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead, said two industry sources familiar with the deliberations. Those discussions were still going on over the weekend with Treasury officials trying to weigh the merits and costs of several possible approaches, said one source familiar with the talks. Washington's two largest foreclosure-prevention initiatives of the last 12 months have fallen flat with only a handful of borrowers having been helped despite promises that hundreds of thousands would qualify. Officials hope to clear the red tape and rigid terms that have doomed past mortgage-aid efforts without burdening taxpayers with many billions of dollars in funding costs. "They want to get rid of all the high-cost mortgages out there and figure that there are 1.5 million people who could stay in their homes this year if their loans were modified," said one industry source who asked for anonymity. "But it's just really complicated and expensive to do these kind of workouts." Since Fannie Mae and Freddie Mac were nationalized in September, the government-controlled companies have been retooled as agencies for delivering housing aid. Both put a moratorium on foreclosures late last year, and are pioneering programs to let borrowers rent their homes after default. But while Fannie Mae and Freddie Mac have had some success with stopgap measures to keep people in their homes, the companies' effort to rewrite home loans announced in November has been a disappointment, industry sources said. Read the rest of the article Labels: bailout, Fannie Mae, financial crisis, Freddie Mac, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nutrition, Personal Finance, Political EconomyIt's time to pick on Ron Lieber again; he writes the New York Times business section's "Your Money" column. Nothing against Lieber in particular, I swear—it's just that personal finance tends to reveal the individualistic biases of the bourgeois press.(The last time I picked on "Your Money" was when Lieber gave a painstaking explanation of how very very hard it is to keep on the right side of tax law when you have servants (not that he used that term). This post criticized Lieber's column in the wake of Tim Geithner's "nanny tax" problems. Well, Lieber must not have the D&S blog on his RSS feed, because on Feb. 4th, he was at it again, in more detail, in the wake of Tom Daschle's tax problems, and the nanny tax problem that Obama attempted-appointee Nancy Killefer had. Since he keeps coming back to the topic, I have another chance to bring up something I'd forgotten to in my last post. In both articles, Leiber recommends some firms that can help people with servants keep on top of things; one of the firms is Breedlove & Associates. Now I don't think "Breedlove" is a common name; in fact, as far as I know, the first time I came across it was in Leiber's first nanny tax column (in the Jan. 23rd issue of the Times). But in the next day's Times, there was that name again, in an article about the besieged openly gay mayor of Portland, Ore., Sam Adams, who has been in hot water for having had a relationship with an 18-year-old intern named Beau Breedlove. Ok—it's not salient, unless we find out that Sam Adams has a nanny tax problem, too.) Back to the latest "Your Money" of note: this past Friday's column tries to wring personal finance advice out of "diet and nutrition gurus": Nutritional Insights on Saving MoneyRead the rest of the article (not that I'm recommending it, particularly). For less individualistic and more structural advice (that is, advice that gets beyond finger-wagging about personal discipline), Lieber should have checked with Jackie Ovadia, a nutritionist we mentioned in the editorial note of our May/June 2008 issue, in connection with Thad Williamson's cover article "America Beyond Consumerism": As skyrocketing prices for food and other commodities dominate the headlines, why is Dollars & Sense running a cover article criticizing consumerism? After all, basic necessities like food and fuel are stretching people's household budgets in the United States, and are entirely out of reach for more and more people worldwide. How can overconsumption be a pressing economic problem worthy of our attention?We haven't posted Thad Williamson's article (you can order back issues here, or better yet, subscribe), but Jonathan Rowe's article is online—here. Labels: dieting, growth consensus, Jonathan Rowe, nanny tax, nutrition, Ron Lieber, Thad Williamson, Your Money Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (i)I've decided to revive this series of posts. I hope to post weekly or bi-weekly, with links and original commentary. First, links:(1) Friday's employment report was horrific enough, with 600,000 job losses for January, and an unemployment rate (which undercounts significantly) surging from 7.2% to 7.6% in a month, but less noticed were the really crazy developments in productivity levels.... (2) This is all we need... (3) A nice piece by The New Statesman's Peter Wilby on Margaret Thatcher's plan to "abolish" the working class by creating an ownership society (20 years before the term became current), and where that's led. (4) The incomparable Yves Smith links to the ever-stimulating Steve Keen on the credit system and Bernanke's ever-desperate monetary gyrations. Keen--not a Marxist, by the way--quotes Marx's keen anticipation of even so-called "post-industrial" crises, but with a typically intriguing concluding twist: "A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people’s pockets (whereby, however, they help to determine the rate of interest for all), and meanwhile they live in grand style on anticipated profits. Simultaneously, precisely this can incidentally provide a very profitable business for manufacturers and others. Returns become wholly deceptive as a result of the loan system..." One and a half centuries after Marx falsely predicted the demise of capitalism, the people most likely to bring it about are not working class revolutionaries, but the "Roving Cavaliers of Credit", against whom Marx quite justly railed. (5) Interesting developments across the pond: - UK considers mutualizing nationalized banks (banks and building societies (rather like S&Ls) were demutualized during the privatization craze; may be helpful to contrast this with link (1); and - New Labour plans to "partner" with private sector to create jobs fails due to lack of interest by the latter. Finally, my commentary: Lisa Kellaway's "Second Life" Lisa Kellaway of the Financial Times is a curious character. Witty at times, her comments on the world of work (her FT column is entitled "On Work") are overwhelmingly skewed towards the high-end, and her advice tends to internalize the ethos of the ruling--if not robber--class to a ridiculous degree. Still, nothing prepared me for the the column she wrote for last Monday's edition. In it, Kellaway seems to make the claim that the sense of foreboding of many workers (even of the sort Kellaway is comfortable writing about) is, to no small degree, an effect of the seemingly sensationalist effect of the internet: its worldwide scope compresses the unusual, particular experience of isolated individuals and makes them seem far more characteristic of the world as a whole than the phenomenon might otherwise be. In fact, she claims that commentary and coverage of the current crisis saps consumer confidence, and hence redoubles the severity of the downturn. Also, she hearkens back to a golden age (the Great Depression, maybe?), when, isolated from such a cacophony, she would have confined her curiosity to recognized, established organs, got on her bike, and simply gone to work, as opposed to being reduced to a clearly irrational state of anxiety. This is highly offensive. I personally have made the acquaintance of three people in the last month alone (not counting myself: I've been looking for steady work for over a year now) who have not only been "displaced" by the crisis, but have endured travails the like of which Kellaway almost certainly will never see or report on. In my last temp job, I worked with a middle-aged woman at a $12/hr position (sans benefits, of course), long (20 years) employed at Harvard Law School (she lost her job 1 1/2 years ago when the program she worked for moved to Berkeley), who told me she would have to sell her house for a loss and possibly take her two kids out of college because she couldn't find work. When I left, I left early so she could--touchingly gratefully--take my paltry 8 or 16 hours to finish the project. Now I work for a large custodial bank which is laying off its staff in droves, leaving mostly temps behind. One of the women (another "contract worker" who doesn't get bereavement compensation) I work with was out all last week because her best friend committed suicide, seemingly because he felt he couldn't provide for his family after a layoff. All of the members of my team will probably hit the street by summer, when the (official) unemployment rate will almost certainly push 8%, and perhaps be much higher (and, probably, long after Obama is forced to abandon his push to universalize--in his sense of the term--health care). Meanwhile, another acquaintance was laid off. He has a highly disabled child, and was a 20-year veteran of the firm. Apparently he got a reasonable, if not good severance package. But the way he got laid off may have been revealing: he was let go on a Friday, but had taken the previous Thursday and Friday off to--you guessed it--take care of his child and work from home. On Monday, his cube was bare, as if no-one had ever worked there. I wouldn't be surprised if they fired him on the phone, and instructed him that a cab was coming with all the stuff they'd got out of his desk. This is a serious step towards the "death-row" version of employee relations. Anyway, my experiences alone show how shallow Kellaway's musings are: this crisis isn't some sort of internet fad, though this may come as something of a shock to its members who rely on Kellaway to apprise them of the state of their underlings. Larry Peterson Labels: bailout, financial crisis, Karl Marx, labor, Larry Peterson, Lisa Kellaway, Peter Wilby, productivity, Steve Keen, the dull compulsion of the economic, US employment, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Failing Banks Could Cost FDIC Over $40 BillionNine banks have failed so far in 2009, including three that went down on Friday. Twenty-five went under in 2008, equal to the entire number that failed in the previous seven years. The FDIC currently predicts that bank failures through the next four years may cost the deposit insurance fund more than $40 billion. The FDIC has classified 171 banks as "problem."From Bloomberg: Three banks, two in California and one in Georgia, were seized by regulators, bringing this year’s tally of closings to nine as a recession and record foreclosures extend the biggest financial crisis in more than 70 years. Rest of story here. Labels: bad bank, bank closures, bank failures, FDIC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). And Bank Plan To Be Announced Next WeekFrom The International Herald Tribune:U.S. decides on how to save banks By Stephen Labaton Saturday, February 7, 2009 WASHINGTON: After weeks of internal debate, the Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks and entice investors to purchase their most troubled assets. The new financial industry rescue plan, to be outlined in broad terms on Monday in a speech by Treasury Secretary Timothy Geithner, will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks. The incentives to investors could be in the form of commitments to absorb some of the losses from any assets they purchase, should their values continue to decline. The goal is to relieve the banks of their worst assets so that private investors might then provide more capital. Officials hope that that part of the plan is not labeled a "bad bank" administered by the government, although they expect that some might call it that. No matter what it is called, the government would assume some of the risk of declining assets at the heart of the economic crisis. But by relying on a combination of private investors and government guarantees, the administration hopes to reduce its exposure to losses and avoid the problem of having to place a value on assets that the institutions have been unable to sell. A central element of the plan would be a major expansion of a lending facility begun in November by the Federal Reserve Bank of New York when it was headed by Geithner. The program, which was initially financed by $200 billion in Fed money and $20 billion in seed capital from the $700 billion bailout fund, lent money to investors to buy securities backed by student, auto and credit card loans, as well as loans guaranteed by the Small Business Administration. Obama administration officials say they have rejected nationalizing institutions by taking large ownership stakes. They also will not immediately seek additional money from Congress beyond the $350 billion left in the TARP fund. Read the rest of the article Labels: bad banks proposal, bailout, banking system, Barack Obama, financial crisis, Timothy Geithner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Agreement on Stimulus PackageFrom The Financial Times:Deal reached on $800bn US stimulus package By Alan Beattie in Washington and Alan Rappeport in New York Financial Times Published: February 6 2009 13:46 | Last updated: February 7 2009 11:53 US Senate Democrats agreed on Friday to cut their hopes for a larger economic stimulus package and support an $800bn compromise that would give President Barack Obama an important but narrow victory. Democrats said a vote on passage of the measure--drafted by leaders of a group of moderate lawmakers from both parties--and closely watched overseas as a sign of US commitment to help revive the world economy, would be held on Tuesday. "We are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work," said White House spokesman Robert Gibbs. The tentative agreement followed news that the US economy lost a half-million jobs for the third month running in January, bringing the unemployment rate to the highest level since in 1992 and increasing the pressure for government action to stimulate the economy. The compromise plan proposed by a group of centrist Republicans and Democrats would cut spending on items like health and education to bring the total to $780bn, below the $819bn package already agreed by the House of Representatives Read the rest of the article Labels: bailout, < |
